Renting individual rooms vs entire home

[Arthur Mayer]

Hello all, 

I'm a contractor looking at land for sale, and I found one where I can build a SFR house 4 beds/3 bath and an Accessory Dwelling Unit in the back. I wanted to hold it for cashflow, and I wanted to ask some experts what their experience in getting more rent by renting each room of the front home and ADU in the back (either furnished or unfurnished)

Thanks in advance

[Garrett Christensen]

A few things to note here, and I'm not sure of your local laws so make sure you check. Where I'm located we can't rent a property out to more than 3 individuals unless there's an exception (near universities). With this regulation in place, the rent for each room vs renting the entire house to one party comes out to about the same, maybe the individual rooms win by a bit. So I'd say check the laws and run the numbers.

The second and more important thing is how you'll manage the rental. My wife and I manage over 150 units and it is SIGNIFICANTLY easier to manage 1 or 2 parties vs 4 or 5 individuals. I prefer Single Family rentals over apartments because you can have the tenants be responsible for the yard, snow removal, general maintenance, etc. I basically tell my tenants, to treat it like it's their house. Leasing up is also the most time-consuming and headache-causing part of the process and you'll have to do it much less. Families tend to move less than individuals and it's just fewer leases. 

Overall, you may get more rent with the individuals, but make sure that extra cash is worth the extra hassle, and also make sure you know the local regulations.