Its a great way to get started but not really sustainable after you start to grow your profile. I'm moving away from it:
Here are the issues:
1) Accountability - People renting a room aren't going to want to be not the same lease with someone unless they know them, and then maybe not even. If you have separate leases per room and there is damage in the common area its a grey area. Garbage collection, who's responsible, and who do you penalize when you get violations from the city for carts not being taken in, trash in front of the house on the wrong days etc. Common area cleaning - who's responsible and how do you enforce it. Who do you go after when your appliances walk off and every tenant in the house claims to know nothing about it, and demand new appliances?
2) Utilities - how to split. If you use net leases, tenants will ultimately fight over the split, the tenant who has the utilities in his name, might get taken advantage of by slow paying tenants. If you have a gross lease, util costs may be high because the tenants don't see it as their expense. What happens when the tenant who has the utilities in their name splits
3) Leasing - lot of appointments and no shows vs. more traditional housing, harder to advertise on MLS. Harder to advertising in general without risking code enforcement inquiring further. Lot higher turnover.
4) Zoning - Read the code and your see this is a grey area. I was in compliance and a code enforcement official launched an investigation into my house. In the end, I was found to be in compliance, but the burden of proof was on me to avoid further issues. When I asked and mentioned specific code from the zoning ordinance, the code enforcer told me the code was open to his interpretation even though based on the code, I was in compliance.
5) Financing - lenders often have a hard time with multiple leases on the same single family property or multiple leases on the same unit. If you do gross lease, having higher expenses probably hurt your debt to income ratio vs. having slightly lower rent and no expenses on a net lease.
