How to structure lease in a House Hack situation

Question

Alright, so I'm currently actively looking for my first deal, a house hack, and I have a few properties I'm visiting this week. All of them are multi-families, either 3 or 4 units. As I hope to have one under contract very soon, I'm starting to consider how to work out lease agreements, particularly in the case of the unit I will be occupying myself. I'll use one of the properties I'm going to look at on Thursday as an example.

The property is a triplex, 3/1.5, 1/1, 1/1. The numbers work very well, provided I live in the 3/1.5 and find two roommates to live with me, while renting out the 1/1's. Lease agreements for the 1/1's will be no problem, but I'm a bit confused on how to approach structuring a lease for roommates that I'd find to live with me in the 3/1.5.

Has anyone else out there come across a similar scenario, and if so, how did you handle it? I'm also very open to general suggestion on how to approach this situation. I figure it's in my best interest to start thinking about this now, and not when I'm on my way to the closing table!

Thanks a million everyone, this community has taught me everything I know thus far about real estate, and I'm about to start turning my dreams into a reality!

Ariel Smith · Answer

@Jack Bailin Ask your realtor to provide you with your state association's standard lease agreement. This will help you with a template for each of your leases and you can customize as you see fit. Best of luck!

Jack Bailin · Answer

Thanks @Daray Olaleye!

@Will Davis, Thanks a lot. That was what I was thinking of doing; having individual leases for the other two roommates which has each person individually responsible for 1/3 of the utilities, security deposit, etc. Mostly just wanted to hear that this has been done before.

I'm going to take a look at the property tomorrow with my realtor, if everything checks out upon walk through I'll be making an offer! Fingers crossed, because this property is a short sale and its listed for ~40k under what it appraised for. Some instant equity would be pretty neato on the first deal!

Will Davis · Answer

In college I lived in a 4/4 with three other roommates. Instead of having one roommate carry the lease and hold all financial responsibilities ( and then playing debt collector with the other roommates), the property management simply had all four of us sign our individual leases, and we were all exclusively responsible for our own share.

Unfortunately I don't have much experience to offer other than that, but if I were you, I would simply draft up a lease nearly exactly like you would with the 1/1's, but for each roommate assuming 33% of utilities, common area damages, etc... Is there anything in particular that you're worried about, if you were to do this?

Congrats on taking action, I'm also getting into my first house hack ( a duplex), currently waiting to hear back on an offer. Exciting stuff!

Daray Olaleye · Answer

@Jack Bailin

If it's a triplex (as opposed to a single family with 3 rooms) then you would structure it the same as any other stand alone lease. Some things that you should consider when it comes to the lease are: Inherited tenants, Pet Addendums, RUBS - who pays for water, electricity, etc. There are lots of other things to consider like late payment fees, when payment is officially late, security deposits, etc but the aforementioned are things that you should consider in your underwriting before making an offer.

Nicole A. · Answer

I used to rent out rooms in my own home. I recommend for roommates, that you make the leases month-to-month. That way, if you don't mesh well, you are not committed to 6 months, a year, or however long. You can just give them a 30 day notice to vacate.

You might want your lease to specifically state that it is for an unfurnished room and what they have access to: parking? kitchen? laundry? Have the lease also describe how utilities are handled (just as a normal lease).

Also, as stated already, each roommate has their own lease. They are individual of each other.

I, too, ask if you're sure you wouldn't be happier living in the 1 bedroom apt alone and renting out the other units. I will say that it does get old sharing a home with people....multiple people...and you're in an apartment, which is even more difficult to have privacy unless hiding out in your room all the time.

John W. · Answer

You might want to consider living in the 1/1 even if it costs you a couple hundred a month. I would do that math and double check it to see how much of a difference it will make because you might be much happier living in a unit by yourself. And pick a unit where there aren't people walking over your head, lol.

How to structure lease in a House Hack situation

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