Rental Property Investor 路 Missoula, MT 路 Member since 2019 路 85 posts 路 35 votes
I am looking for a 4-5 bed house in the phoenix area with an ADU for my fiance and I to live in. This househack strategy has been suggested to me considering the scarcity of cash flowing residential multifamily properties. Not saying there isnt any but when they do appear, they go fast and cash buyers prevail.
Has anyone else had good experiences with a larger house (5/3, 5/2) that has been rented by the room in the Phoenix area or other hot real estate market areas?
Hi Bridger, Back ground; most counties/cities have zoning and regs on; max number of unrelated adults allowed in a rental. Some are at 3. ALSO they have regs on rooming houses only allowed in specific zoning, similar zoning as for hotels; only on main streets in business districts AND you have to apply for licensing and blabla as for a hotel..
That said; there is a small movement supporting rent by the room as a small step toward solving affordable housing. You might study up on this Atlanta business that is growing their business with private offerings (funding) padsplit.com
They have a shades of gray solutoin for the unrelated adults, and rooming house zoning that is sort of working in the Atlanta area. Padsplit as a company has greesed alot of palms to be an acceptable violatoin of zoning and business licensing requirments for a hotel. IE City of atlanta is lookign the other way. Suburbs have filed zoning violations againsgt investors I know who have put their expanded bedroom suburbant houses onto the padsplit.com platform. No cease and desists yet, but its touch and go. Legaly all rent by the room operations are in violation of hotel, zoning, and rooming house regs. Like the push to get tiny houses accepted and zoning changed, a "cleanly well run rooming house" business model has yet to get much muninicipal acceptance tracktion.
What to do; this only works where the house has lots of parking, distance from neighbors. 100% of the time its a neighor who turns you in. So if lots of parking, ideally walking distance to busses or transportation to cut down on cars, you might get away with it (legally).
Operationally; this is a can of worms to manage. Midnight drunken brawls happen, but are more infrequent then you might guess depending on your screening. But always complaints about guests (residents) leaving common space a mess, some resident gets mad they have to clean up...
Simple furnishings bought used, a single bed, and dresser. Common area TV/internet. Each bedroom has a electronic combo lock. To evict just put their stuff outside and change the combo lock. Its hotel law not landlord law.
Hi Bridger, Back ground; most counties/cities have zoning and regs on; max number of unrelated adults allowed in a rental. Some are at 3. ALSO they have regs on rooming houses only allowed in specific zoning, similar zoning as for hotels; only on main streets in business districts AND you have to apply for licensing and blabla as for a hotel..
That said; there is a small movement supporting rent by the room as a small step toward solving affordable housing. You might study up on this Atlanta business that is growing their business with private offerings (funding) padsplit.com
They have a shades of gray solutoin for the unrelated adults, and rooming house zoning that is sort of working in the Atlanta area. Padsplit as a company has greesed alot of palms to be an acceptable violatoin of zoning and business licensing requirments for a hotel. IE City of atlanta is lookign the other way. Suburbs have filed zoning violations againsgt investors I know who have put their expanded bedroom suburbant houses onto the padsplit.com platform. No cease and desists yet, but its touch and go. Legaly all rent by the room operations are in violation of hotel, zoning, and rooming house regs. Like the push to get tiny houses accepted and zoning changed, a "cleanly well run rooming house" business model has yet to get much muninicipal acceptance tracktion.
What to do; this only works where the house has lots of parking, distance from neighbors. 100% of the time its a neighor who turns you in. So if lots of parking, ideally walking distance to busses or transportation to cut down on cars, you might get away with it (legally).
Operationally; this is a can of worms to manage. Midnight drunken brawls happen, but are more infrequent then you might guess depending on your screening. But always complaints about guests (residents) leaving common space a mess, some resident gets mad they have to clean up...
Simple furnishings bought used, a single bed, and dresser. Common area TV/internet. Each bedroom has a electronic combo lock. To evict just put their stuff outside and change the combo lock. Its hotel law not landlord law.
Great idea, first off. We see a lot of our clients in Denver and Colorado Springs have success with either rent-by-the-room or some sort of basement apartment/ADU setup. And both are super hot markets right now.
It can certainly be done and is a great way to get your first place, have mortgage reduction (maybe even cash flow), and get some landlord experience. Good luck!
@Bridger L Logan I鈥檓 doing this in CO Springs with tremendous success. I鈥檓 in a 4/3 and over the course of the last two years have had no issues. My house cash flows while I鈥檓 living in it.
Screen your tenants thoroughly and make your expectations clear from day 1.
Also, make sure you buy a house that has plenty of parking and be mindful of their schedules. If everyone works a 9-5 you may have issues.
I just see lots of benefits including less maintenance. Only one house instead of 4 separate units is less things to worry about. Plus entry price is usually lower from what I've seen. It seems like a more cost effective way to have multiple tenants.
Check your local laws about this. In California it's illegal to evict a tenant like that. IIRC if a guest stays more than 30 days, they're a tenant under landlord-tenant law, not a hotel guest.
I deploy this strategy with every rental i have. I would strongly advise you get more than 2-3 bathrooms. Get a 5/4 or a 5/5 if you can. Biggest problem i have is tenants sharing a bathroom. If they all have their own you can charge more for rent and there are less problems.
Very good tip, and it makes sense. I like the idea of operating it like a small scale hotel as @Bobby Lee mentioned. Thank you for that tip Matt, making each unit have a bath would be much more attractive.
Very good tip, and it makes sense. I like the idea of operating it like a small scale hotel as @Bobby Lee mentioned. Thank you for that tip Matt, making each unit have a bath would be much more attractive.
No problem man. I have actually taken a dining room and converted it into a bedroom and built a full bath inside of the room because I wanted to avoid tenants sharing bathrooms. If you figure it takes a few thousand to build a new bathroom, but you can charge an extra $50 for that room. So thats a 5'ish year 100% ROI on the bathroom build + the forced appreciation. Its a slam dunk when you break it down into pieces like that.
Good luck. If you need any help with it feel free to PM me.
Great advice and solid ideas. Thank you for reaching out, this post may have been the tipping point for the path I'm going to take. And I will certainly reach out out in the future!
I know someone who does this in LA. Has a 5 bedroom in a C+ / B- area, and rents out rooms. He's had a pretty good experience with it as far as making money. Some tenants stay quite a while.
However, he is in the military, and is comfortable dealing with random drama and situations, and people from many different backgrounds. He does get a different tenant base than he would renting the 5 bedroom to one large family or extended family, but his cash flow is definitely higher than with one set of tenants. You can definitely do this in Phoenix, but be prepared to be hands on.
Thanks for the input Shiva! When I go through with this strategy in the future, I will be doing a thorough vetting process to try and avoid unnecessary headaches. With that being said, there will always be issues that will arise. I was also in the military and not a stranger to all kinds of uncomfortable situations, diverse backgrounds of people and how to deal with difficult people in general. If the guidelines are clear before they sign the dotted line, there is a mutual respect, and a good vetting process is performed I think I can minimize tragedy. I really appreciate you jumping into the discussion!
@Bridger L Logan it all depends on the quality of the tenants. I have a 3/2 rented with that model for 7 years , no major issues since I started doing background checks. Single guys no pets. The house is 80% of the time empty, they are either working or going around. Better cash flow and less maintenance than renting the whole house. Turn over is good too ,most of them stay at least a year.
I house hack a 7 bed / 5 bath in Las Vegas. Rent out to roommates so I employ the "rent by the room" essentially.
Pros: insane cash flow if your room offer is much better value than other places to live, tenants will stay awhile a small community can be built when your tenants become friends with eachother never ending supply of tenants (at least in my area)
Cons: CAN BE management intensive WILL BE management intensive until you gain experience and know how to manage
If you employ this strategy, the BIGGEST risk/liability mitigator is being VERY clear from the start about your expectations and that you will evict if new tenant doesn't follow your rules.
With my setup - I furnish the rooms and have all utilities covered. I don't charge security deposit or move in fee nor do I care about credit. Send me first month's rent and that's it. They pay me a flat monthly rate that is much less than if they were to live on their own. What a deal right?
Giving them a deal is great because you have leverage. They don't want to leave because leaving would mean they would be paying more elsewhere. And someone living with 6 others is in a financially difficult position so money really matters.
Here's what's crazy when you can get this strategy to work....
A lot of 4 bed single families could cash flow $500+/mo with this strategy. If you only grab one a year...it won't take you long to have your moderate living expenses covered fully. Takes A LOT longer if you're grabbing $100/mo cash flow deals.
I have heard that discussed on the podcast recently! Hope that works out for you. I will make sure to add that, thanks for the heads up. Besides that, have you had decent success/cashflow? Do you live there too?