Here are 6 things to consider if you rent by the room- or want to do so – which can be financially beneficial but with some cautions.
By Scot Aubrey
Hula Hoop. Pet Rock. Rubik’s Cube. All fads that had their moment and, every once in a while, resurface with a new generation.
There is another old/new idea that is becoming a more popular option in an expensive and competitive real estate market: renting by the room.
A look back in history would show that renting by the room is not a new concept; in fact, it has probably existed for thousands of years in one form or another. But today’s environment brings challenges that likely never existed before. So let’s take a deeper dive into this scenario and see how it may affect you as an owner and investor.
If you are like other investors, you have enhanced your portfolio with residential real estate, including single-family homes, condos, and apartments.
However, as the market has changed, you may find your earnings are falling short of what you wanted or projected. One effective strategy to increase your return on investment is to rent by the room instead of leasing the entire property to a single tenant or family.
Renting out individual rooms can provide you as a landlord with multiple sources of income from several tenants, resulting in more consistent and profitable rental payments. While this approach can be financially beneficial, it does come with a few key things to consider:
- Cost savings for tenants: No landlord wants an empty property, and by providing more affordable options, this becomes less likely. Renting a room can significantly lower living expenses for tenants. For instance, a three-bedroom home that typically rents for $2,000 could be split into three rooms renting at $800 each, making it more affordable for individuals.
- Increased income for landlords: The potential for increased income is music to every landlord’s ears. By renting to multiple tenants, landlords can maximize their rental income. That same three-bedroom home could generate $2,400 monthly if each room is rented separately.
- Increased liability: Having multiple tenants with no connection to one another instantly adds liability and tension into the property. With the sharing of common spaces and bathrooms, there is an increase in opportunities for interactions that could cause discomfort. More than ever, doing proper background screening – like that available through Rent Perfect – is critical in protecting your interests and your tenants.
- Potential for high tenant turnover: While renting by the room can yield higher revenue, there is a greater chance that you will experience more frequent tenant changes. As you know, every time a tenant leaves, this creates extra work in finding, screening, ad placing new tenants into the property. And renting by the room may limit your potential tenants as it may not be the perfect fit for everyone.
- Increased communication: More tenants inevitably mean more calls about noise complaints, maintenance issues, and other issues that present themselves when you have unaffiliated individuals sharing a space. Are you ready as a landlord to take on the stress and extra workload that communicating with multiple tenants in the same property will bring?
- Hidden costs: As this is an area new to most landlords, there are a lot of unknowns. There will be additional expenses, such as increased utilities and maintenance costs, that you previously haven’t experienced. Shared costs, like heating and landscaping, might not be easily passed on to tenants and could have an impact on overall profitability. Shared costs also create one more tension point as tenants compare their “use” to the cost they are paying, opening additional hidden costs related to legal or management fees you weren’t expecting. In areas of the country that require separate metering for utilities, this creates another cost that many landlords did not anticipate.
It’s not all gloom and doom, though. Most landlords typically lease their properties to a single family or individual. However, renting by the room can be a viable option, even in your primary residence. For tenants, especially young professionals or students, sharing a house can be a more affordable option in high-rent parts of the country.
While renting by the room can be an effective strategy for increasing rental income, as we’ve discussed, it’s not without its challenges. Landlords must weigh the benefits against potential conflicts, hidden costs, and the hassles of managing multiple tenants. Whether renting by the room is just the latest fad or the new normal, thorough consideration is key to determining if this approach aligns with your long-term investment goals.
About the author:
Scot Aubrey is vice-president of Rent Perfect, a private investigator, and fellow landlord who manages short-term rentals. Subscribe to the weekly Rent Perfect Podcast to stay up to date on the latest industry news and for expert tips on how to manage your properties.