Extreme House Hacking with 10+ Roommates?

Question

Hello everyone.  I'm not old enough to invest in real estate yet, but I plan on house hacking for my first purchase. I have been looking into the idea of "coliving" which basically means dorms for adults. In places like San Francisco and Los Angeles, you can rent out a bunk bed for $50 a night ($1500 a month!). As absurd as this sounds, I have been thinking about how it would work in my local market (Loveland, CO).

Here's how it would work:

I would set up as many bunk beds in each room as possible. For normal bedrooms, I would probably set up two, and for master bedrooms, I would set up around three. I would leave the living room and kitchen open as a shared space, but would put place bunk beds in the family room(s), office, and basement.

Now my market isn't anywhere near as expensive as San Francisco, but I think it might still work. The average rent for a small apartment in Loveland is $1400, but I would only charge $450.

My goal would be to have around 10 beds in total. Full occupancy would be 19 (not including myself). A conservative 70% occupancy rate would be 13.

13 x 450 = 5850 a month

Mortgage Principal and Interest = 1280

Property Taxes = 200

Home Insurance = 120

Utilities = 500

CapEx/Maintenance = 500

Total Expenses = 2600

Profit = 3250

3250 x 12 mo = 39000

I'm basing these numbers, in part, off of a property that I saw on Zillow, but if I were to use this strategy, I would still try to find a property below market value, possibly off of the MLS. Ideally I would be able to force appreciation through repairs.

I'm curious as to your guys' thoughts on this. Most of the people that I have talked to have said this is a crazy idea. I realize that many of those looking for a place would not be willing to live with this many people, but I know the price would be worth it for some. If I could get 90% occupancy, I would get 7650 before expenses (91800 a year).

Corey Hawkinson · Answer

@Jesse Dean I’m sure you’re going to get some negative responses, but let me start with a positive one: You are thinking outside the box and that’s a great trait to have. Don’t lose that trait!

As for the idea itself, you’ll want to research your local regulations more. You might also need to lower the price a little further, or decrease the number of beds. With that said, there is a market for this type of housing, even if I personally would not live there.

Art Perkitny · Answer

Account Closed

It just so happens that I ran an identical business, called HackShack, from late 2015 to early 2017 in the Bay Area.

I was 20 years old when I started it and have to say that it taught me a lot about not just business, but also human nature.

Before I give you my thoughts on whether or not you should pursue this idea, here is a quick write-up that describes how and why I started the business

I didn't start the business on purpose but out of necessity at first. I was working in San Francisco as a developer and renting a house in San Mateo with a few people I had met earlier that summer.

Through a series of events, by the month of October, all of my roommates decided to leave and I was stuck paying the entire 4k rent alone.

Instead of trying to break the lease and finding a cheaper place to rent, I decided to try and make some extra income by renting bunk beds out on Airbnb to travelers and new arrivals to the Bay Area. It happened that I stayed at a place like this before renting the house I was living in now and rather enjoyed my time there.

Over the next few months I improved on the concept, got more bunk beds, and developed a brand. By summer of 2016 the one house was generating over 8k in gross rents and I decided to focus on scaling the operation full time. I rented another house, this time with 5 bedrooms at 6k/month in rent.

Another few months went by and the whole business made 17.5k in the month of November. (This figure would have been >20k but I was granting a few guys free stays in exchange for help managing the growing business)

This however is where the story turns around. In December we hit our first big issue. One of our tenants turned out to be a professional squatter. He refused to pay or leave and this snowballed into a major problem. Evictions in CA are tough as it is, but add into the mix the fact that we were operating a hostel business out of a residential house without official leases made it even worse.

It took me until January to get rid of him and about 1.4k in legal fees. This could have actually been a lot worse but during that time we lost most of our clientele at the house he was squatting at. This caused our revenue to drop significantly in December and January.

Whilst this eviction was going on, we also ran into issues with both cities we were operating out of. The East Palo Alto city inspector came out personally to tell us to shut down the operation, and the San Mateo inspector notified us that they would send an inspector to investigate the situation in Feb.

The tenant profile had also dramatically declined from summer to winter. In the summer we would get a lot of high paying ($50/night) interns. In winter tourism and internships are not as common and we had to drop prices to $35/night and content with a lower quality tenant profile, whom I was living with mind you.

All this to say, I shut down the business in February 2017 because I couldn’t put up with all the headaches. At one point I hoped to scale the concept further, maybe bring on VC partners, but learned rather quickly that Co-Living is just not a viable means of habitation outside of very brief stays.

Given my experiences, I do not suggest you attempt this, rather go with more traditional “house hack” method. You wouldn’t see nearly the same returns, but also won’t run the risk of experiencing the same kinds of things I went through.

Below I have included a few pictures from one of our houses as well as a P&L that I maintained during operations and one of our Airbnb listings.

Link to P&L Spreadsheet

If you have any other questions feel free to ask

Hope this helps!

Lynnette E. · Answer

Remember that the more people you pack into an area the lower quality tenant you will get.  Having only a bunk, not even a whole room to rent, will get the way down and out, like drug addicts, mentally ill, recently out of prison.  They are people needing a bed, but they are hard to live with and this set up will keep out any poor/elderly type people that may be interested too.  That market will likely have violence in the home, and lots of issues, including frequent police visits.

You will not attract students, too congested to be able to relax or study.

If you do this you should see how you can make a secure area for folks to put their things like a large lockable trunk for each person under the bed to cut down on the theft.  Also group homes often assign each person a cupboard in the kitchen for their stuff, you won't have enough cupboards!

I can not imagine what a bathroom with that many people sharing it will look like!  likely constant water flowing and a line.

It might really be a hard place to live for you.  Especially since you will be the landlord, resented by all.

If you focus more at giving a person a bedroom and private bath, you will get a much better quality of renter who may actually pay the rent and not destroy the house.

I have found  that if you provide a nicer place to live you get nicer tenants, a poor quality place to live will get rougher tenants.

Corey Meyer · Answer

@Jesse Dean

Check out www.hostelworld.com and search some ski towns to put a seed in your brain on the possibilities out there.

I stayed at Chile-Kiwi in Pućon, Chile and it is one of the most amazing dorm style places I have ever seen.

The most similar thing to your idea is dreamcatcher hostel in Golden, BC Canada.  Ski town!  Look it up, pick the brain of the owner there.  I stayed and it was simply amazing, great communal industrial kitchen, fireplace.

Cleaners live in house and get free rent for trade cleaning common areas and toilets.  Also they utilize work-away (another resource online) where foreigners come and volunteer trade to stay in cool areas.  Loveland, Colorado is a destination location and I’m certain foreigners would help operate your house hack for a place to stay.

Sometimes you can sneak past the hostel rule by labeling as a “bed and breakfast.”

I would think about doing a mix use, live in long term tenants as well as short term Airbnb bunks.  Again lots of people traveling to ski in Colorado and not a lot of options for anything under $50/night.

John Crabtree · Answer

I love that you are thinking and putting numbers to your idea.  I will say that the more people that live in a single house the more drama you will have.  Try living with just 1 other person and there will be interpersonal issues,  10 people and you will have a mess on your hands.  You also will have a mini "tragedy of the commons"  where no one will take responsibility for cleaning up common areas since 10 other people are making the mess.  10 people sharing 1 kitchen = problems.  10 people sharing 1 to 2 bathrooms = more problems.  10 people sharing 1 driveway = more problems.

I had a tenant once who was renting a 5 bedroom house from me decide to start renting out individual rooms to people (without my knowledge).  The rent was getting paid like clockwork and the guy never complained.  I had no idea what was going on until we got an order from the township telling us we are not allowed to rent individual rooms and they discovered this was happening due to the police getting called to a disturbance at the house.  I'm sure you will run into legal issues with your city over this plan. After we got rid of this tenant I found that several of the bedroom doors had had padlocks installed on them to lock up when the person renting the room wasnt there, and 3 of the bedrooms had had the doors kicked in. The people renting individual rooms, much less the people renting individual beds, will care nothing about your property.  You will also be lucky if they pay rent.  Now try to evict 10 separate people who all have individual leases, that you are also living with at the same time.  I believe you would have to file a separate eviction case for each one, costs vary by county, but it would add up quick.

I think house hacking is still a great first move, but either get a duplex/fourplex, or rent out 1, maybe 2 rooms max.  Cover your expenses on the house so you are living free and bank like crazy for the next house.

Kyle J. · Answer

Very creative thinking for a young person.  Don't lose that.  However, with regard to this specific plan, the zoning ordinances and occupancy limits in most cities would almost certainly not allow you to put anywhere near that number of people in a single residence.

Brian Garlington · Answer

Account Closed    I like how you think. There are companies doing something similar to this right now in SF and San Jose.

Account Closed · Answer

Thank you for that, I will check it out!

Account Closed · Answer

Yes I'm familiar with that law in Fort Collins, but I don't think it applies to Loveland. Still I need to make sure of course. I think the law is kind of ridiculous. It hurts both the landlord and the tenant.

Account Closed · Answer

All true things. I definitely need to research my local ordinances. The nice thing about house hacking is that I can keep a closer eye on the tenants and property, but it's much harder with 12 than it is for 2. Thanks for your input!

Extreme House Hacking with 10+ Roommates?

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