Renting Out A SFH By the Room

[Joe White]

As a property manager, I often get requests to manage SFH's where the property owner is renting out each bedroom - by the room. I always turn down these clients due to the legalities. You simply can't rent out 8 units in a property zoned as single unit, even if it has 8 bedrooms. These guys often have a lease per bedroom & I wouldn't want to be the one standing in front of a real estate judge trying to evict one of these tenants, with an illegal contract.

But, renting out by the bedroom does produce incredible returns. These places rent out for unheard of percentages above what they would if rented out as a single unit, to say roommates.

I'm curious what solutions others have come up with that steps these illegal boarding room style investments closer to legal.

[Linda Weygant]

Not all of these arrangements are illegal and you're making quite a few blanket statements here.

The issue is your city's occupancy codes.  For example, I have several of these types of places in Westminster, CO.  The City of Westminster occupancy code states that no more than 5 unrelated persons may live in the same dwelling.

Therefore, in my 4 bedroom houses, where I allow single occupancy per bedroom, I am well within the limit of the City's Occupancy code.

I also do not offer additional services - no food, no maid service, etc.  Therefore, per Colorado law, this is not a boarding house.

It is perfectly legal to have a lease for one bedroom with all other areas of the house (except the other bedrooms) deemed as Common Space.

Clearly, I could not do this in a 6 bedroom house as the occupancy codes would then be violated (unless I limited it to 5 people).

The issues I have found with property management is that the managers I have spoken to feel like the management of these leases would be four times the headache.  They'd be wrong.  My by-the-room houses are incredibly stable.  They are no "party houses".  I do not have excessive wear and tear.  The only downside is that if a common area is damaged and nobody fesses up to it, I just have to repair it and move on.

But it would be the same as in a multi unit building.  If somebody damaged the carpet in a common area hallway, I'd have to repair it without charging anybody back.

PS:  I did have an eviction in one of these and standing in front of the judge was no problem.