Renting by the room in Houston

[Axel Norvell]

I'm currently in progress on finalizing a contract on a SFH that is currently being rented out by the room.

Right now there are 7 tenants all living in a single-family house. The house is in need of some TLC and I'm intending to do some minor rehabbing to improve the living conditions for the tenants.

I'm wondering if anyone here has had any experience with per-room rentals and if they could share any gotchas. The current owner gave me a few bits of information:

1. Personalities: some times tenants will clash with each other and you'll have to deal with the drama. Either pay the problem tenant to leave, or find a resolution.

2. Vacancy: because it's rented by the room for cheap, I'm expecting a higher vacancy rate. To be on the safe side, I put a 20% vacancy into my calculation numbers.

3. Getting rooms rented is a matter of posting a craigslist ad. The current owner says he receives 2-3 inquiries per day, and usually places a new tenant within a week. Does this seem typical to your experience with per room rentals?

4. Students: given the time of year, you might get more student renters near the beginning of school. Students are typically more reliable with their rent and cleaner (this is based on the current owner's experience).

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What are your experiences with the per room rentals in Houston? Do they cash-flow well for you? Is the management worth the cash flow? 

[Matt McGuire]

I am doing something similar in Houston, but I am using a company called PadSplit. It is on online platform where people can go to find a room to rent kind of like airbnb. I opened mine in January and was full within 3 weeks. So far it's been great. PadSplit does all the marketing, screening, charging late fees, collecting rent, and dealing with tenants when it comes to interpersonal disputes. They do take 15% for their efforts but I personally think it's worth it because I don't have to deal with those things. If they fill out a maintenance request, that comes to me, and I am responsible to get it fixed but overall, it's very easy. I bought a 3bed/3bath house and turned it into a 7 bedroom specifically for this purpose. I would have only been able to rent that house for $1700-$1800/mo otherwise so even with them taking 15% I am still making way more than just a SFR. I would have been apprehensive about doing this without a platform to find renters. I was worried about where I would find someone looking for just a room to rent. But it sounds like it would be just as easy to fill the house using craigslist. The other thing that is great about PadSplit is that they have their own rules for the platform that all members are aware of. So it's not just the landlord making rules, it's something larger than that and they can contact PadSplit if rules are not being followed. I feel like there is value in that too so I am not the "bad guy" when it comes to rules. PadSplit sets the rules. If you are interested in using PadSplit, tell them I sent you and we both get $1000.

If you keep doing alone, I would suggest one thing that PadSplit does for sure. They collect rent weekly. They told me that people who are staying in a co-living arrangement often are lower income earners, so they struggle to budget monthly. But if you collect rent weekly, they can manage that a lot better because they get paid weekly. So, if you are charging $600/mo for a room, just collect $150/wk. They said that when they made that change, their rent collection went up to like 95%.