Many people add residential real property to their investment portfolio. These investments could be single-family homes or condominiums. Some real estate investors feel that they aren’t making enough.
Can you make more money if you only own one property? You can, which includes increasing your investment properties and properties’ returns. If you are looking to increase your bottom line, rent the rooms and not the entire property.
You can rent individual rooms to multiple tenants. This means you get multiple rent checks. While renting can be a great way to save money, there are some caveats.
Why rent by the room?
Most people who own real property tend to rent out their properties as a whole to one or two families. This option is available to property owners regardless of whether your principal residence is the property you own, or if you are renting it as an investment property. Renting a single-family home to multiple tenants has many benefits for you, the landlord and your tenants.
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Tenants can share their costs with other tenants, which reduces their rent. A three-bedroom home typically rents for $2,000 per month. One tenant might not require as many rooms and may not have the means to pay that rent. However, a room that costs $800 per month may be more affordable.
The tenant has their own space and access to the rest. The landlord can also charge utilities separately so that tenants don’t have to pay the full amount. This will reduce their monthly cost.
Room to rent to tenants can help landlords make more rental income. A three-bedroom house that is rented out to one family for $2,000 can bring in $2,400 per month if it is rented out to three tenants. Because it reduces the impact of vacancies, renting by the room makes landlords’ rental income more reliable.
High Tenant Turnover
It is cheaper to share a house with several people than to rent an entire apartment. This is especially true for young and single people, particularly in large cities such as New York City, where space is scarce and rents can soar.
This arrangement is popular with millennials because it gives them extra money to pay down their college debt, buy a car, or save for a downpayment to purchase a house of their own. Many rooms can be rented for as little as $100 per month in many areas of the country. A decent apartment unit will cost you at least $800 per month.
Because of the huge cost savings, it’s almost an automatic decision to share a house with several people if you don’t have kids or are not responsible.
However, landlords will have to deal with a high turnover rate of tenants. Although there is a lot demand for this type of housing, it tends to be temporary. Tenants will want their own place with more privacy and space after a while. For some people, sharing a bathroom or kitchen with others can be annoying. Renting a room in a separate apartment can make it difficult to meet people.
Landlords might have to replace multiple tenants every three-to six months. Although it is not difficult to find replacements for tenants, it can be frustrating to have to list a property and screen potential tenants.
Additional phone calls
When deciding whether to rent your rental property by room, another thing to consider is the extra work required to manage multiple tenants.
Late-night calls from one tenant can be annoying for landlords. It is almost inevitable that landlords will get more calls from tenants who have more than one tenant. Renting a room rather than an entire apartment is a better option, but it may be more stressful and cause you additional headaches.
Remember that renting to more people can lead to more damages and potentially more evictions. Real estate investors looking to passively earn an income from their properties may find this a problem.
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When calculating potential return for a rental home, it is easy to overlook important expenses. This is because landlords often assume the costs of tenant maintenance, such as heating and lawn care. It can be difficult to determine the tenant’s usage. Landlords risk overestimating their return on investment if they don’t consider these hidden costs.