Renting by the room - good deal?

[Eric Wood]

Hi everyone,

I have been shopping for my first rental for a few months now and came across an interesting opportunity in my local market. I would appreciate any insight from more experienced investors in our community :)

Property Details:

4 bed, 3 bath (3 kitchens!). 1650 square feet. Basically turnkey, maybe some minor lipstick required to bring it up to 2022 standards. Asking price $135,000. Property is located less than a mile from my local community college. 1 bed and bath current rented @ $650 / month through March of next year. After analyzing Zillow, Rentometer, and HUD FMR estimates it looks like gross rent range would be between $1450 and $1750 if the entire property was rented on one lease. However, I think with the third kitchen and proximity to the community college it could pull in more if rented by the room.

Financing Estimates:

Method: DSCR

20% ($27,000) down payment, loan amount of $108,000 @ 8.318% APR ($802 per month). Total cash down ~$30,000.

Taxes and Insurance: (According to Zillow) $1,150 / year & $780 / year

Assumptions: 5% vacancy, 15% maintenance, 5% capital reserves

Estimated Returns @ $1125 net per month ($1500 gross rent - 25% for assumptions) :

CoC: 6.5% (1,950 / 30,000)

NOI: $11,570 (($1,125 * 12) - $1,150 - $780)

Cap Rate: 8.5% ($11,570 / $135,000)

DSCR: 1.00 ($11,570 / $11,554)

I feel pretty good about these numbers, especially considering that I calculated them using the rental rate that Rentometer gave as the 25% percentile. If I rented by the room, I could hit $1500 gross rent per month by charging under $300 per room. As mentioned earlier, I appreciated any insight on this deal. For those of you who have rented by the room before, have you found it to be worth the trouble? Am I forgetting to factor in something obvious? TIA!