6 beds Duplex Renting out by the Rooms

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6 beds Duplex Renting out by the Rooms

Tony H.
Rocklin · Member since 2017 · 115 posts · 37 votes

Hi BP!,

I have been learning a lot lately from the community. Although, I am still in the search for the right first rental property for me, I went ahead and imagine different scenarios in my head.

I read multiple discussions, but I can't seem to find the exact answer to my questions. (I apologize if this has been discussed somewhere, please point me to that discussion).

So, there is this Duplex in Sacramento, CA (2 units of 3/1). It's about 10 mins from a local city college. The school district in the area is well below average. I imagine this won't attract families with kids. (or maybe I am wrong?)

The estimated the average rent price for a 3/1 in the area is about $1200/month. Meaning I will only get $2400/month Gross total.

However, I came across an idea of renting out the rooms individually. Like $500 each for a total of $3000/month. 

Questions:

1. Where do I find out whether or not this is legal in Sacramento, CA? Is there a website where I can read about this?

2. If i decide to do this and if it is legal, I am planning to mark each room like A, B, C, D, E, F. Each tenant will have separate lease indicating the room that they are renting for. Is this a good way to do this? I understand that if 5 out 6 tenants move out, 1 tenant won't be responsible for the whole unit. If this happens, then it will just be my loss and poor business strategy. 

3. If anyone needs to be evicted, how is this strategy going to put me at a bad spot?

4. As for Deposit, I am planning to have them pay 1 month rent to cover damages in their specific room and "common/shared" area. I understand it's hard to fairly calculate for the shared area. But, here is my idea:

- When a tenant move out, I will assess the damage in the shared area and get an idea of how much it cost to restore it. That cost will then be split into 3 and deducted from the tenant's deposit. 

- Now, I will not have to necessarily repair/restore it right away. I will keep the deposit money and use it to restore at a later date when all tenants move out.

Is this legal?

Thanks all! Hopefully i can get some answers and learn more.

Tony

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P.J. Bremner
Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
9y

@Tony H.

You have a lot of info to cover here so I apologize in advance if I miss some stuff or go off in an unrelated tangent... lol

1) You need to check with the city zoning regarding "Non-related individuals that can live under the same roof".  I've only dealt with this in R1 which is NOT for duplexes.  Most cities will allow 4 - 5 unrelated adults to occupy the same residence, anything more is not allowed.  That being said, most places really don't care if you have more people in.  Or if they do, it's really not easy for them to find out.  So, if you play your cards right, make sure you know the neighbors and treat them well, you'll probably be fine renting out more than that.

2) I really hate using numbered rooms or letters.  It's really cheesy and unappealing, not to mention it's difficult to remember which is which.  I like to label my rooms by a defining characteristic: Master, Large room, Side room, west wing, etc.  Then when you are showing the room, you are showing the "West Wing Room" instead of the "Room E".  A little psychology goes a long way.  As for leases, it really depends on how you structure the agreement.  If you are renting to 3 people that are moving in together, they all go on the lease together and are responsible for the lease TOGETHER, so if 1 or 2 drop the ball, they are all legally responsible.  Personally, I don't like this approach for the room rental business model.  I go with individual leases that ONLY pertains to their room.  They legally have access to the common areas and are responsible to keep stuff clean and orderly, but they only have legal lease on their room.  I do this because often times people move out and you would have to find a random person to fill that may or may not get along with the others, etc. and it's hard to get them to share a lease with someone they dislike.  I personally only do month to month because if I don't like someone there, I don't renew their lease.  No need to evict, etc. just don't renew the following month and give them 30 day notice to leave.

3) Fortunately I have not had the need to evict anyone (I manage almost 30 rooms for the past 5 years).  I've been able to just get people out since it's month to month.  I tend to deal with college kids, so it's very easy to get people to leave.  If they think nobody in the house likes them, they feel the social pressure and just move out on their own lol it sure beats going through legal.

4) I think you are barking up a tree that you probably shouldn't.  My average rent per room is about $750/month (I include utilities, furniture, house supplies, etc.) and I only collect a $300 deposit.  I've had to keep a deposit twice, once because they skipped out on rent and moved out middle of the night and the other was because the angry Ex-BF bashed in the door lol the repair wasn't even $300 but she felt so bad she told me to keep the deposit as she left.  You can use the deposit for anything broken IN THEIR ROOM.  Unless they are all on a master lease, you cannot charge everyone for damages done by one or two people.  In my experience, when you do room rentals, you make so much more money than a regular rental, you should NOT BE CHEAP.  Tenants will break things from time to time, they will clog common area toilets, they will break the washing machine, etc. etc.  If you start to nit-pick and push costs on everyone, when in reality it's only a single person that ever does all the damage, then you will lose good tenants.  There is a saying in business, "Don't trip over dollar bills trying to pick up pennies".  Don't do this lol.  Example: I clear about $2k in one of my homes each month after all normal bills are paid.  I probably get 2 - 3 plumbing calls per year ($60 per trip), 1 - 2 appliance repair calls (about $100 per call) and a few minor things here and there.  If I rented the house out normally, I would be negative cash flow, but I could charge the tenants these fees.  Instead, I suck up the $400 extra in expenses per year, put a smile on my face when I head to the bank and learn to have thick skin :)

I hope this helps, let me know if you have further questions.  I would be more than happy to share my knowledge in this area.

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  • P.J. Bremner
    Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
    9y

    @Tony H.

    You have a lot of info to cover here so I apologize in advance if I miss some stuff or go off in an unrelated tangent... lol

    1) You need to check with the city zoning regarding "Non-related individuals that can live under the same roof".  I've only dealt with this in R1 which is NOT for duplexes.  Most cities will allow 4 - 5 unrelated adults to occupy the same residence, anything more is not allowed.  That being said, most places really don't care if you have more people in.  Or if they do, it's really not easy for them to find out.  So, if you play your cards right, make sure you know the neighbors and treat them well, you'll probably be fine renting out more than that.

    2) I really hate using numbered rooms or letters.  It's really cheesy and unappealing, not to mention it's difficult to remember which is which.  I like to label my rooms by a defining characteristic: Master, Large room, Side room, west wing, etc.  Then when you are showing the room, you are showing the "West Wing Room" instead of the "Room E".  A little psychology goes a long way.  As for leases, it really depends on how you structure the agreement.  If you are renting to 3 people that are moving in together, they all go on the lease together and are responsible for the lease TOGETHER, so if 1 or 2 drop the ball, they are all legally responsible.  Personally, I don't like this approach for the room rental business model.  I go with individual leases that ONLY pertains to their room.  They legally have access to the common areas and are responsible to keep stuff clean and orderly, but they only have legal lease on their room.  I do this because often times people move out and you would have to find a random person to fill that may or may not get along with the others, etc. and it's hard to get them to share a lease with someone they dislike.  I personally only do month to month because if I don't like someone there, I don't renew their lease.  No need to evict, etc. just don't renew the following month and give them 30 day notice to leave.

    3) Fortunately I have not had the need to evict anyone (I manage almost 30 rooms for the past 5 years).  I've been able to just get people out since it's month to month.  I tend to deal with college kids, so it's very easy to get people to leave.  If they think nobody in the house likes them, they feel the social pressure and just move out on their own lol it sure beats going through legal.

    4) I think you are barking up a tree that you probably shouldn't.  My average rent per room is about $750/month (I include utilities, furniture, house supplies, etc.) and I only collect a $300 deposit.  I've had to keep a deposit twice, once because they skipped out on rent and moved out middle of the night and the other was because the angry Ex-BF bashed in the door lol the repair wasn't even $300 but she felt so bad she told me to keep the deposit as she left.  You can use the deposit for anything broken IN THEIR ROOM.  Unless they are all on a master lease, you cannot charge everyone for damages done by one or two people.  In my experience, when you do room rentals, you make so much more money than a regular rental, you should NOT BE CHEAP.  Tenants will break things from time to time, they will clog common area toilets, they will break the washing machine, etc. etc.  If you start to nit-pick and push costs on everyone, when in reality it's only a single person that ever does all the damage, then you will lose good tenants.  There is a saying in business, "Don't trip over dollar bills trying to pick up pennies".  Don't do this lol.  Example: I clear about $2k in one of my homes each month after all normal bills are paid.  I probably get 2 - 3 plumbing calls per year ($60 per trip), 1 - 2 appliance repair calls (about $100 per call) and a few minor things here and there.  If I rented the house out normally, I would be negative cash flow, but I could charge the tenants these fees.  Instead, I suck up the $400 extra in expenses per year, put a smile on my face when I head to the bank and learn to have thick skin :)

    I hope this helps, let me know if you have further questions.  I would be more than happy to share my knowledge in this area.

    3Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    Renting rooms will work AS LONG AS the owner is resident.  Without the residency, you are operating a housing/hotel business in a residential area - - look for all kinds of push back from the City!

    0Reply
  • Tony H.
    OP
    Rocklin · Member since 2017 · 115 posts · 37 votes
    9y

    @P.J. Bremner Thanks for the insights. I do plan to have month2month lease for each tenant. 

    Are you saying that the $300 deposit that you charge is only to cover damages for the room only? and that any damages to the common area will be your own out of pocket costs? 

    If that so, I like that idea too! I think it's fair to do that. However, I will need to charge more than $500 for the room.

    By the way I just looked up the duplex parcel and it is zoned as R-1-EA-4 - SINGLE FAMILY RESIDENTIAL 6-8 UNITS.

    Does this mean I can rent out room separately like you mentioned above?

    @Jeff B. Do you have a specific article or website where I can read more about this? Thanks for the warning though.

    It was just an idea that came across my mind. A good friend of mine lives in Daly City, CA. He is renting a room in a single home. His landlord keep adding rooms and he does not live there. The house now has 7 tenants. Each renting a room and shares kitchen and bathroom.

    That's why I was wondering if this is possible at all.

    Thank you!

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    No I have no references and they would be State specific, but it's an obvious violation to run a business in a residential zone - - hope you don't have to learn the hard way.

    0Reply
  • Account Closed
    Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes
    9y

    Sacramento has a short-term rental ordinance that applies if the lease is 30 days or under. So you're idea is totally doable if your leases at 31 days or longer.

    You should familiarize yourself with the Sacramento Municipal Code to determine the zoning issue. My guy tells me there's nothing to restrict what you're proposing, but you have to do your own homework. The muni code not very complicated.  

    I love that room naming idea @P.J. Bremner!

    0Reply
  • Tony H.
    OP
    Rocklin · Member since 2017 · 115 posts · 37 votes
    9y

    @Account Closed I will look at that muni code. Thanks!

    0Reply
  • P.J. Bremner
    Rental Property Investor · Claremont, CA · Member since 2015 · 292 posts · 374 votes
    9y

    @Tony H.

    It all comes down to how you want to structure your business model.  The way I have it setup, the low deposit is attractive alongside the month to month.  The easier you make it for people to move in, the easier it will be to rent your rooms.  I can have a room filled within 2 - 3 days of posting the ad, and 95% of my tenants are amazing.  You do get the occasional bad one, but like I said before they tend to weed themselves out.  I think the small deposit size attracting good tenants is worth more than the money I have on hand to fix issues when they move out.  And again, I have LOTS of data on this and almost never keep a deposit.

    As far as what others are saying on here is totally accurate!  It is often times not legal to rent out a bunch of bedrooms in a house without getting permits to run a hotel/motel/rooming house.  That being said, I have spoken with city inspectors who really couldn't care less unless you are having a negative impact on the surrounding area.  For example: If you have 7 bedrooms and they are all undergrad kids throwing parties all the time, clogging up the streets with cars so nobody has parking, pissing off the neighbors, etc. THE CITY WILL BE CALLED AND YOU WILL BE SHUT DOWN lol.  However, if you have great tenants who respect the house and area and you don't go overboard (putting 8 bedrooms in a 1,500 sqft house, allowing house parties, etc.) then you will most likely be just fine.  Another caveat to this: if you are in an affluent neighborhood, it will probably not work too well.  I've learned that rich neighbors (or at least ones with expensive homes) will definitely find out what you're doing and try to shut things down.  If you're in a working class area and you take care of things properly, nobody will ever inquire.  Final point on this: we can all think of laws that are in effect that are never prosecuted.  Don't run a slum house, make it nice, put great tenants in there and limit your risks.  

    One last thing I want to touch on: This may or may not be a scaleable business, but I would venture to say it's just a good starting point and not something to build an empire on.  I am expanding into other areas of real estate simply because the fact that as I get bigger, obtain more homes, the results IF everything is shut down by the city is, while still very unlikely, catastrophic.  For example, you rent rooms out in your own home that you currently live in.  If the city says no more, you still live there and pay a mortgage which you would have anyways.  If you have 3 homes and you're currently not living in any, you now have 3 mortgages plus rent/mortgage for your primary.  Use the 10x rule and make it 30 homes, now you're in deep doodoo.  You can make a ton of money with this, but my personal opinion is to keep it small, expand into other areas of real estate that are much more secure and then maybe eventually sell these room rentals off.  They are a lot more work and nobody can manage them but yourself, but it will definitely help you get tons of cash flow on the first couple deals.

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  • Account Closed
    Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes
    9y

    Also, where is this duplex? $1200 seems low. I'm getting $1500 & $1800 in my 2/2 duplex. 

    0Reply
  • Tony H.
    OP
    Rocklin · Member since 2017 · 115 posts · 37 votes
    9y
    Embert Madison jr it is on the south side of sacramento. By the way, i dont think i will try to rent out by the rooms anymore. I live about 2.5 hours away. I just dont think its a great idea to do that with all the potential problems. And i have not got a chance to read the landlord tenant codes! Been busy at work
    0Reply
  • Account Closed
    Attorney · Sacramento, CA · Member since 2014 · 300 posts · 172 votes
    9y

    Next time you are in Sacramento, give me a ring. I think I can help out in the future. We can get coffee or something.

    0Reply
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