6 beds Duplex Renting out by the Rooms

[Tony H.]

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

[P.J. Bremner]

@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.