How to rent a big SFH by bedroom ( 3-4 tenants in one house)

Question

Hi everyone,I have SFHs, each rented out the conventional way.Now I own a big house- ~4000 sqft, 4 bedrooms, 2.5 bathrooms, big back yard, 3 space car garage.I want to rent it out by bedrooms: The Master bedroom with a walk-in closet and a private bathroom, and another 2 bedrooms. They will have to share a bathroom. For now, I think 3 tenants is enough. I'll pay for utilities, internet and lawn care.My friend/agent will manage it.Please help me out with these:1 - What should I be careful of when doing something like this? 2 - How much should I budget per month for utilities for 3-4 people in a 4000 sqft house?(btw, it's a gas furnace and winter in Indy is cold!)3 - Where should I post, in order to find tenants? Is there maybe a designated site for roommates..4 - What must I add to the lease agreement, in case of multiple tenants?5 - How can I make sure, that the tenants will not abuse the fact that their electric, water & gas are being paid for?Can I add something to the lease agreement saying that if the bill is over some amount then... (what can I do?)6 - Please point out anything, you think will be helpful. Thank you so much!!

Eunice Villarroel · Answer

Hi there. I have done the same thing and a lot of the advice here is very good. I’d like to caution against charging utilities though. Specially if you want A more passive investment. Otherwise it’s only a matter of time before all your tenants start complaining about who used up more utilities than the other which can cause tension in the house and little arguments and drama that you do not want to deal with specially as a new landlord if that is where you’re at right now. Instead what I do with the properties that I manage is that I include the cost of utilities so I charge each one of them about $200 additional to what the original rents are going for. When utilities are included tenants are OK with paying additional costs and it’s a win-win for me because I do not get the drama on my utilities are covered

Ron Brady · Answer

@Colleen F.We've done a few of these. Answers:1. Be careful to a) try to get roommate compatibility. We allow the initially approved housemates to vet new applicants and we have a roommate survey to help promote compatibility b) not run in to local regulatory issues. PM me if you wish to know more about this.2. Utilities budget. We started with paying utilities, thinking it would be easier, and then switched over to tenant pay. We'd urge you to start of with roommates pay. We have a meeting with all new housemates, that we facilitate, where we go over common expectations, including who will take on utilities and how other roommates will pay that person. PM me if you'd like our meeting agenda/template.3. Advertising. FB market & Roomies.com4. Lease structure. PM me for how we do this if you are interested5. Overages. Per 2 above, while tenant pay for gas, electric and internet, we pay water and sewage. This is in our lease If Water & Sewer is designated as the landlord’s responsibility, the portion of any quarterly bill more than $200 shall be borne by the tenant. $160 is a normal bill, and thus $200 is enough over for us to get the tenant to pay.6. Anything else. This strategy takes a patience for working with people because conflict is inevitable. But it can also be gratifying to provide a needed service to people at and affordable price point and in a way where you and the residents both benefit.Best wishes.

Richard F. · Answer

Aloha,True enough! If the electric is paid for by Owner, the tenants have ZERO incentive to use it sensibly. They will add window AC's for every private room, or turn down the Central AC and complain when "their" room is not getting cool. Winter, just the opposite...some will open the windows because they are "burning up", while others are freezing from poor circulation, even though the thermostat is turned all the way up. Still others will be serious "Gamers", and have multiple large, power-sucking gaming computers. An then there are the "growers", that start farming in a closet with high powered grow lights. They also are not likely to let you know about problems such as a toilet running or faucet dripping. And no one will have any idea who's trash or unlicensed and broken down vehicle is in the garage.A better plan is (depending on your market) try to locate professionals, or grad students that are looking to share a large rental with nice finishes and amenities. Put everyone on one agreement, and have a process to add and remove individuals as changes come up (and they will!). The difference is, it largely is in the tenant's hands, rather than you working blindly to get a group of complete strangers to get along. This includes the handling of the Security Deposit when one person vacates...no need for that to become your problem.

Tyler Lingle · Answer

Homeroom (LiveHomeroom.com) actually specializes in this (Co-Living Model). I work as their Lead Indy agent. If you want, I would consider chatting with them on some of these questions or even if it makes sense for them to help you manage it!For utilities, if you just bought it, reach out to the previous owner or agent and ask what typical utilities were running per month, then expect 25-50% more. Also, are you providing wifi? I would average out the utility costs and charge a flat rate. You can set the thermostat to a safe normal temperature year-round. Say 70 degrees, to make sure it's not abused. If you search "Boarding house" or "Co-living lease" I'm sure you can find some good examples or at least get some ideas! Hope this helps!

John Morgan · Answer

@Orr KichinI’m doing this on one of my rentals. I love it and will probably do more. After all my bills, mortgage, taxes, insurance and utility expenses, I’m netting $1500-1700/month depending on utilities. I pay all the utilities and they seem to respect the electricity and water usage. Not a big deal. I also pay for cable and have the highest wifi speed I could find for them. I have a detached two car garage I rent out to a random guy who works on cars occasionally for $425/month as well. That definitely helps. Think about this with your 3 car garage. You might get another $400-500 out of it. I list the vacancies on fb market place and fill my vacant rooms within a day. I get over 100 inquiries within 24 hours. There’s a HUGE demand for rooms to rent! Not everyone can afford to rent a $2000 house. But everyone can afford to rent a room and share the rest of the house. I did this when I was broke in my 20’s while saving up cash. And loved it. Let me know if you have any questions.

Bruce Woodruff · Answer

@Ron Brady has some great points. But I tend to agree on this one with @Patricia Steiner. You are treading into a potential nightmare. If you are 100% sure that you can't rent to a single large family (and raise the rents), then I would sell and get a better performing property. The headaches are just not going to be worth it.....Just my .02......

Alethia Hines · Answer

Google: HUD-VASH Program. Check it out.

Luke Ache · Answer

@Orr Kichin College housing is a good alternative to what you are doing. Look for homes as close to college campuses in your state as possible for the cheapest price possible with the higher number of bedrooms. College students are more tolerant of properties that may not look all that great. Feel free to PM me, I would love to share some ideas with you.

Colleen F. · Answer

@Orr Kichin so rent by the room is your only viable strategy besides selling I guess. Given the size of the house make sure you work in heat and AC cost. I would also consider at some point if this is a long term strategy to find a way to not have a shared bathroom (given you have 4000 square feet. That will increase your marketability. If you are closed to a university you might also market to foriegn/grad student. Before you do anything check to see if there is an unrelated persons ordinace in your area.

Orr Kichin · Answer

@John Morganthanks so much for encouraging words! I'll PM you.