Rent Hacking Plan, Help Me Evaluate

10 Replies

I'm looking to rent hack while I'm saving up for a down-payment on my first RE purchase. I'd like to use the money saved/earned rent hacking to invest in a triplex or fourplex. 

Here's my plan: Rent a nice 2 - 3 bedroom house in New Orleans, in a desirable neighborhood, and rent out the extra room(s) to carefully screened professional type roommates.

Hypothetical Numbers for 2 bedroom house:

Cash Outlay:
$1,500 deposit
$4,500 (3 months rent set aside as cushion in case of vacancies)
$1,500 for furniture purchase

-Find roommates through Facebook marketplace and/or personal network. I'm a single professional in my 30s
Income
Charge roommate $900/month + utility share + a security deposit. From their standpoint they get a turnkey place, and more square footage for their money compared to renting a 1 bedroom.

This would keep my monthly rent payment down to $600. My housing budget if I lived solo would be $1,200/month. So if the extra room rents 8 out of 12 months the rest of the year is a wash. But I could still rent the room to shorter term tenants if need be to keep the income stream going.

Seems simple enough, but there could be something I'm overlooking. Thoughts?

@Nicholas Graphia Sounds like you will be the only leaseholder and will attempt to sublet a bedroom. I assume that you will qualify for the entire apartment ($1200/month) by yourself. If you can't, this wont work as you will both need to be on the lease and thus sorta equal tenants.

I also suspect that your not going to find someone willing to spend extra money to be your roommate.  They can just as easily find another random roommate and split everything 50-50.  Rents in NOLA are fairly steady and easy to research.  I cant imagine that your prospect roommate's wont know what your paying and then ask why you want them to pay more.

You may also run into issues with the landlord by allowing adult occupants to live in the property that are not on the lease. I know that my lease specifically states that is not allowed. If a new tenant started to do what you are asking, it would be a violation of my lease and I would likely require that person to be added to the lease, or a new lease to be drafted up.

@mikewood Thanks for the reply. I'm still kicking this idea around. Yes, I would be upfront and straightforward with the owner about me wanting to find a roommate while making sure to be in agreement. And, yes, my income alone would be enough to cover the rent. I see what you're saying about potential roommates not wanting to pay more than 50% of the out of pocket costs. At the same time, when browsing  listings I've noticed roommate ads for above solo-renter rates ie, that particular neighborhood rents for $1.70 per square foot and the price advertised for the room in a house in the same neighborhood would be $2.25 per square foot for the roommate's share. I've seen those ads go from pending to "sold" so I'm inferring there's a demand for it. And there is pretty good short term renters movement here; e.g., travel nurses, medical residents doing interns, grad students... Might be too much of an unknown for me to move on this idea, but I'm going to keep working on this. 


I'm a landlady in NOLA.  Like @Mike Wood mentioned, I have a clause in my leases that limits the amount of time someone who isn't on the lease can stay there.  But, with that said, I'd be open to a tenant who can meet my qualifications on their own.  However, I would usually want to vet and approve their potential roommates.  Definitely if it was a multi-family dwelling.

In fact, the person who rents the other side of my personal duplex lives in it sometimes.  But also rents it out on Airbnb.  That was always the arrangement, even before we signed the lease.

I had a different situation where I rented the 2 bd/1ba side of a duplex to a couple. They were moving in first, but their friend was moving in 1-2 months later. They all signed and were on the lease, but the couple qualified on their own. Except, their friend moved in for one month and then moved out again because her sister was giving her a free place to live (something like that). I offered to the couple that, if they wanted to move someone else in, that was fine as long as I could vet the person. They laughed and said, "Nope! That was a frustrating experience and we're done with roommates." Fair enough, but I did offer, lol!

I managed 25 units as the on-site manager for 8 years in Santa Clara, next to Santa Clara University.  We did our best not to rent to students because the owner had had bad experiences with students.  But, during the crash of 2008 and we ended up nearly overnight with 25% vacancy rate because everyone was losing their jobs and moving away -- I said, we need to revisit students and why don't we try focusing on grad students?

What I ended up doing was discovering that law students are the best tenants in the world.  All you have to do is give them a quiet place to study and sleep (as if they have time) and remind them to give you the rent check they already had filled out.

What I ended up doing, since I didn't allow co-signers, basically as a way to avoid undergrads (yes, I admit it), with law students, all I required from them was that they show me proof they are a SCU law student.  I knew they'd pay the rent, because it's an expensive school and their parents were probably footing the bill anyway.

If you can get them their first year of law school, you will usually have them for at least 3 years and sometimes longer, if they are going to take the bar exam locally.  And then, sometimes they stay beyond that.

I did learn that full-time day students are the only way to go.  Night part-time law students are not the same.

So, what I'd do if I was you, is rent as close to the Tulane University law school as you possibly can.  If they can walk, that's ideal, or an easy bus or bike ride, assuming parking is a pain at the university.

Loyola law school has a part-time program, so I'd focus on Tulane U.

Furnish the rooms, make sure you rent a quiet apartment, get permission to do this of course, then advertise ONLY at the law school, so you don't have to deal with non law student applicants.  I went and spoke to the law student housing director and they actually offered to advertise my vacancies on their facebook page, because they didn't have enough housing for all students and it was beneficial for them to be able to help find housing for the students.

I found the off-campus housing page for Tulane on their website, but I think you'd be better off to call the law school directly and ask them how to advertise furnished rooms for rent to law students.

I'd offer them month-to-month contracts.  You don't want someone unhappy making up problems to get out of a lease, like claiming there's mold or whatever.  Plus, you want to be able to get rid of someone if it's not working out.

Also, they are probably going to want to go to an internship in a different city or country over the summer.  What I did was let my tenants sub-let their studio apartments for the summer, so I didn't lose them.  In your case, if you really like your tenants, you could tell them they can come back after their summer internship, if they find you a decent replacement for the summer.  My tenants had no problem finding someone that was okay with me.  There will be students who want to come to Tulane for the summer for their internships.

Have quiet house rules.  And, I'd hire someone to clean, so there aren't arguments about that.  

And, international students are great, too.  You never have to worry about them having the rent, in my experience.  

Oh, and I also told my law student tenants that I'd give them a $100 rent credit if I had a vacancy and they found me another law student for my vacancy.

If I had the money, I'd buy a multi-family building like the one I managed that was mostly studios - I'd go for only studios - next to a law school.  They are hands-down the easiest, most problem-free tenants I ever dealt with.

Best of luck to you!

To add on to @Sue K. 's post.  I had a tenant who was in Tulane's medial school.  I know when he initially rented from me, he emphasized he wanted to stay for all four years.  We still had a one-year lease, but I think he just verbally wanted to make sure I wasn't selling the house anytime soon.  He moved in with his girlfriend and they were great tenants.  Unfortunately, they broke up and gave me a 30-day notice they wouldn't be renewing the lease because of that.  He couldn't afford the place on his own and didn't want to get a roommate.  To give them credit, I don't know when they broke up.  But they still upheld their one-year lease and stayed for the duration!  Whatever they did, they worked it out amongst themselves.

@Nicholas Graphia so you are calling this "rent hacking". When I was younger we called it roommates, haha. Most landlords don't want you to sublet. They are going to want all occupants jointly on the lease as roommates. That is what I would do. Otherwise your going to find yourself in hot water with the landlord or your roommates after they discover how much you are making off of renting to them.

Originally posted by @Jennifer T. :

To add on to @Sue K.'s post.  I had a tenant who was in Tulane's medial school.  I know when he initially rented from me, he emphasized he wanted to stay for all four years.  We still had a one-year lease, but I think he just verbally wanted to make sure I wasn't selling the house anytime soon.  He moved in with his girlfriend and they were great tenants.  Unfortunately, they broke up and gave me a 30-day notice they wouldn't be renewing the lease because of that.  He couldn't afford the place on his own and didn't want to get a roommate.  To give them credit, I don't know when they broke up.  But they still upheld their one-year lease and stayed for the duration!  Whatever they did, they worked it out amongst themselves.

This is brilliant.  I heard med students were great, too.  This made me remember to mention that tenants who discovered I only did month to month (I didn't advertise this, to avoid short-termers), sometimes they would be concerned I was going to raise the rent.  So, I added into our month to month contract that as long as there were no problems, the rent would not be increased for one full year.  This made them happy.  In fact, you may just want to add that into your contract, so they don't worry about that and it gives them an incentive to stay.  

As far as selling the idea to a landlord, if you got a smart landlord, and you explained that your plan was to stay for many years, renting rooms to law students only, I don't see it as impossible to find a landlord to get on board with the idea.  They might want to raise the rent, though, once they figure out how much money you're making :-) 

Oh, and as to tenants being mad you're profiting off the situation, just be up front about it from the beginning.  From my experience, a law student isn't going to care, if you offer them a nice, furnished quiet - emphasizing quiet - place to study and sleep.  And, in fact, if you tell them you only rent to law students, they will have study partners right at home.  Like a little law incubator.

Thanks for all the good replies.  I'm returning to New Orleans soon after a year abroad, and have so many options. Not sure I'm motivated enough to move forward with the original plan but we'll see. @Jennifer T. what your tenant did with the Air-BnB options sounds like a good idea. I'm leaning towards trying to go this route since I love to travel. From your perspective as the owner, what made you feel comfortable about that arrangement? 

@Sue K. I also like your idea about marketing only to law and maybe other grad students. sounds relatively stress free. Actually as a renter my last semester of law school and the summer studying for the bar exam I lived in a similar housing set up. From my perspective, not having to buy furniture or deal with utilities and having a quiet place to study, it was a no-brainer. The owner even offered me a commission for finding a replacement when I moved out too! With me being out of the country now and the law school semester starting in January the timing may be a little difficult for the Spring semester but I will definitely keep this in mind for the Fall. 

And re the clauses in some of your leases about not allowing sublets, that reminds me of my first ever trial which happened to be a landlord/tenant dipsute. The two tenants, a married couple, let their adult son move into a guest bedroom even though the lease said that only the couple could live there. The rent included utilities. The tenants' side of the story was that this was a 2 bedroom house, the son was family, the utilities were about the same, and he didn't live there the whole duration of the lease. The judge wasn't impressed and simply applied the plain language of the lease, ruling in favor of the owner for increased utility costs and greater than expected wear and tear.

@Nicholas Graphia , I felt comfortable with the Airbnb arrangement because I'd done it myself when I was between tenants and a big festival was in town.  Like Jazz Fest and Mardi Gras.  I even thought about going the Airbnb route myself, instead.  Yes, I could make more money that way.  But not by much and the extra work involved wasn't worth it to me.  Plus the income would have been more up and down.  My tenant is also extremely well-qualified, so that was also a draw.

However, there have been sweeping changes to the STR market in NOLA over the last year and you'd have a hard time finding a similar situation. It's become pretty Draconian to get an STR license. 80% of STRs of them were outlawed, though they are allowed to live out whatever time is left on their current license, ie max. two years. In a nutshell, to get a license now, you either need to be an owner-occupant of a building that is 4 units or less. Though my tenant is able to keep his license because, although he isn't the owner, I am and I live in the other unit. I still think that's weird because it's not my STR license, it's his. But, whatever. I'm glad they aren't making waves for him because it's a win-win for all.

Or own a multi-use building...but there are a whole bunch of rules with it that I find confusing. I think everyone does, lol. It's something like half the units need to be commercial and on the first floor, ie stores. And 75% of the units need to be commercial or residential, with only 25% that can be an STR. The example usually given is the first floor is store(s). The second floor has two apartments and one of them can have an STR license. But don't quote me on that. It's possible I'm misunderstanding or the wind blew and they changed it again.

Originally posted by @Nicholas Graphia :

Thanks for all the good replies.  I'm returning to New Orleans soon after a year abroad, and have so many options. Not sure I'm motivated enough to move forward with the original plan but we'll see. @Jennifer T. what your tenant did with the Air-BnB options sounds like a good idea. I'm leaning towards trying to go this route since I love to travel. From your perspective as the owner, what made you feel comfortable about that arrangement? 

@Sue K. I also like your idea about marketing only to law and maybe other grad students. sounds relatively stress free. Actually as a renter my last semester of law school and the summer studying for the bar exam I lived in a similar housing set up. From my perspective, not having to buy furniture or deal with utilities and having a quiet place to study, it was a no-brainer. The owner even offered me a commission for finding a replacement when I moved out too! With me being out of the country now and the law school semester starting in January the timing may be a little difficult for the Spring semester but I will definitely keep this in mind for the Fall. 

And re the clauses in some of your leases about not allowing sublets, that reminds me of my first ever trial which happened to be a landlord/tenant dipsute. The two tenants, a married couple, let their adult son move into a guest bedroom even though the lease said that only the couple could live there. The rent included utilities. The tenants' side of the story was that this was a 2 bedroom house, the son was family, the utilities were about the same, and he didn't live there the whole duration of the lease. The judge wasn't impressed and simply applied the plain language of the lease, ruling in favor of the owner for increased utility costs and greater than expected wear and tear.

How interesting that you were a law student yourself!  If you were ready to start renting in the summer, you could probably fill up the rooms with students doing summer internships and you could probably secure your fall students ahead of time.

Interesting landlord-tenant case, too.  Yes, what I love about the law (I only have a bachelors in law, not a JD) is that it's pretty much always broken down into what's "reasonable."  So, I agree with the judge's decision.  It wasn't reasonable to think that a lease that specified who and how many people were on the lease, with utilities included, would allow the tenants to move anyone else in without permission who would be increasing the landlord's utility costs and expect to not have to pay more money to cover them.   Thanks for sharing this case info.  I'm a total law nerd.

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