Chris - More than 4 unrelated people in one unit constitutes a rooming house in Raleigh, NC. As long as you have 4 or under, there are no other laws to worry about. Above 4 must be registered with the City. There is a $250 annual registration and the home must be inspected every 6 months. We haven't ventured to anything above 4 people. From my observations, if you put more than 4 people in one unit, you end up with more vacancies. Having to share 1 bathroom/refrigerator creates chaos.
Profitability is interesting. We have a couple single family homes we could rent for about $550/month (they pay utilities). Instead, we turn the living space into a bedroom and charge $100 - $120 per week per room. We pay utilities on rooming houses. Instead of $550 x 12 = 6600, we get $400 x 3 = $1200 every 4 weeks... 52 weeks in a year = $15600. We expect about $100/person/month in utilities =$3,600/year. It's a high estimate, but when people try to heat their house with their stove or air condition the house with the refrigerator, you can see how it's a safe number.
If my numbers work, this is the outcome:
$550/month = $6600/year
$100/week = $15,600 (home with 3 rooms) - $3,600 = $12,000
Over 80% increase in rents.
It's more work, but once you have the right tenants and handymen in place it is much easier than it looks. Not to mention you can ask the tenants to pay every two weeks (if you think they are capable of holding on to money that long) further cutting down your work load.
The trick to it all is this: Do Not Be A Slumlord.
