Should I start a rooming house??

Question

Hello BP members,

I  have been wrestling  with the idea for the last few months on if I should make my next property a rooming house in Milwaukee, WI.

Before everyone just screams a collective "hell no!", let me tell you my thought process.

1. I have been a property manager for over 15 years and my speciality is low income housing and inner city management, so I am very familiar with the issues that landlords face (drugs,crime, and the like).

2. There is a definite need of good rooming houses in Milwaukee.  I visited a few of them for research and I was shocked by the living conditions of the properties and the screaming neglect of the owners.

3. The cash flow would be 2-3 times more than a typical rental, but then the property would require more management to run properly.

4. I have researched local ordinances regarding rooming houses so I won't break any laws and I will run it past my lawyer before starting one.

I am primarily looking for advice from other BP members who have rooming houses to see what processes and systems they have in place to run a quality rooming house.

Thanks in advance.

Lisa Ryan · Answer

@Nick L.

Unless you want a few years in the big house, I don't suggest not declaring cash income on your taxes. On a small scale, if you rent out a room in your house and have a few hundred a month coming in, will they find out? Maybe, maybe not. If you have a rooming house, you'd better be declaring all that cash as income. None of us like paying Uncle Sam, but blatant fraud is not worth the penalty.

Brandon Stevens · Answer

Knowing of the houses i milwaukee you have already seen...there are some bye some of our properties. My question would be what type of clientele are you going to be trying to attract. Unfortunately the type that typically live in those places are what you have already seen. I understand the city of Milwaukee is currently trying to discourage rooming houses in general and has been policing property transfers as such requiring some owners to change these properties back into 4 or 2 unit uses. Im not sure of their exact stance but I know it has been prevelent in the contigency wording of some of their listings. The turnover is what would get to me pretty quick i think,it would really have to be worth it financially for the time it would take to manage it.

Jay Hinrichs · Answer

I let another BP member talk me into funding one of these for him and it was a NIGHTMARE on ELM st... Now if you want to baby sit these folks maybe.

I would only consider one style and that is for Airline personnel ...

Marcus Auerbach · Answer

@Marrio Barnes Interesting idea... If I understand correctley you would be renting rooms on a monthly basis. I think that is defininitley worth a try. I know someone who does something similar on the other end of the prioce scale assistet living with a nurse on site. They best properties are large ranch homes (no stairs) with 5-6 bedrooms. The nurse gets a private area in the finished basement. Payments come from the health insurance - you would not believe the cash flow, but the required skilset - a combination of medical and real estate background - is also rare. However, I think its worth a try. With your experience I think its totally worth a try, even worst case you will break even. Only think would be I would look for a property that would allow an alternative exit startegy as a plan B. Good luck!!

Nick L. · Answer

@Lisa Ryan I agree. But as a primarily cash business, I think rooming houses perhaps attract people who take a different position.

Pat L. · Answer

We looked at financing one 50% LTV to a buyer who owns a couple more (& we hold several contract-for-deeds for him). Most of the old roomies had been there for an eternity & it was in great demand because it was next door to a popular 75c a beer $7.75 dinner pub. (My dog would not live in any of the rooms & my wife was very reticent).

Rental income $2500/month (can't remember the utilities but some rooms had very old 60amp separate electric meters???) but I remember the ROI was around 30%. Our borrower missed it by $3,000.

Nick L. · Answer

@Marrio Barnes

I recently toured a bar and rooming house for sale in the Walker's Point area of Milwaukee. If I were going to own one, that would be a good neighborhood for it.

I didn't feel it was dangerous but I decided it wouldn't be much fun to wring cash from the tenants every week or turn up to sort out drunken disputes at 2am.

But, no doubt there's a lot of money to be made, especially if you don't plan to declare cash income on your taxes.

@Jason Bott I agree, Waukesha is another good area for rooming houses. I also agree about the insurance. Probably something to get lined up early.

Roy N. · Answer

Jay,

Didn't anyone tell you - Never buy a rooming house on Elm Street ;-)

I do like the airline personnel model, but find student rooming house and those close to research/teaching hospitals are good bets as well.   We walked away from an opportunity to acquire a rooming house for those on the verges after concluding we did not have the skill set to make it work.

Dawn Anastasi · Answer

You would definitely get demand for a rooming house, it would be all about the tenant base you'd attract.

Jason Bott · Answer

@Marrio Barnes The insurance can be a beast.  I know an investor who has one in Waukesha and the cost is 3x's his other rentals.   99.9% of insurance companies do not want anything to do with rooming houses as they feel they all like the one you visited.

Send me a PM if you want to be connected to the investor I know if Waukesha.

Should I start a rooming house??

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