Denver Renting by the Room

6 Replies

Hi Denver Landlords,

With Denver's cost of living rapidly increasing and a lot of younger, more transient people moving into the city, I wanted to inquire regarding the thought of renting out a home by the room (separate lease per room).  I was thinking about buying a mid-grade home in a trendier neighborhood, and rent it out by the room at a higher rate than what I could get on a 'single-lease', in order to make the cash flow worth my while. I was thinking that it would make sense to furnish the common areas (kitchen, living room, dining area), and perhaps even hiring out a quarterly maid-service for the common rooms.

Initial Questions:

-Has anyone in Denver performed this strategy? Any legal issues to be aware of?

-If so, how much extra work would you estimate this type of property takes of your time compared to a standard 'single-lease' property? 

-Is there anything that you recommend in terms of screening for tenants differently than usual? 

-Do you have different lease addedums for these tenants as opposed to your single-lease tenants?

-Would you recommend utilities be included in the cost of the lease, or each tenant is charged a pro-rata amount of utility actuals?

-How do you account for maintenance issues within common areas, and how do security deposits come into play for common areas? How does this work for partially shared areas (i.e. 2 rooms are allocated to 1 bathroom).

-Does anyone have any examples of leases using this strategy? Do you allow for different lease lengths (i.e. 6 mos is standard)?

I have not put a ton of thought into this, as it just popped in my head this morning, so I wanted to seek initial opinions/advice before delving into this topic much further.  Based on some past experiences, it may be enough to sway me quickly to not look into this any further.

Thanks in advance!

Jenny

I've put several clients into homes to rent by the room, but they were all owner occupants. I probably wouldn't do it as a first investment and non owner occ. This topic has been covered at length on this forum. The search tool at the top is your friend;)

1 - Yes, people are doing this in the Denver ar ea. 

2 - Figure you're working with multiple leases compared to one. If you have a 3 bedroom house that's 3 leases which means if you do year leases you'll be looking for tenants 3 times at minimum. You also will have to deal with the occasional tenant bickering since they didn't pick each other.

3 - No different than usual. You may have to lower your standard just a bit, but not definitely.

4 - This is all specific to what you want. @Drew Fein has written up a fantastic Room-By-Room Lease.

5 - Utilities should always be included in the rent. This includes internet and some sort of cable/streaming service. You don't want to have to go back each month to try to split a bill. 

6 - The common area responsibility varies in each lease. It can be hard to place specific responsibility on a tenant if everyone can access the area.

7 - Lease length is up to you. Some will allow 6 months, but others want a full year. If you go full year your tenants can settle in with each other a bit better.

One big thing to think about with this method is where you are doing it. Denver proper doesn't have very friendly zoning to allow for this. You have to look at the laws about unrelated tenants in a property. If you can find a city/town that allows 4 then look around there. This method can be very lucrative if you play it right. Just takes a little extra work.

Thanks so much for the input @Dan Mackin!  This is all ready good advice and worth considering if we decide to move forward.  Have you ever performed this strategy personally? If so, were you living there as well, or was it purely tenant-occupied?

I don't perform this strategy personally. I have friends who do utilize it and have clients that I have helped get started with the method. So far it has all been purely tenants. I will be working with my brother early next year for him to do it as an owner occupant.

@Dan Mackin , thanks for the shout out! 

@Jennifer B. will you be at the meetup tonight? I'd be happy to discuss it with you then (or feel free to give me a call). 

There are numerous legal issues to be aware of renting room by room, which is why you want to have a solid lease before entering into this sort of arrangement (particularly if you're not living in the home). For example, what if one of your tenants assaults another tenant? Are you on the hook because you allowed said tenant to rent a room? A standard lease won't account for those sorts of contingencies. Our bedroom lease also has a separate Roommate Agreement, which is something you need renting room by room.  

As far as the lease term, it depends on the landlord, but I've seen month-to-month up to six months (of course, a year would work fine too). The landlords leasing to students are the ones that usually go with month-to-month, while the owner-occupieds tend to go with the longer lease term because they don't want a revolving door of roommates. But that's entirely your choice. 

Thanks so much @Drew Fein !  I will see you at the meet up tonight, and would definitely like to chat with about this.

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