Rooming house, good or bad?

[Vernon Martin]

I would like some input from other investors about the experiences you've had with rooming houses. 

Good, bad or be advised?

I am in a contract to purchase one in Cedar Rapids, IA. 13 sleeping rooms in one large house, sharing three kitchen/bath combos throughout the house.

It is an old house but has been lightly remodeled and is in good shape and well maintained. 

With the price I'm in the contract at and the rents that they were getting ($375/ room), using the 2% rule it comes in at a 3%, and shows potential for some strong cash flow.

It's in a good location, across from a bus stop, close to down town and close to stores, business, restaurants and bars.

I am planning to use a small property management company that has been primarily managing their own properties up to this point and has never managed a rooming house (though the manager has lived in one in the past). He said he would manage it for half of first month for a new tenant and 8.5% thereafter.

Any advise is much appreciated!

[Sonu W.]

I have an 8 unit rooming house.  Personally, I'd never do it again.  Rents that low typically attract a certain type of tenant, and despite all the vetting you can do, there are unfortunately a ton of bad apples. 

The cash flow is great when it is, but it quickly becomes a dumpster fire when you have to pay for multiple evictions per year. 

I'd rather buy something slightly more expensive or fewer units that gets me closer to the market average rent, so I can attract decent tenants and have a well performing property.