I am considering buying a townhome with either the goal being to rent it out to a family or renting it room by room. How do you go about figuring out which would be more profitable/in-demand? With renting out the whole home, I would likely be looking out in the suburbs (Springfield, Manasssas, Chantilly, etc). But with a strategy to renting out rooms, I'd want to look for homes closer to DC or the metro lines. What's your take on this?
Great question and I'd like to hear other investors' input on this as well.
My thoughts on renting by room closer to Arlington would be that you could most likely pull a slightly higher rent since any difference would be split between the tenants and not as impactful to them individually. It may be easier to find tenants as well if you're not planning on using a third party.
As for renting to a family in the suburbs, there is obviously a general movement away from the city that could drive demand for those areas long-term. Another perk of renting to families vice single professionals in their 20s (generic Arlington demographic) is that they will generally treat your property better, and are likely to give you much lower turnover rates. Also, you are more likely to get tenants that are open to rent-to-own options if you're looking a little further out from the city. I would definitely look into this strategy if you haven't already! It's one that works well for our area, especially on the properties in A/B suburban neighborhoods.
Renting by the room is the most profitable method in the DC area without question. Takes more work for sure.
Check out the BP video we just did with my friend and client Ron. This property was in College Park, but the strategy works basically in high demand locations anywhere in the metro area. Metro accessibility is always something to look for.
I'm currently househacking a SFH in NE DC and was in a similar spot to you when I was getting my first property since I looked in the NOVA area. Here's my take:
Renting by the room will almost always be more profitable. I'm currently renting rooms in a 4BR house for $850-$950/month while renting a whole house in the neighborhood would rent from $2500-$3000 or so. In my opinion, the demand will always be there since it's appealing for many young professionals to pay $950 to rent a large room in a group house instead of pay $1500+ for studio or 1BR in an apartment building. That being said, if you go this route, it requires a bit more work since you'll essentially have to market each room. I'd recommend:
- Do as much screening as possible before you rent rooms - not only a credit check, but also ask about certain lifestyle choices (partying, smoking, pets, having significant others over, etc.) You'll want to make sure that the roommates are compatible.
- Put systems in place to make roommate living easier. You'll want to assume that all rooms will be rented to individuals who might not know each other. Do things like get a monthly house cleaner and consider getting communal supplies (toilet paper, soap, etc.) delivered to the house monthly. Essentially, try and remove any friction that could occur between roommates.
The property criteria for renting to young professionals might be a litter different than renting to a family. Finding a home in a desirable location (close to public transport, walkable or a short drive to grocery/shopping, etc.) is key. You'll also want things like off street parking or something to make your house marketable. Turnover is definitely higher, I've had roommates stay as short as 6 months or as long as two years. If you're renting to a family, the school district the house is in is the major key as opposed to other factors. However, there's definitely lower turnover and you may have less hands on management.
If you are looking for those specific areas I can give you specific answers. Truth is that average rents are fairly similar in Springfield and Manassas around the $700 give or take. I own a house in Springfield and rent by the room. I see similar rents in Manassas from investor friends/clients. The difference is that properties in Manassas are 100k cheaper in average to what you are going to find with similar features in Springfield. If you are not going to househack I would buy in certain areas of Manassas rather than Springfield.
@Joseph Ayoub do you stock the kitchen for them with pots, pans, dinnerware stuff too. Or do they usually supply that? Could see thinking of it like a STR where you semi furnish that stuff at least initially. But wanted to hear your experience?
@James G. Yup, exactly that. I have the house partially furnished with the living and dining rooms having full sets and the kitchen having some pots, pans, and silverware (with room for the new roommates to bring their own).
In my experience, it has been a good selling point since many young professionals are relatively transient and bring personal belongings/kitchenware with them, but will often not have full living room or dining room furniture. This allows for flexible leases and for renters who are new to the area to immediately feel at home without needing to bring too much. Some cons though are that this may not be attractive to more established renters that own many items they want to bring. Happy to discuss more if you want to PM me.
Rent by rooms work really well in transient markets. DC, Arlington, few areas of Alexandria are all great. So are pockets in Herndon, Reston, Sterling, Manassas areas. I stayed in Ballston when I moved in NoVA years ago and then moved to Fairfax. Rent by Room worked well in early 2000s and it still works well almost 20 years later.
If you plan to rent to a family, definitely look at suburbs outside beltway (best bang for buck IMO). Goodluck with your search!
Renting by the room is the most profitable method in Manassas Area without question. Initially it takes more work for sure, but with proper systems it worth the effort.