There are many good reasons to pursue real estate investing. Passive income earned from rent is very attractive and can even prove a primary source of income as you pursue other goals in life. Real estate investment can involve different types of properties, from condominiums to apartment buildings and commercial space, as well as flipping homes. These investments are often fairly straightforward. If you own a house with multiple bedrooms, however, you may be faced with the decision of whether to rent a single-family or rent out each room individually. There is no one answer to this question, and the best option will vary based on your circumstances. The following synopsis will highlight the pros and cons of each approach and when either might be the better option. For a more comprehensive guide, you can visit The Kay-Grant Group.
More Rental Income From More Rooms
You are likely to bring in more rental income from renting each room than renting to a single-family. This is because you can bring down the per-person cost of rent while still making more total when each room is filled. This increases the amount of money you are bringing in per square foot and is often a boon to your bottom line as an investor. You can usually charge about the same or a little less as a one-bedroom apartment would go for in your area, which, added together, is likely to be more than renting the entire home to one renter. It is also advantageous because you are not as likely to go through dry patches with no rental income when you look for new tenants after the old ones have moved out.
Increased Tenant Turnover With More Rooms
Renting a property by the room is likely to increase tenant turnover and often result in leases that don’t sync, which could cause problems. One of the biggest potential concerns is if a new person moves in, who causes tension with the existing tenants. This can turn into a major headache, resulting in more calls and complaints about the other people living in the house. You may also end up waiting on a final tenant to finish out their lease term, collecting less in rent, if you choose to do something different with the property or sell it. Increased tenant turnover is not ideal either as you will have to spend more time and money cleaning the place, marketing it, and screening new tenants.
Increase In Property Maintenance For Renting Each Room
Renting out each room usually comes with a small increase in the cost of property maintenance. This includes hidden costs such as lawn care, heat, and electricity, which are often passed on to tenants if a single-family is occupying the home but is more challenging to do so when renting by the room. This usually results in a net positive rental income; however, due to the increased rent, you collect from multiple tenants living on the same property. Just be aware that the more people you have living in a house, the more wear, tear, and the damage is likely to occur. Always be sure to screen your tenants carefully so you can be sure to approve good ones more likely to leave your property in good shape when they move out.
Consider Your Location
Whether it’s better to rent to a single-family or multiple individuals will also vary depending on where the house is located. For homes in college towns or located near colleges, renting per room may be the better option because you can rent it to a group of students looking for housing. Families often don’t want to live close to campus anyway if they are not affiliated with the university or going to school there. This is due to the inconveniences living next to college students can entail. A single-family home in a residential neighborhood surrounded by homes owned by families is likely to be a better sell to a single-family looking to rent. Use common sense based on the renter demographics of your area and do some research on other Scottsdale homes for sale or rent to get an idea of how comparable properties in the area are being used.
Be Aware Of Local And State Regulations
Local and state regulations might have some restrictions on how a multi-bedroom home can be rented out. For example, you may not legally be able to rent out space in a basement for safety reasons if it does not have multiple access points. If it would not be legal to rent out your property by the room, then you will simply be forced to rent it to a single tenant. If there is any issue with how the house is zoned, you may be able to convince your local zoning board to have it re-zoned into multifamily property, but keep in mind that this is difficult to do. When in doubt, always check with an attorney familiar with landlord-tenant law and local officials. If you have a mortgage, you also may want to check with your mortgage holder to make sure they have no restrictions against the type of rental arrangement you have in mind.
Sometimes You Might Have To See Who Is Interested
In some cases, you may just have to see which group is interested in the property and then have each roommate pay a portion of the rent or let a family cover the entire cost. You can consider this option if the house has been available for rent for several months, and no one has been interested in it. If you are a new investor and aren’t sure which arrangement will be more attractive to renters, you can offer both options and see which type of renter ultimately approaches you. The downside to this approach is that you might not be able to charge more per room. For example, if you list a three-bedroom home at $1,400 monthly rent for a single-family, it might be a tough sell to offer the rent-per-room option for more than a third of that cost, or $467. You might be able to justify charging more due to the complexities of renting out to multiple people, such as needing to process multiple leases.
Be Open To Other Arrangements
Although, as the landlord, you get to decide who lives at your property and in what arrangement, it never hurts to be flexible. Flexibility is a necessary aspect of successful real estate investing. For example, you may have a home that you have decided to rent a single-family and have three roommates approach you asking if they can live there and split the rent. Another possibility is a pair of friends who may be interested in subletting the final room to someone else to reduce their costs. If a renter approaches you with an alternate arrangement than what you had planned, at least consider it, especially if you have been having difficulty finding a tenant. You can always say no if your liability would be too great, you don’t like the idea, or there would be other issues with arranging it.
The decision of whether to rent out a home to a single-family or multiple roommates can be a difficult one. It is often situational, and you should choose the option that makes the most amount of sense based on your business model, the individual house in question, and the rental market around its location. Always be on the lookout for Scottsdale homes for sale that could grow and diversify your portfolio.