Rent by room or whole house? Any experience /advice?

Question

Hi all. My only experience as a landlord, to date, is renting out an efficiency apt.(semi-connected to my home) 500.00/mth utilities paid. All has gone well this year. A nice, quiet , elderly lady lives there and always pays on time. Mth to mth lease. Easy, easy so far. Maybe luck.

New situation:

I bought the home next door, and moved in to rehab. Now putting my home up as a rental by October(when remodel is complete).

The home is a few blocks from a University, in a sought out area(far from luxury, just great location).  I figured by October, the college students have probably secured housing and just planned on renting to a family/individual/couple.

I was having a conversation with a friend, who is a prof. at the University. He mentioned he has a foreign grad student living with him who is seeking a 'room" for rent.  The home is 3BR 2 Bath. I would need to rent out 1 or 2 more rooms to others, and the grad student prefers not to live alone. So I am considering this.

As this will be my first real experience with renting out a home, I am asking for advice,  experiences, things to keep in mind, pros/cons, et all and anything of renting out room vs home.

I pay around 750.00/mth for Mtg, Ins,Taxs. Around 350.00/mth in basic utilities of (Electric,water,gas)when I lived there. But I am conservative.

Browsing local homes in my area I could rent out home for around 1100.00/mth, utilities paid by tenant.

Would I stand to realize more cash flow renting by room? EX: 500-600/mth all bills paid (some bills paid?) x 3 rooms 15 to1800/mth - utilities.

Things I know to be concerned about:

-Electric bill being crazy high(less cash income)

-Tenants not getting along/moving in out, leaving empty rooms(less cash income)

What's more scary is that I don't know what other concerns I should have.

Advice?

Ron H. · Answer

I add to the lease an allowance for electricity.  If in any month the bill goes over all roommates pay the overage.  It is amazing how when I bill each residend even $1.27 for an overage how the electric bill goes down the next month.  I also send out warnings in a month when the electricity is higher than expected for a particular month even when not close to allowance limit.

I have usually found the best student rentals when unit is advertised in May for a year lease starting in late August before the fall term.  These students tend to come with parents who are concerned about where their child is living.  It also allows me to get a guaranteer on the lease even if the student has sufficient income.  The quality of the average applicant is usually the lowest the week school starts.

I have gotten some good renters in the middle of a term from recent graduates just starting out.  Unfortunately they move out when getting married or moving in with their girlfriends.

Jim D. · Answer

I've rented to many students, and in general they have made for fantastic renters (your mileage may vary). My experience is that it's far better to find a group of 3 wanting to move in together than to recruit 3 separate individuals. It makes for low turnover--and when they do have someone move out, the other ones find their own replacement because they want to choose who lives with them. I've had about 1% vacancy for several years now doing this, and haven't even had to post a listing. Put the utilities in their name.

If you just pick random people for each room, you're probably going to have high turnover.

Jesse Aiken · Answer

I don't know your market, but I find that it can be difficult to get good student tenants this close to the start of the school year.

I think timing is important with student rentals and you could end up with a mish mash of procrastinators or transfers that might not cohabitate well and/or take care of your property. Its a good idea to plan on higher maintenance and turnover costs with student rentals. Another consideration is that many students look for a shorter lease term, so you could have some extra vacancy if you plan to continue leasing to students.

I have one student house with 3 grad students who were looking for a place together and that is doing well (priced per bed). I also have 3 roommates in one of my apartments who were looking for a place together and that is going well also (they split rent).

All that being said, if I were in your shoes, I would still market to students because cash flow goes up when leasing per bed and there's a chance you could still find good tenants. Just screen, do your checks, and trust your gut. It's not worth doing anything too risky for that extra profit as long as your cash flow is still acceptable at market rate. As far as pricing goes, I would adjust the per bed price so  the tenants can afford utilities and you still get the added cash flow you're looking for. That way you don't have those extra expenses, are more competetive in the market, and still increase your ROI.

At the same time, I would advertise at market rate for the whole house with the tenant responsible for all utilities, lawn care etc. Sometimes a good long term tenant can be better than a short term bump.

It all depends on who your applicants are and the direction  you're trying to go with your buisiness.

I should also mention that I'm currently hacking one of my duplexes and have 2 roommates. So far so good and my ROI is very healthy :)

I wish you the best of luck!

Jack B. · Answer

I would agree with this. Two of my rentals are  room mates, 4 in one, 3 in the other. For each rental they all knew each other and in one rental they all work together and went to high school together. They are more likely to get along and stay. I haven't had any issues with any of them so far, in almost 1 year of tenancy. Of course I rent the whole house out to each group.

Todd Dexheimer · Answer

I would advertise now for the school year for the whole house (probably could get close to $1800). If you get a group, then sign it as 1 lease for a year. At the same time I would advertise it by the room. Also, make the tenants responsible for the utilities. You can have them put in in all of their names or send them a copy of the bills each month to pay you. If you sign an individual room, require the security deposit and require them to sign the year lease. I would also require each of them to get renters insurance with a $100k liability policy and name you on the policy.

Jack B. · Answer

I might try this electricity overage charge if I ever rent out rooms in my primary residence.

Candy H. · Answer

Thank you all for the replies!

Rent by room or whole house? Any experience /advice?

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