Genius Rental Strategy or Disaster Waiting To Happen?

[Christian Baker]

Good Morning everyone,

I have a question about my situation that I'd love to get some feedback on from some more experienced investors.

Some backstory: I am adjusting to a recent move to a one person salary. I wasn't getting the income that I needed and I have two spare bedrooms in my house that I never use. My mortgage is $900 and I rented one room out for $550 then the other at $500. I noticed piecing out my house brought significantly more income. I had flipped another house but it just will not sell. The payments are about $675 on this 3bedroom/2bathhroom house. I rented 2 rooms to a lady for $750 and have the opportunity to rent the other for $500. This brings in much more cash flow then renting as a whole. Obviously there is more management on my part and more wear and tear, but is this a smart move? or a disaster?

to wrap things up.

My house:

mortgage $900

rental income: $1050 plus I live in the master suite for free

Property 2:

mortgage $700

rental income: potentially $1250. ($900 if I do not piece it out)

[Shawn Devoid]

Hi @Christian Baker. I find what you're doing to be very resourceful & I think it can be done, with a few caveats.  Is the woman renting the two rooms by herself ok with you renting out the third room?  Does she have kids?  Either of those things could spell disaster.  Also, what do your municipal or state laws and regulations allow?  There may be additional stipulations on a rooming house situation, especially if it isn't owner occupied.  This practice of renting by the room is very common in college towns; you can probably get some good ideas from the websites of these type of rentals, including rules, applications, & leases.  Good luck!

[Natalie Schanne]

Christian Baker - Good job being resourceful!
I piece out a 5 br 3 ba and it works really well. (Rents are 30-50% above normal).

Long term - it's almost impossible to properly charge the right person for damage to the common areas. When I held everyone jointly and severally liable for not reporting a significant water leak under the kitchen sink, they caused a stink but ultimately paid a portion.

You'll also have tenants moving out when others stay, so you're trying to decide whether to take from one security deposit now and one later for common area damage.

Charging against the sec dep for room damage is clear and obvious - like repainting and recarpeting that one room.

You lose some 'economies of scale' when you do 1 room repairs at a time because the other portion of the house is still occupied.

[Christian Baker]

@Shawn Devoid The woman has no kids and says she is happy to have the third room rented out. She even said she would post an ad for me and help screen the tenants. It is still early and she seems to be an "ideal tenant" so far. To be honest, I am not sure of my local or state regulations. I am new and learning everything in a trial by fire. I am in NC, have any suggestions for resources?

@Natalie Schanne That is really good feedback about dealing with damages. I hadn't thought of that before. As of now, I am not too concerned with the loss of economies of scale since my scale is still small and I typically roll up my sleeves and do as much as I can by myself.

I appreciate the positive comments, I'm very passionate about not starving to death and that ends up being quite the motivator.

[Thomas S.]

Why have you not learned your state landlord tenant regulations. That is your first responsibility BEFORE you become a landlord. It is time you sat down and learned your responsibilities and especially your tenants rights before you end up in court.

I also assume you have not informed your insurance company you are renting out rooms. By not doing so you have most likely voided all insurance coverage on your home. 

This is not a business that can survive with trial by fire and should require landlord licencing to prevent these situations. Learn the law before you end up in court.

[Christian Baker]

@Thomas S.

I have read through NC laws on being a landlord. It seems pretty cut and dry. I also consulted my realtor who does property management. I am in compliance with all of the state renting laws. I just need to inform my insurance company. This all happened over about a week time frame so I am doing my best here. That's why I am on this forum, to learn what I don't know.

I appreciate the advice. If you have any more I am all ears.

Cheers,

Christian Baker

[Shawn Devoid]

With only two unrelated people, I'm sure occupancy won't be a problem.  But to double-check, if you can't find the information on your municipal website, just give them a call.  I would try the housing department first & if that doesn't work, maybe health & sanitation.  Every municipality has their own rules & runs things their own way.  Depending on your municipality, you may need to get a certificate of occupancy to rent your property to someone (or face fines).  It wouldn't be in your state laws, because it's a municipal thing.  You need to get on that insurance thing ASAP, especially if they have pets (like dogs).  There are breed restrictions.  You could end up losing both houses if someone has an accident on your property, their dog bites someone, etc.  I would also be wary of letting your current tenant help advertise & "screen" potential tenants.  You should have your own criteria, run background checks (always, but especially when putting two strangers under the same roof.  Maybe you just meant that the prospective tenant would need to meet her, with her having final approval.  That makes good sense!