Renting by the room is one way to increase returns on investment properties. With this strategy, multiple tenants live in one residential unit rather than one family or person. Both tenants and landlords benefit with this kind of housing arrangement. Tenants are able to reduce their rent expenses by sharing their cost with others, while landlords can receive more revenue. In addition, renting by the room helps to make rental income more reliable for landlords because it minimizes the effects associated with having vacancies.
Although that can be a lucrative strategy for landlords, renting individual rooms does come with a few caveats. Here are three things to consider when renting your rental property by the room.
Hassle of High Tenant Turnover
Sharing a house with multiple people as opposed to renting an entire apartment all alone is a cost-effective way to live. This is especially true for single and young people. In fact, many millennials have opted for this kind of arrangement because it allows them to have extra cash they can use for other things such as paying down college debt, buying a new car or even saving for a down payment on a home of their own. In the United States, for example, most individual rooms can be rented out for a couple hundred dollars a month, while a decent apartment unit can cost at least $800 a month. As a result, sharing a house with a few people is almost a no-brainer for persons with no children and very little responsibility because the cost savings are huge.
Landlords, however, will very likely have to put up with a high tenant turnover rate. Yes, there is certainly a lot of demand for this kind of housing, but for the most part, renting by the room is a temporary arrangement. After a few months, tenants will eventually want a place of their own with more privacy and space. Some people might find sharing a kitchen or bathroom with others for a long duration annoying. It might also be hard to date when renting an individual room. Tenants may find it uncomfortable to have their partners sleep over in or simply visit a home where three or five strangers live.
As a result, landlords might have to replace multiple tenants every three to six months. Though it may not be hard to find replacements, the hassle of frequently listing a place to rent as well as screening possible tenants can become irritating. (See also, 3 Ways Millennials Can Invest in Rental Properties.)
Additional Phone Calls
Another thing to consider when deciding if you should rent your rental property by the room is the additional work needed to manage several tenants, not to mention the potential for conflict and drama. Many landlords already find it annoying when they receive late-night phone calls from a single tenant. With more tenants under the same roof, it is almost inevitable that a landlord will receive a multitude of calls about broken items, complaints and disputes among roommates. The extra money earned by renting by the room instead of the entire apartment may not be worth the additionals headaches and stress.
It is also important to keep in mind that renting to more persons will ultimately mean dealing with more damages and possibly more evictions. That might be a turn off for real-estate investors who want to earn income from their properties passively.
It is very easy to omit important expenses when calculating potential returns for a rental property that is rented by the room. That is because many expenses that are usually passed on to a tenant end up being assumed by the landlord, including lawn care, heating expenses and anything else that may be hard to measure the usage by each tenant. Without carefully considering these hidden expenses, landlords run the risk of overestimating their return on investment.
In fact, in many states, it is illegal to charge a tenant for water, gas and electricity, unless his usage was accurately and individually metered. That is hard to do with a rental unit that has multiple tenants living in it, and as a result, the landlord will have to cover these costs. (See also, Top 10 Features Of A Profitable Rental Property.)
The Bottom Line
Renting by the room is one way for real-estate investors to increase their rental revenue. There are a number of things, however, to consider before implementing this strategy. For example, having anywhere from two to five complete strangers living in one house will create a potential for conflict. Additionally, there are some expenses such as electricity and water that can't be passed to tenants when individual rooms are rented. Some landlords might also not find the hassle of a high tenant turnover to be worth it.