Renting out rooms in a 4 plex

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Renting out rooms in a 4 plex

Trent VanHorn
Colorado Springs · Member since 2019 · 10 posts · 4 votes

Hey everyone,

I'm pretty new to BP and REI in general but I am set to close on a 4 plex in December and am super excited as it's my first investment property. Each unit is 2/1. Currently the rents are anywhere from $75 to $150 under market and my plan was to do minor rehab and updates as the leases end and then bring rents up to market cost.

Just brainstorming here and asking for advice, has anyone ever had experience renting rooms in a 4 plex for a combined rent that is more than the market rent of an entire unit? Say I can get $950 for a 2/1 unit or charge $600 per room and make $1200 a month. Obviously there are pros and cons to this and I tried doing a search and found a few posts talking about this but there wasn’t a lot. Also I would need to check and make sure that is in fact legal where I live (Colorado Springs) as the other thread I found said that could be illegal.

Pros I see as more cash flow. Another thought is if someone had a roommate they weren’t familiar with it may incline them to be more tidy and take better care of the rental as someone else is living there too. I could do month to month leases so if there are issues between roommates I could get one to leave and replaced with hopefully someone who is a better fit. There may be a few other pros here so feel free to add as I know I’m not thinking of everything.

Cons are managing 8 different leases vs 4. Roommate fights and people not getting along. Tenants figuring out utilities for themselves and if one doesn’t pay up I’ll basically have to be the mediator between parties. It may also be harder to find tenants, and quality tenants at that. Now that I think about it I would probably have to furnish the place as well with at least the bare minimum a bed/couch/dresser etc. Right? Also they would need to coordinate cleaning otherwise there may be issues if one person is always leaving a mess and the other person is having to constantly clean up. And I’m sure the list goes on for the cons so feel free to add to this as well.

Listing it out it seems that it may be too much of a hassle to rent by the room and I should just be happy with my positive cash flow by bringing the unit rents to market value. But if I were to get people who got along and worked well together the extra income does seem nice. Especially if it inclines people to be more clean and take care of the place better (maybe this is just wishful thinking on my part?)

Thanks for taking the time to read this and I look forward to the responses.

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Ryan Deasy
Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
6y

@Trent VanHorn hey Trent, rent by the room is all i do. what i can say is, it is worth it all day, twice on sunday.

i write for the BP blogs and have done articles on the pros and the cons. check them out. they should help.

happy to help you. let me know what other questions you have. send me a message if you’d like.

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  • Mary M.
    Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
    6y

    Check with your local laws as what you are describing may be considered a rooming house and there may be laws to prevent this. 

    I have lots of tenants that have roommates, and IMO the situation is always better when the group are known to each other. I find for some reason the common areas are used more and the place stays cleaner. Not knowing your housemate can tend to keep folks in their room etc

    Good luck :)

    1Reply
  • Sherif Lyons
    Property Manager · seattle · Member since 2018 · 27 posts · 42 votes
    6y

    I would actually recommend this if you are chasing cashflow. The Unit could bring in $1000 gross with one tenant or a couple or it could bring in $1200 - $1300 because $600 - $650 looks cheaper than $1000 to renters even though it isn't. As always be thorough and vet the crap out of your tenants. Also don't let multiple couples rent the same unit, cheating and subsequent drama will take its toll on your property. Make sure to spell out your expectations and be ironclad about them. Please please P L E A S E make sure to hash out who has what responsibilities and when. if you have to print out a cleaning schedule and have the tenants hash out who does what, do it. Make sure they stick to the agreement. It's best to get the tedious bits over with from the get-go vs the drama that comes if you put it off and leave it to the tenants. Not everyone is responsible.

    0Reply
  • Daniel Haberkost
    Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
    6y

    @Trent VanHorn

    This is a great question, I’m doing the same with my single family here but am not sure if it makes a difference with multi-family (I can’t imagine it would???) I read that no more than 4 unrelated people can be in 1 unit but other than that as long as it’s not short-term you should be okay.

    The other thread that said it was illegal, what specifically did they say ?

    Also I’m curious, where’s it at ?

    0Reply
  • Trent VanHorn
    OP
    Colorado Springs · Member since 2019 · 10 posts · 4 votes
    6y

    @Sherif Lyons that’s a good idea to have almost like a household chore list or list of responsibilities. I didn’t think of that but having that in place prior to a dispute is very smart!

    0Reply
  • Trent VanHorn
    OP
    Colorado Springs · Member since 2019 · 10 posts · 4 votes
    6y

    @Daniel Haberkost this was the thread.

    https://www.biggerpockets.com/forums/52/topics/446328-6-beds-duplex-renting-out-by-the-rooms

    They were talking about having more than 4 unrelated people under one roof but I would assume that means a single address. With a 4 plex it wouldn’t be weird to have two unrelated roommates in a unit. Also they mentioned running a housing business like a hotel out of a residential property but having leases that are month to month should cover that. I’m not looking to house people weekly.

    This is a 4 plex on the east side of the springs right off of Petersen road and Galley. Right by Petersen afb.

    This idea came to me because I'm buying this as a househack on and FHA loan and if I was going to rent the other room in the unit I'm living in why not rent everything by the room and expand my cash flow? Thanks for the input!

    0Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    6y

    @Trent VanHorn

    Isn’t 4 units enough drama for one house ?. I’d keep things simple because your inviting much more issues into one building this way . Your not supposed to retire off one house bro lol

    2Reply
  • Daniel Haberkost
    Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
    6y

    @Trent VanHorn

    Gotcha, I’m almost positive the 4 unrelated people rule is per unit. And great location, you’re always going to have high occupancy there.

    Renting by the room I’ve found the tenants do tend to hold each other accountable (in the common areas at least) which is great.

    As long as you screen your people thoroughly and don’t cut corners it should be doable.

    Is the parking adequate ?

    0Reply
  • Trent VanHorn
    OP
    Colorado Springs · Member since 2019 · 10 posts · 4 votes
    6y

    @Dennis M. lol I know I know. I may give it a go and see how it works and if its too many moving parts then cut it back to just the 4 units. I still have time to decide as the majority of the leases aren't up until summer of 2020. The only way I foresee it working is doing my due diligence and screening all prospective tenants extremely well. I do understand and see how it could easily get out of hand, especially being my first rental and learning as I go. 

    @Daniel Haberkost yes there is a parking lot directly behind the 4 plex with 8 designated parking spots so every tenant renting a room would have an off street parking space. 

    1Reply
  • Trent Chance
    Member since 2019 · 94 posts · 75 votes
    6y

    @Trent VanHorn "not supposed to retire off one property" and "finding a way to retire off one property" sounds like a "challenge accepted" moment :)

    I've been wondering the same thing about quads I'm looking at and even our new home of we move into a quad.

    0Reply
  • Daniel Haberkost
    Rental Property Investor · Colorado Springs, CO · Member since 2018 · 682 posts · 729 votes
    6y

    @Trent VanHorn

    That works then, I’ll be curious to see how this goes for you. Rents have gone up so dramatically here in recent years that renting by the room will inevitably be more viable.

    0Reply
  • Daniel Sager
    Rental Property Investor · Anchorage, AK · Member since 2019 · 39 posts · 13 votes
    6y

    @Trent VanHorn

    Hi Trent,

    I would recommend not doing this in a MF situation. I have owned 3 single family homes and rented out all of the rooms while I lived there which worked well because I could screen the folks and minister everything. I had amazing luck but there were a few instances where I had to resolve disputes.

    I just bought (literally yesterday!) my first 4plex and I had the same idea you did because if the income potential but it's honestly just not worth the trouble. I'm willing to bet you would have such high turn over on the rooms that the potential empty rooms would wash out the profit from it being fully rented. If you have the units on leases, you more or less have no worries for that term as opposed to all of the screening and vetting of 8 people on month to month leases.

    Now, what I do plan on doing since I am doing owner/occupy, is I will be renting out the 2 extra rooms in my owners unit to bring in about $1100 extra per month and when summer hits, I will have at least one of those units completely furnished and have it set up as an Airbnb.

    You could also have one unit dedicated to that for the tourist season.

    Good luck sir!

    1Reply
  • Jerry Bankhead
    Rental Property Investor · Temple, TX · Member since 2016 · 20 posts · 7 votes
    6y

    @Trent VanHorn

    I have a duplex at Baylor University In Waco, Tx. Personally I would advise against single room rents unless there is an over abundance of individuals looking for single rooms. I tried this with one unit it is a 4bd/4bath. The first person to rent the room had a unique look and personality about them. When the others came to look at the room, many times they were scared away just by this persons personality. That person was the only tenant for about 5 months. Needless to say I lost 1,000s and that persona had a 4bd/4bath apartment for a quarter of the cost.

    The other unit had 4 tenants and when they notified the property manager that one was moving out, the other 3 started looking for a smaller place when they were told that they had a deadline before the property manager would be looking for someone to move into the other room. They offered to absorb the added cost rather than have a stranger placed there. These tenants have been there for 3 years and that’s when I relapsed the single room leases were not for me.

    Personally I will never do single rooms again. My units have a set price. I don’t care if there is one person alone or 4 people, I still get the same price.

    Jerry.

    1Reply
  • Ryan Deasy
    Lender · Farmington, CT · Member since 2015 · 542 posts · 321 votes
    6y

    @Trent VanHorn hey Trent, rent by the room is all i do. what i can say is, it is worth it all day, twice on sunday.

    i write for the BP blogs and have done articles on the pros and the cons. check them out. they should help.

    happy to help you. let me know what other questions you have. send me a message if you’d like.

    3Reply
  • Damian Seguen
    Rental Property Investor · Bayonne, NJ · Member since 2019 · 31 posts · 24 votes
    6y

    @Trent VanHorn

    I faced the same question in Nj and tried it. And it may seem like more cash flow, but you are limiting your renter pool, and will 100% run into trouble with certain roommates. The day you want to go back you will have to sit and wait for 1 lease to end, and then bank on them leaving on time and the unit undamaged.

    Some people will not get along, Most tenancies will not end smoothly. And the bills get crossed when a vacancy over laps.

    I believe a good tenant is worth $150-$200 a month (if the expenses can handle it).

    Every penny I try to pinch out of a property usually cost me in the long run. The extra money you’d make would just be paying you for more landlording duties.

    1Reply
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