Rent by the room? Is it a good idea?

Question

There has been a growing trend recently of individuals looking to house hack single-family homes. While the traditional approach involves buying a multi family property, living in one unit and renting out the other - with rising prices and interest rates; others have considered renting out bedrooms as unit spaces.

Initially, this might seem like a great idea as you can maximize rental income by renting out bedrooms kind of like college student rentals. But what are the drawbacks? What can go wrong?

This is where real estate investing turns into a great area and on paper investment strategies seem great, but when applying them to reality, things can quickly change. This is also true for investments in class D section 8 rentals. On paper returns, look excellent but when you put it into practice, you don't seem to get the same kinds of returns.

This is a similar story for house hacking a single home and renting by the room.

yes, on paper it makes sense to run by the room because you can technically maximize your rental income but you have to consider the following things:

- who has control of the thermostat?

- what if one tenant doesn't have enough space in the refrigerator?

- are you going to allow pets? If so, how is that going to work out among the other tenants?

- is it going to be a Co-Ed situation? What if there is sexual-harassment involved?

- how are you going to handle disputes between tenants?

- what about storage space?

- what if someone is occupying the living areas more than someone else and it causes an issue?

- what if someone always has a guest over and they're a nuisance?

- is it legal to rent by the room in your area? If so, what are the licensing requirements?

The list goes on and on, and there could be so many more possibilities. The point of the questions above is to emphasize that renting out by the room increases your chances for more problems. After all, we're dealing with humans interacting with other humans. And since you're the landlord, you were going to be the mediator and you were going to be the one that they look out to when they have these problems. When you only rent to one family or one tenant, they solve these issues amongst themselves.

Is the extra headache really worth it?

Why don't you try to consider the following?

Doing a short term rental in a separated area that has its own designated, kitchenette and bathroom, would likely give you better returns and less headache. I have personally stayed in one of these places where the main house is separated, and only the basement space which has a walkout entrance, its own kitchen, and two bathrooms would be rented out an Airbnb. This way you keep all tenants separated, and you remove the headache of human interaction.

So before you think about renting by the room, consider the questions above, and even more questions that can come up.

Alecia Loveless · Answer

@Alan Asriants I’ve “house hacked” for close to 30 years. I’ve lived amongst the roommates, as well as in separate places like the basement or having a third floor solely for myself. Now that I’m approaching 50 I’ve graduated to house hacking a duplex instead of my primary residence.

The only real problem I ever had was one time I got some tenants who had significant cultural differences than everyone else. They stayed up to all hours of the night and apparently culturally were very heavy footed so for weeks on end they stomped up and down the stairs all night long.

I ended up having to give them their walking papers because they ended up just being incompatible with my other boarders.

I think house hacking is a great strategy.

Laura Shinkle · Answer

Not every area has multifamily properties everywhere. They're prolific up north, yes, but here in the south, there just aren't that many. And the ones that were originally built have been renovated to become a SFH. So while it's not as ideal as a multifamily property, it does present a solution for those that are in the personal situation where they can.

I househacked my first property before the word 'househacking' was coined. You know what it is? Roommates. It's just having roommates. I feel like by coining the word 'househacking' we've made it into this new, shiny, crazy thing and it's not. People have roommates growing up (their family), and in college most likely. So if I'm in my early twenties, want to get started, why not do that?

It can always go wrong, just like your college roommate might not have been the best. But what's the upside here? It allowed you to get into the property, start building appreciation, lower your monthly expenses, and learn more about buying property. There are always trade offs with real estate investing. The convenience and luxury of living alone is worth it to some for the benefits. Just go into it armed with solutions, being up front with people and setting yourself up for success. It'll work out. :)

Jake Andronico · Answer

@Alan Asriants

Really not that bad (in my experience), and most people aren't willing to do it. Probably the most approachable way to get into RE investing (especially if you're younger), but just my opinion :)

Things definitely went wrong, but if that's not expected than it's definitely not the right strategy for someone.

Shannon Strickland · Answer

Positive Solutions

Problem: In my county small multi-family houses are nearly non-existent and short-term rentals and second-cooking-areas are illegal.

Solution: House-hack while renting MTR to traveling medical professionals

Problem: I didn’t know the many laws of the county

Solution: A hired attorney 1) informed me that the county calls a house-hack a boardinghouse and 2) drafted a very comprehensive agreement that includes answers to your list of questions.

Problem: Interpersonal problems can be a risk. Covering a significant portion of my mortgage has been a great reward.

Solution: My four levels of vetting have helped me find quality room-renters over the last 18 months.

I think you already have the answers to your situation. If you STR part of your house while living in it, please share what you have learned from the experience.

There's a valuable thread called "House hacking at 22 - What I regret..." by Jake Andronico that’s worth reading.

James Wise · Answer

Rent by the room is brutal.

Alan Asriants · Answer

I It's good that you found a strategy that works for you, and definitely certain demographics and types of people in their life. Situation's are going to present less problems than others..

Alan Asriants · Answer

IIf you're young in the area that you're in doesn't have much multi family then I can definitely be a solid type of investment strategy for that type of person in that situation. But if presented the option between multifamily real estate and single-family house hacking I think that multi family house hiking is superior. Less headache for the owner.

Alan Asriants · Answer

W what typically went wrong in your case?

Erwin McClain · Answer

I had rental properties out of state but I have been renting rooms in my primary residence for over 10 years since my 2 boys have moved out. I stay in the basement, I went thru ups & downs like everyone else,  What has worked for me lately is renting to senior men (55+).  They tend to stay to themselves, not a lot of company or complaints.  This is the most peace I have had in years.

Rent by the room? Is it a good idea?

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