"Room for rent" is becoming a hot topic among landlords and rental property owners. While it might seem to be the best way to rent out a space, there are five reasons you might want to rethink your strategy.
To say that you can expect to experience a significant amount of drama is an enormous understatement. Renting out individual rooms in a home or apartment is the equivalent to running a hostel. You are throwing complete strangers together hoping that all will work to your benefit. Here's the reality: one tenant might be squeaky clean while the other is a complete mess. You will likely find yourself playing referee and experiencing a considerable amount of tenant turnover unless you can rent to people who know each other well and can handle individual quirks and idiosyncratic behavior. In addition, food theft can be a problem in multi-tenant dwellings. Not everyone likes to grocery shop!
A formal lease agreement can be tricky in this situation. Do you construct the same lease agreement for each tenant? Do you charge the tenant residing in the largest bedroom more than the other tenants? How do you define the common areas and divide tenant responsibilities? What do you do in the event that one tenant is pulling his or her weight with rent payments? Will that deficit cause a rental hike for the other tenants? There are so many factors to consider which complicate a situation that is ultimately designed to result in profit and not headaches.
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Be prepared to educate each individual tenant regarding your rental "arrangement". Many prospects will not understand the terms and, if they are smart, will have multiple questions. You need to be clear as a bell in your presentation to them should you decide to go the "room for rent" route. You will be able to detect early in the conversation whether this is a good fit for your prospect as tenants are usually cut out for communal living or not. The arrangement simply does not work for the "in-betweeners."
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Be sure you understand the laws as they pertain to county and city ordinances. Some communities will allow 4 unrelated tenants per unit while others allow four tenants per floor in a duplex. All zip codes are different, so do your research first rather than seek expensive forgiveness later!
"Room for rent" landlords typically experience a high volume of turnover. Whether co-renter drama, food stealing or living with a tenant who fails to pay the rent, there are usually legitimate issues as to why these situations do not work out long term.
While there is nothing wrong with establishing a business plan which allows for "room for rent" landlording, be sure you understand what you might be getting yourself into. It can work, but it's not for everyone!