Making a Difference, While Making a Profit

No, this isn’t some get rich quick scheme, but a great way to increase the net cash flow on rental property and at the same time help deserving individuals who desperately want to get on with their lives.

Have you heard the term; Social Entrepreneur?

Someone who recognizes a social problem and uses entrepreneurial principles to organize, create, and manage a venture to make social change and a profit.

We found just such a niche in real estate - purchasing SFRs in working class neighborhoods, furnishing those homes, and renting individual rooms to paroled non-violent offenders recently released from the Colorado Department of Corrections (DOC).  If its working here it can work wherever there is the need, and there is need all over the United States!

The Problem and the Need

Most owners of single-family homes and multi-family units automatically shun anyone with a criminal background, because it is not a tried market.  General assumptions are made that are based on the misnomer that everyone who has gone to prison is a thug or a gansta and therefore guilty for a lifetime.  “They are all bad guys.”  Nothing could be farther from the truth.  There is a segment of this population that is ready and willing to embrace another chance, and who want to go straight and do the right thing.

There are few options for former offenders. Crashing at a family member or friend’s house is commonly a temporary solution, and that’s only if the Parole Board approves it prior to release.  Many former offenders will not be released to a family member or friend because those people may have contributed to the person's past criminal behavior.  So they are stuck looking for housing where options are extremely limited.

An Answer

We have found that renting to this population of non-violent former offenders is not only financially rewarding but also personally rewarding for them and us.  How?  We charge $400 a month for a private room and $350 a month for a bed in a shared room.  That’s right, a semi-private room.  That two-bed room generates $700 monthly. Our rule of thumb is that the gross monthly rent must be a minimum of $1000 more than the sum of your PITI plus utilities.    Here are some examples:

Example #1:  4 bedroom/2bath single-family residence, which would accommodate seven men, with one private room that rents for $400 and 3 shared rooms that rent for $700 each monthly ($350 per bed).  We also suggest charging an additional $20 per person a month to offset your utility costs. ($20x7)  If you do add in a utility charge, your gross monthly rental income is $2,640.  Deduct your PITI and remaining utility costs of $1,264 (varies) and you are left with a net monthly cash flow of $1,376. You are potentially increasing your net cash flow 3 to 5 times the normal neighborhood rental rate.

Example #2: 4 bedroom/2 bath per side duplex.  This configuration would allow for 4 private rooms and 4 shared rooms total.  Gross rent plus utility charge would be $4,640, less PITI and remaining utilities coming to $2,000 (approx), and that gives you $2,640 net monthly cash flow.

Do these guys have any money?

Any person earning minimum wage, working 32 hours a week can afford these rates, and be able to save money so they can eventually move on.  

When we screen the prospective tenant, we ask about their earning potential and their employment possibilities, inquiring as to their skill sets and job prospects. Many former offenders have family assistance.  In some states, the Department of Corrections or other housing coalitions will assist with a month's rent for qualified applicants while they get on their newly-released job hunting feet.

To save on management time rents are paid into a one-way account set up at a convenient local bank, so there is no need to stop by – just check you account electronically. There is only a three-day grace period with a $10 late fee charged for each day the tenant is late.  There are no eviction issues because there are no leases or tenant rights.

In Summary

Our waiting list for this housing is always full, and we can be very choosey whom we decide to accept.  For the social entrepreneur, providing transitional housing to former offenders is an endeavor that offers both economic reward and personal satisfaction. Our sincerest hope is that real estate investors all around the country will explore this unique holding strategy that is equally beneficial to us all.