Rooming House / Inn / Boarding House (not sure of correct name)

[Steve C.]

I have a property being offered to me at a great price and another investor that I'm friends with wants to go in on the property to set it up as a rooming house.  It is zoned as a commercial "Inn / Lodge" but has not been used in a long time.  Its in horrible shape and will take a huge investment to renovate it.  I have ten residential units that I have renovated myself so I'm familiar with the work but I have no clue how a rooming house would work.  Does anyone have experience in this?  It is a 6000 sq ft property with 40 rooms! and 5 baths.  I've heard there are a few different ways to do it - with one being where you are just the landlord and lease to an organization that runs the house - this is what I would want to do. (Not own a business actually running the house for the tenants.

Does anyone have experience with this and could you post a few basics of how it would work?  ie. Contacting organizations and getting a contract / lease signed for them to use the house, who pays utilities, would I need more than just my standard $1M in liability and my personal $2M umbrella policies that I use on my other rentals, how the amount of rent would be calculated, the going rates in the area you are in?...etc.  Or any other info you would like to post would be very much appreciated!   Thanks!

[Mike Buckley]

@Steve C. Hi Steve, I have a couple rooming houses in the portfolio. One recent one was a small development project. When the building was granted occupancy I looked into a couple different routes of how it could be run. The first house has an “in house manager” with a free rent deal. They handle all the showings and leadings, take care of all tenant customer service. The only thing that was left over was the maintenance contracting and physical building management. For the new one I wanted it to be even more hands off. (I think this is what you’re looking for as well.) So I took my first “in house manager model” and found the best property management company in the area to oversee the operation and manage the in house manager. This seems to work given the numbers of the deal. The key is to find a seasoned enough management company that can handle a property of this nature... I had found that master leasing companies were more geared toward “Sober Houses” or some type of “Group Home” and many choose to purchase these types of properties themselves rather than rent. 

[Drew Sygit]

Recommend having inhouse manager still sign a full-price lease. You then have them sign a Management Agreement where their pay covers the negotiated rent. Otherwise, you may have a very difficult time getting them out of the property if they do not perform their management duties.