Should I Offer Rent By Room Property Management?

Question

Within the last 2 months, I've been approached by numerous investors asking if I do rent by room which I currently do not. As an experienced PM, I'm intimately aware of how challenging "normal" property management can be which is why I've always turned down rent by room opportunities. The headache of playing peacemaker between 3-5 unrelated tenants doesn't sound worth the premium management fee; not to mention rent by room generally brings in lower quality tenants which require significant more management.

With that said, higher rates are pushing investors toward rent by room simply because it's the only option for cash flow (at least in Denver) which is why I have so many folks reaching out.

If you currently have rent by room investments or perhaps you're a PM currently offering rent by room, I'd love to hear your feedback and any advice you may have.

What are your biggest pain points? Best practices for security deposit deductions (damages)? Most productive leasing platforms? What you're willing to pay a PM in monthly management? Tips and tricks?

Any and all feedback is greatly appreciated!

Jeff White · Answer

@Phillip Austin For listing the rentals, Zillow doesn't allow roommate style rentals, so you can't use that for listings.

I use Facebook Marketplace, and all the sub groups (ie. Denver Creative Housing, Denver Sublets, Roomies, Roommates, and so on, there are a few good ones)

Also, I use Roomies as well because it is a site specific to finding roommate tenants, and there is a huge demand for it as well, so it is a great alternative to fill vacancies for houses if your owners are open to it and you price it correctly.

Ben Einspahr · Answer

@Phillip Austin Rent by the room investing is an excellent strategy. Only challenge (as you and others have touched on) is scalability. Self managing multiple rbr properties can be very challenging unless you're @Jeff White! :)

The only beef I have with your post is that you are already assuming their is going to be beef between tenants and you are going to have to play peace maker. Thats like going into STRs and assuming my guests are going to trash my home.

Not saying that those are possibilities but understanding those potential outcome and doing what you can on the front end (screening + clear expectations) to avoid them.

Being the experienced PM that you are and professionally screen your tenants on your future rbr HH, I think that you will be able to debunk (not sure if that is a word) all of the common rbr misconceptions.

When Acorn decides to take on rbr pm, lets connect!

Jeff White · Answer

@Phillip Austin I self-manage my properties including some where I do rent by room as a primary strategy, and it is very effective if done well with good screening in place.

The difference is starting with shorter leases for me.

Because they aren't traditional tenants in the sense with a 1 year lease and to determine fit for the house, I like to start everyone on 2-4 month leases and see how they perform. Do they pay rent on-time?  Do they pick up after themselves?  Do blast music at midnight every night?  Etc. Renting to people that aren't friends can be great, but also, one tenant can make everyone's lives miserable, so that's why I start with short leases in the beginning.

If they pass that initial trial period, I offer a 6-12 month renewal.

So far, it's been an effective strategy, and I've gotten some really good returns utilizing it.

I think more property managers should consider it. Surprisingly, you get a good mix of tenants. I've had some blue collar ones all the way up to software engineers and everything in between.

It would be huge in this market to offer more property management to this tenant subgroup.

Personally, I enjoy self-managing and screening is my favorite thing, so I'm not in the market for PM services, but a lot of my clients that I work with and other fellow investors would be interested in it.

Dan Guenther · Answer

Hey @Phillip Austin,

With the popularity of house hacking in Denver, especially rent by the room, I think you'd be doing yourself a favor by offering rent by the room property management. I work with a lot of house hackers in the Denver Metro and constantly get asked for recommendations on PM's that handle rent by the room.

I personally manage my rent by the room property and yes there are some headaches, but as you mentioned it's one of the most viable ways to maximize returns in a high-priced market. Let's connect and talk a bit more.

Phillip Austin · Answer

@Jeff White That's what I figured. Thanks again for the feedback!

I sent you a DM as well. Let's get together!

Phillip Austin · Answer

@Jeff White This is great feedback so thank you!

I didn't even consider the shorter lease strategy as a sort of trial run. That's a good idea.

Where have you had the most success marketing listings? Have you tried using Zillow or are you sticking to platforms like FB?

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Should I Offer Rent By Room Property Management?