Rent by the room? Is it a good idea?

[Alan Asriants]

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.