Running A Rooming House As A Rental Option
The longer I’ve been in Real Estate, the more ways I’ve seen to make money with Real Estate.
Whether it’s flipping properties, rent to own strategies, buy and hold or any of the myriad categories in between, there are simply dozens and dozens of ways to make money in Real Estate and running a rooming house is one area I specialized in.
Now, word of warning, rooming houses aren’t for everyone! Just like some individuals can’t handle the stress of flipping and others can’t handle the stress of dealing with tenants, rooming houses require a specific mentality to balance everything out.
Rooming houses as a category typically come with a poor reputation. With stories of problem tenants, drugs, sketchy areas and more it scares many potential landlords off before they even start. And truthfully, it can be this way, but it doesn’t have to be.
So what does running a rooming house involve? It’s usually a home or a building that rents out rooms on a daily, weekly or monthly basis. Most are furnished, and they typically provide shared washrooms, possibly kitchens and possibly laundry areas.
They also tend to cater to people at the lower end of the rental system who may not qualify for typical rentals or who don’t wish to be tied down to extended leases.
Folks who cannot afford deposits or first and last months rent, people who tend to deal in cash and people who get paid weekly.
These are your normal rooming house tenants, sounds appealing so far doesn’t it?
Our First Rooming House
It was in 2004 that we bought our first “rooming house” style property and we bought it for a couple reasons. First it was the other half of a duplex we had already purchased earlier form the owner and second, cash flow. Huge stinking cash flow!
Yep, we were suckered in by money and we quickly learned some lessons about running a rooming house. This particular property was set up with three rooms downstairs that were rented out on a weekly basis as furnished room rentals and the owner lived in a suite upstairs. They had a makeshift kitchen in the basement crammed in with the laundry. With all three rooms full we would make in two weeks what a normal basement suite generated in a month.
Our thoughts were to upgrade the basement units a bit and to rent out the upstairs to an onsite manager who would deal with collecting rents, signing people in and out etc.. The former owner had mattresses on the floor, supplied black and white 13″ TV’s and was typical of rooming house landlords. We have learned consistently not to be typical!
First thing we did was replace the mattresses with new futons that allowed the guys to have beds or couches in the limited space, we got rid of the crappy TV’s and upgraded them to 20″ color TV’s and brought in night side tables and a few other “upgrades”. Two of the rooms were already occupied, so we painted the hallways, the other room and generally updated what we could, but it was still a cheap rooming house, sigh.
My First Negative Experience
Needless to say the rules involving running a rooming house and for renting out to weekly tenants are often considerably different than renting out to longer term tenants in regular rentals. Due to the high turnover, the cash based business, the timing required and the type of tenants, credit checks are simply not done. That’s the first challenge with running a rooming house.
People show up cash in hand and need a place now typically. There’s no two or three day waiting period to check references or get reports back, it is cash and carry. This leads to all sorts of “fun characters” and takes us to my first negative experience which took place within the first month of taking over.
The key to making this work is to stay on top of the tenants. Rent is due weekly and it must be paid on time. See any problems yet….
Within the first month I put in a new fellow, sketchy would be putting it mildly, but he had cash in hand, By the end of the first week I had complaints from one of the other longer term tenants. He was leaving dishes in the sink, he would forget to lock the door, typical problems and things that have to be dealt with quickly.
I was due to collect rent so my wife and I headed over to get rent, do some more work to improve the place and make sure it looked ok. At this point I need to bring up the fact I was brand new to this and had only been a landlord of any capacity for just over a year, so I didn’t necessarily know the rules, or follow them…
Don’t Try This At Home Folks
I knocked on buddy’s door and I could hear him moving in there, but he didn’t answer. So I knocked louder. Still nothing, I told him I could hear him, still nothing. So being a frustrated landlord I broke the rules and the law and unlocked his door to confront him.
To add some perspective I stand around 6’2″, weighed around 220 pounds and I’m reasonably athletic (at least at the time). Buddy was 5’8″ maybe 150 pounds, so I wasn’t worried about a confrontation, although I was getting my money, I hoped.
When I open the door, I find buddy sitting on the floor, needle in hand and likely just finished shooting up. Being a calm, rational person I did what anyone else would do. I blew up! I told him he had 15 minutes to vacate (also against the rules, but by his glazed yet fearful expression he understood it was time to leave).
I went and explained to my wife what had happened and the door to the basement opened and the tenant I thought I had confronted walked in. I had just evicted someone who wasn’t even supposed to be there. In my defence, there were no lights on in the room, they both had long shaggy dirty blonde hair, they had the same build and I had only met him once.
I explained to him what I found, told him as well, 15 minutes be gone. I gave him 15 minutes, went back to the door and he had his stuff packed and was ready to go, then I noticed the TV was missing. When I politely inquired about it he told me that someone had come to take it away to fix it. I went from seeing red to seeing crimson and told him he had about 1 minute to get the hell out, to forget about his security deposit and to avoid me for the rest of his likely short life. Welcome to running a rooming house and the experience of renting out rooms.
Click to get more info about rooming or boarding houses
That Was Then
We were ready to shut down that experiment, but for some reason struggled through and learned some valuable lessons. About six months later someone else approached us with a rooming house they hoped to sell. This time though, it was a full duplex at a price we couldn’t refuse. It had ten rooms in total and when full generated almost $6,000 in gross income every month.
With new systems and process in place from our earlier mistakes, we continued to expand and at our peak had eight rooming properties and over 50 individual rooms that I dealt with on a weekly basis. That equates to collecting rent 2,600 times in a year if I was 100% occupied. Talk about an advanced lesson in landlording and running a rooming house business.
Now, many years later, would I do it again?
Definitely, although I know I would make numerous changes along the way.
Would I recommend it to everyone?
Not really.
Although there are many that could make some huge income off of this. The income from that one duplex alone was over $30,000 per year, even after vacancies and expenses. Plus, it’s almost doubled in value from our original purchase price.
Is it a lot of work, yes, but is it 40 hours a week? No, usually only four or five per week which makes it an exceptional return on the investment.
The point of today’s article isn’t to get you to thinking about rooming houses as an investment, but rather to get you thinking about other opportunities available out there. I preach that up down rentals with detached garages, in my opinion, are the best way to go as far as good rental properties, but I also own condos, single family homes and yes rooming houses.
In some of my interviews with other landlords and in conversations, many are doing great with everything from vacation rentals to furnished executive rentals to single family homes. So there is no one right way. you just need to find the right way for you and then learn as much as you can to specialize in that area.
Rooming House Examples
When we started to expand with our properties we had simple rules we stuck with. The properties we felt were ideal for running a rooming house had to have at least five rooms to rent or capability to build up to five rooms. It had to have an upstairs and downstairs bathroom and shower setup, or again space for us to build it.
They had to have great transit access. We understood many of our tenants were new to the city and often took transit, so access was incredibly important. And we had to be close to the work, so our properties were positioned close to industrial areas where many labourers and trades would be working.
Knowing your tenants and their requirements was part of the battle and is something you as a landlord should be aware of as it makes finding and keeping them easier. Understanding what our style of tenant needed made our job of advertising and renting out so much easier.
The other lesson we learned was learning where to find our tenants. We hit up training centres for the trades, unions and even immigration companies about our properties. We took those that were interested on tour and we even found one company who rented an entire house from us for two full years at $4,000 per month to house incoming workers for a major project.
Finally, I’ve incorporated a series of questions I ask people who call my ads. Much like screening my regular tenants, I have filter questions to narrow down my waisted time. All designed to get better people in and to save my time.
So, my challenge for you, even if you have a regular rental, is to make sure you know the benefits of the property you currently have, or if you are planning on buying a new rental property, the nearby benefits. Then find that avatar or perfect tenant and find out where they work, what they do and then go advertise or visit those places in preparation of your next vacancy.
Investing in Real Estate isn’t fire and forget, it’s a business and requires some strategy behind it. Hopefully you enjoyed my long drawn out story and can learn some lessons from it you can apply to your landlord business!
If you liked this article let me know, if you want more stories about my experiences (both good and bad) tell me. Or if you just want more tips and generic landlord advice let me know too!
Just to add to this you may want to read another post I have about rooming houses. you can find it here, Profiting From Rooming Houses
If you’re serious about running a rooming house or have just started one, I’d highly recommend you check out my Basics of Rooming & Boarding Houses Guide.
It’s $17, includes information on how to determine the best areas for rooming properties, the options for daily, weekly and monthly rentals and it gives you the information I wish I had when I started!
Click here to get your copy now (it’s a PDF, so you can have it in minutes) The Basics of Starting Your Own Rooming House
The Basics Of Running A Rooming House
So, are you intrigued? Does the idea of owning and running a rooming house sound like a journey you might be interested in taking?
Over the years I’ve owned a lot of properties and a lot of rooming houses and it hasn’t all been perfect, but that’s part of the learning curve. Sometimes there are expensive lessons we learn and other times there are inexpensive lessons.
That’s why it’s important to go into this with your eyes wide open.
Running a rooming house is more than just buying a property and putting bodies in.
There are rules and regulations that vary from place to place, city to city and even district to district. There is higher demand in some areas and lesser demand in others which can lead to underperforming properties.
Then there’s the concept of targeting certain segments of the population to develop a steady stream of clients. We learned early that we constantly needed to be advertising as an empty room meant we were losing money. Later we learned who and how to market so that we found our ideal tenants.
Learning all of this took years and not knowing it from the beginning likely cost us tens of thousands of dollars of lost income and bad purchases and nearly causes us to quit before we even got off the ground!!
In hindsight if I could have found training or information to help guide me and avoid those early mistakes it would have been priceless.
But that was my bad luck, or in this case your good luck as I have that information and I have a way to share it with you so you can avoid the costly lessons I learned.
I’ve put the information you need to know before you buy your first Rooming House property into an online training program call The Basics of Rooming Houses.
Now this may not be for you. If you like making mistakes, losing money, getting frustrated and quitting in frustration then you should probably don’t want to consider taking my training as it will make the majority of those painful experiences go away!
However, if you’d like to learn how to determine the local demand for rooms (along with understanding what you can charge for a room) I can help with that.
If you’d like to discover how the rules work in your area for room rentals or rooming house properties I explain how to figure it out and who you can talk to in order to get the details.
Perhaps most importantly, once you get through the initial training I teach you how to start finding more and more tenants so you eventually get to the point where you can live off of referrals and repeat customers! Once you understand how much easier this business is when people are calling you all the time you’ll really start to appreciate it.
I guess it really comes down to how serious you are, or how much money you want to lose on your own..
So if you’re someone willing to learn, to get educated and to get off on the right foot, you’ll want to go sign up for this course and get started today.
Click here to invest in your rooming house education – The Basics of Rooming House Course
My boyfriend owns a bed and breakfast , nightly and weekly ,, he is in Niagara county ny, olcott 14126, he has a tenant that pays by the week that is doing damage to the room he rents weekly , hikes in walls , broke window ,, the room has garbage and debree all over and he brings his small children to the ro to stay the weekend , my boy friend , only has health permit for . Them to use microwave and toaster in main area of inn , this tenant has cooking stuff , such as electric cook tops , plug in frying pans etc , he has been renting here with his new girl friend by the week ,, they have destroyed the room and , my boyfriend can not seem to get any help to get them out , he is being told since they have been renting here for longer than 3 months , by the week that he has to take them to court to get them out ,, my boy friend has been harassed and threatened by this tenant and this tenant is making it unbearable fir others to reside , peacefully , what can we do ?? To get him out
Hi, that’s very unfortunate but it’s also a prime example of why you need to know the local rules.
It sounds like at the very least your boyfriend needs to start a court application ASAP. This may require a lawyer, or he may be able to self represent, but he’ll need to learn very quickly the local rules, that apply if he’s renting a room, he’ll need to review his written lease (he really needs a written lease in almost all areas) and he’ll need to learn the eviction process.
If your boyfriend has been threatened there may be special circumstances allowing you accelerate the process and the police may also need to be informed which also helps as part of a paper trail.
This is definitely something that needs ot be addressed immediately as often waiting leads to more issues, more damages, or on occasion the issue being thrown out as it wasn’t acted on quickly.
rules vary all over the place, so anyone reading this and either currently renting rooms or thinking about it, the 3 month rule may be six months in your area of may not exist, so understand what you’re getting into!!
Bill
Hi, i manage a rooming house in upstate New York!! My question to you is, if a tenant pays weekly do i still have to go through the entire 30 day eviction process(which can take up to30-90 days) or is it a 72 hr eviction due to weekly tenant? I must remind u that in NY if a person has stayed here over 30 days they are now considered a resident!!!
I didnt mention that the roomer has not paid his rent for this week!! Down right refuses to pay!! he also has been late on several other weeks!! He becomes rude and loud causing other roomers to fear him!!
Hi Kimberly,
I can’t comment on the specific rules in New York as I don’t live there and my rules are likely quite different here. However, most areas have contingencies in place if rental periods are shorter while others have different rules depending if the landlord also resides in the property. So you may want to dig a bit deeper.
Most areas have local government landlord/tenant support numbers to help you maneuver through all the details. I’d start there, also in your other post you talk about other tenants fearing him. Again, depending ont he local rules most tenancy acts state tenants shouldn’t feel threatened by other tenants or their landlords so that too may be an out!
Bill
Thank you, great information in this article. One of the comments states that the person bought the property and had to get a commercial loan. I am purchasing property in state of Virginia, and wondering if the real estate agent should be completing a Commercial Property purchase agreement instead of a Residential Agreement.
Hi Sara,
It may come down to local zoning/laws. Depending on the type of building and setup it may require a commercial loan. If you’re looking at a residential property and just considering renting out a few rooms in it though it would likely fit under a standard mortgage, just make sure you fully disclose what you will be doing with the property as not all lenders will be interested.
Bill
Is it better to set up a company or run an individual?
Yes…
You run into problems either way and both have benefits. The biggest issue as a company is buying the property as you probably have to qualify individually, at least until the company has been around a few years and shows profits).
The biggest issue as an individual is the liability. Under the right company your personal assets are protected in the event of you getting sued.
I’d suggest talking with a qualified attorney and accountant for the best advice for your specific area.
Bill
I am in the process of setting up my 1st rooming house. I already have single residential rentals. what are your thought on placing a lock box on site for money order rent payment?
Hi Patricia,
We have tried it and some of the tenants learned to scam the system so we moved back to collecting in person and e-transfers. Alternatively we have tenants hide the rent int heir rooms on the day we are picking it up. The money is locked in their room until we get it and we get a quick peek at the room to see if anything out of order might be happening.
Bill
I am glad to find your blog. Rooming house operation is a kind of hidden away subject even though rooming houses are an important part of the rental market. Rooming houses are in my view is the first accommodation for mobile workforce. I have operated one for about 2 and half years. It has been very profitable, I have haven’t had an empty room since May 2013 when I started. I want to replicate this success in Houston in a similar property. But management of rooming house while not there poses some challenges. Are there any companies out there who can provide support for a price.
Rooming houses are a huge part of the rental market, yet they remain relatively known to the general populace. Whether it’s low income, new people moving to the area, or even breakups, rooming properties provide a cost effective solution for people.
The problem is so many folks treat them as low income properties, by simply upgrading them to a new level you can increase your revenues, decrease your problems and provide a better solution for folks.
As for companies that could help manage, they are few and far between and the huge rates would kill your profits.You might want to consider finding a property where a manager can live on site and for either a reduced or free rent he stays there. I’ve used this process in one higher end property reasonably successfully over the years, the trick being finding responsible tenants.
Bill
When you have a tenant in a rooming house that can no longer pay their rent and has no where else to go, can they refuse to leave? Do you have to go thru the same eviction process as you would a single family dwelling that you are renting with a lease agreement?
Hi Anecia,
The only answer I can give you is maybe. Depending on the local laws where you are located there may be several routes you can take. At issue is there is no one universal rule. New York State deals with it differently than California and Alberta Canada deals with it differently than Antwerp Belgium.
As a rooming house owner, understanding what to do or whom to turn to when things go bad is one of the first things you should learn. From there you may have to dig deeper and learn if there are any additional tricks or licenses you may be able to obtain to help make the process faster and easier. Some places fit rooming houses under similar legislation as hotels, others do if they are officially licenses. Again this is all part of knowing the local laws.
Without knowing where you’re located I can’t even point you in the right direction, so I’d start by calling your local state or provincial government offices to see if they can point you in the right direction.
Bill
Hi,
My biggest problem with tenants is making them maintain cleanliness in common areas; i created general cleaning schedule (room 1 cleans 1 week of the month, room 2 second week etc) but nobody follows those rules and I don’t know how to sanction them.
Second issue is when i accept tenants they sign agreement that room is rented for them only and nobody else; but after some time some of them move their girlfriend/boyfriend and they keep saying that those people are just temporary there, not permanently. How to deal with these issues?
thanks,
Mike
Hi Mike,
Unfortunately at times it can feel like babysitting. The only way around it is to stay on top of them and make sure the rules are enforced. Having said this I’ve run into situations where tenants refuse to clean up after another individual and at that point you need to make a call, either everyone lives in squalor and you potentially lose people or you help the rotten apple decide to move on.
As for the extra “visitors”, you may want to make sure the policy/rule of no overnight visitors is brought up in your ads, prior to move in and explain that NO means NO, not occasionally. If they have issues with this, time for them to move on as well.
Bill
Hello Bill,
I have rooming houses in seven surrounding cites; mainly in low income areas. I can hit all my houses in about 2hours of driving from one to the next. My question is would it be wise to purchase in a another area? I seem some good deals about 2 hours out, the prices are about half of what I pay, the only difference are the areas are a little more poverty stricken. I understand there could be a headache with doing this but I was thinking about spreading out.
Currently, I have trained a manger to collect rent on a weekly basis for 10 properties in my area. This works out okay but the managers seem to get to relaxed and I constantly have to remind and update him on stuff. I pay him about two hundred a week to do a house visit on Thursday every week to check for cleanliness and if any one have an issues or concerns (manager actually does this sometimes). I also have him to send me pictures of the common area every Thursday as well. Moreover, the manger also goes out on Saturday morning (great tip). On Saturday the manager is able to see most of the tenants and do a slight inspection/and evict as necessary.
I know its gets technical for evictions, but I explain all this to my tenants upon move in and have them sign documentation. I do not give they any lease or agreements, all I give them is a document saying this is a temporary stay and that they are not a resident. This is the only thing that they have. I can go into more detail on why I do this if anyone wants to know. This actually helped me on several occasions.
Hi Jameel,
It sounds like you have a great system in place, but here’s some thoughts for you. If you could determine your best performing areas and perhaps add another property or two (or three if it supports it) in those areas, it may work in your favor.
It reduces travel time by keeping things closer together, it simplifies putting people in place as you can often fit multiple people in easier (split across properties initially but still workable due to proximity) and it can centralize potential storage of extra items.
The poorer the areas, the more often you run into trouble, so this can be a fine line. My experience was getting to the higher end of the mid level gave me a better experience with fewer headaches and more tenants that would stay longer.Note that is my experience, depending on your location you may have found your sweet spot that works best, but it doesn’t hurt to try going up a few tiers to see fi it resolves problems and ultimately makes it more profitable.
I love the fact you have a manager in place. I’ve experimented with it in the past, but due to high local wages, it was more cost effective for me to do it.
For me I do have a highly customized agreement (I never really refer to it as a lease as that opens up a new can of worms) that I have them sign, but don’t typically leave with them (they can take a picture with their phone if they like, or it is posted on the bulletin board at the property) and I have a complete set of rules and “by-laws” that I leave with them (that is also posted on the bulletin board).
Sometimes the less they know about the process of being evicted the better, but you still have to remain fair.
Thanks for sharing your story!
Bill
Jameel,
Any chance you could email me a copy of your boarding agreement?
I want to put together something like what you are using.
thanks,
Terry
Hi Terry,
While I’d like too, I also sell the forms as part of a local package in my region. It wouldn’t be fair to charge some people and to give it away to others. In addition it is fairly specific to my local, so it would be wise to get something customized for wherever you’re located.
If you do really want to get a copy of it along with the basic info I provide for local landlords, you can find my beginner package here,
Basic Innkeeper/Room Subletting package
or my advanced package with additional forms and info here,
Advanced Innkeeper/Room subletting Package
.
Bill
Please elaborate.
Hi Bill. I have a 13 room rooming house that I furnish. This is my first year of ownership and I wasn’t sure if I should supply window air conditioners. It gets hot in there but is an AC a luxury item that I shouldn’t worry about? Thanks
Hi Bill,
You have a great question there and you’ll need to think about the following questions.
From the landlord side, individual air conditioners will be a big expense and costly to operate, so what are your options? Is it more affordable to bite the bullet and install central air which you can then put a locked digital/programmable thermostat on allowing you to manage costs better? Is it possible to simply install fans in each room and/or provide floor fans to make it comfortable? Should you test room air conditioners to see if they work or finally should you just carry on status quo?
From the tenants side, if it doesn’t even have air conditioning, should I bother renting it during the summer or simply look elsewhere (ie, is air conditioning a deal breaker?). If I don’t find out until after the fact and can’t sleep at night and aren’t comfortable during the day, should I just leave and find a new place? Or is it a nice quiet semi-comfortable place and I can live with the heat because it’s affordable and just what I want.
Other things to think about Bill, why wasn’t there air conditioning in place before? If you install it can you charge a premium? Or if you only install it on the hottest rooms can you charge a premium for those months? What additional maintenance issues will this create?
Sorry if I’ve made this bigger than just whether it’s a luxury item or not, but it is questions like these that you need to wrap your head around.
Hope that helps,
Bill
Hi Bill,
I commented on this thread back on January 1, 2014 and I wanted to give you an update/ask a question. I closed on my first rooming house (10 rooms) exactly one month ago. It’s been an interesting experience thus far but I’m sure it will get easier over time. I already had a guy served the notice to quit due to non-payment of rent. Do you have any ideas on how to get this guy out without going through the traditional eviction process which typically can take 45-60 days? I’m thinking that since I own all of the furniture inside the room including the TV and bed, could I give 24 hour notice and basically empty the room of all the items that belong to me? I don’t want to resort to that option but if this guy keeps playing hardball, I’m thinking that staying in a room without a bed might force them to move out without dealing with the traditional eviction process. Thanks
Hey Bill,
It can definitely be an interesting experience, you might be interested to know I’ve started a weekly email list where I send out tips on setting up and managing a rooming property. If you’d like to start receiving these you can sign up at the bottom of the article.
As for what to do with your tenant, I don’t have a simple answer. The problem is the rules vary so much city to city state to state and region to region. As a rooming property landlord part of your job is learning these rules before you need to use them. Unfortunately in this case you’re doing it in the wrong order.
I’m fairly certain that you will be in breach of some of the local rules by removing everything, so your first step will be doing some quick online searches for any landlord/tenant support numbers that perhaps your local city or government provide. If that doesn’t go very far you’ll want to check online for any landlord tenant rules, acts or laws for your specific region and from there possibly any local landlord groups that you can ask questions of.
Rooming houses often don’t fit directly under landlord tenant laws, they may fit under their own special section which could mean you are lumped in with bed and breakfast properties or even possibly hotels.
The positive of this, as lousy as it is, will be the knowledge you pick up getting rid of your first tenant. It’s very unlikely it will be your last, it’s part of the rooming business, so consider this a learning experience and an reminder for next time of any additional steps or processes you can add to your system to get people out quickly or to reduce opportunities for people to run you through the mill so to speak.
Make sense? Sorry I don’t have a great answer that solves everything quickly, but as they say, if it was easy, everyone would do it!
Bill
Hi Bill,
How about hotels: how do they evict tenants which stopped paying? It should be very straight forward for them, shouldn’t it? Is there a way to get on the same technique as hotels?
Thanks.
Hi Igor,
You’re getting into a whole different scenario here. If you hope to follow the exact rules of the hotels you suddenly need to follow the other rules in place for a hotel as well. This would include making sure your property is in an area zoned for a commercial business like a hotel, you’d most likely require a business license to operate as a hotel style operation and you may also require specific city inspections and guidelines for room size, security, fire and safety and more.
Depending on local rules there may be a mid ground like bed and breakfast licensing that may work to get you closer to the same techniques and rules, but it can vary from area to area.
Bill
This article was very helpful, thank you. Question, what’s the weekly/monthly rate you charge for rooms and are the rooms shared? Thank you.
Hi Sheema,
Thanks for the feedback. Before I answer I need to point out that the actual prices can very incredibly depending on the property setup, where in the world you are and the local economy.
When we started, the first property we bought was renting for $125 per week. With some upgrades and improving the property it wasn’t long before we were up to $150 per week.In the last year locally our economy has been very heated and vacancies have been hovering around 1% which is extremely low.
Due to the low vacancy and ramped up demand my prices have moved up to $175 for my small rooms and $200 for my larger rooms while my higher end property that accepts couples has been getting $250 per week. As the economy slows I may start lowering my prices, by I also fit in a unique section of the market, so I just have to keep an eye on what’s happening with my local market. Hope that answers your question.
Also, if you’re interested in getting more information about rooming houses, you can register on this page to get tips and updates specifically about rooming houses and notifications when new rooming house articles are posted.
Regards,
Bill
I have some traditional muti family units and I have a manager/managers to collect income and do everything else. I don’t get my hands dirty or hardly even involved with anything directly. Indirectly I know and am on top of everything that goes on. Can I buy a rooming house and expect to have it taken care of by an on site manager?
Perhaps?
The catch here is traditional property managers won’t deal with rooming houses usually. A work around I’ve used is to put a “managing tenant” in place similar to what I believe you are asking.
They are responsible for rent collection, maintenance and general property management. Now much of my business is cash based due to shorter terms for my rooming properties. I don’t accept checks as the tenant would often be long gone before I found out they were no good, so you need someone you can trust with money and paperwork and who is handy.
It seems to be rare to find someone who can do both. I’ve had people good with paperwork who could’t fix a broken toilet handle and people who could rebuild the entire property who continually lost paperwork. So it can be a delicate balance. When you do get the right person though, you need to treat them like gold.
I’d suggest a small discount on the rent for the job and a separate contract covering payments for services rendered. That way if they neglect their duties they still have to pay rent rather than trading off rent for duties. You’d still create a paper trail showing paper money traded hands, but it wouldn’t actually transfer anywhere. You may want to check with your accountant to confirm how this affects you in your area. Due to varying tax laws from place to place they may not deem this allowable.
Hope that gives you some thoughts,
Bill
Hi Bill,
Just wanted to say thanks for your response and I wanted to provide an update. The subject rooming house I was referring to in my previous comment is under contract for $135,000 and the bank approved me for a commercial mortgage. Gross rents taken directly from the seller’s tax return average $65,000 over the past 3 years. Net income is $35,000. These numbers take into account an average 8% vacancy rate which I’m confident will improved based on the $10,000 in improvements I’ll be making during the first year of ownership. My biggest concern is trying to find the “black and white,” housing laws for the state of Connecticut that state how a rooming house should be operated. Evictions, rental agreements, security deposits, lock outs, etc. are all areas I’d like clarification on but even my attorney is having an issue trying to find written law on rooming houses. Any suggestions? Thanks
Hi Bill,
Not a problem, the rules for Rooming houses may or may not be different than other landlord legislation where you live. You may however also need to check local bylaws as well as landlord tenancy rules.
In some areas there are restrictions on the number of non-related people allowed in a property and can even be restrictions regarding the number of leases allowed. Beyond that you may also require special licensing in some areas so there is some homework you need to do!
a great place to start is the local landlord tenancy government support groups, then possibly some eviction services companies as they may have experience with these situations and removing tenants. An hours consultation with them could save you thousands in mistakes later. Finally also check with the local bylaw folks to get some insights, this might include licensing information.
Hope that helps,
Bill
Hi Bill,
I really enjoyed reading your article. I’m currently a landlord with standard 2 BR/1 BA apartments across four, four-plexes and am considering the purchase of a boarding house that has come on the market in my town. I’m curious how you analyze a boarding house based on financials. It’s 10 rooms and 2 apartments and gross income is $50,000/year. After expenses, net income is around $30,000 It’s on the market for $150,000 and I know I could get it for $130,000. All other factors aside (location, property condition, headaches!) do the financials make sense? Thanks
Hi Bill (great name btw!),
There’s only one way to analyze a boarding house, or any rental property for that matter, it all involves cash flow.
With the numbers you provided you’re generating $30,000 income every year or about $2,500 in cash flow each month ($30,000 divided by 12 months) and if I understand it this is after all expenses. Just looking at that I would say it appears good.
But…. I’m assuming that is based on 100% occupancy. What is the vacancy rate in the area? Whatever it is double it and take that percent off your gross rents, then what’s the condition of the property? If it’s in great condition you could take an additional 5% off the gross rents for maintenance and repairs, or if it’s in poor condition it may be as high as 15-20% each month.
If it is in poor condition you could combat it by dropping an extra $10,000, 20,000 or more in at the front to repair and update it and then you would know monthly maintenance would be much lower. Plus if it’s updated and repaired the rent may also increase.
Another factor, after cash flow, you have to look at is how much return you would see on your initial investment. If you can get it for $130,000 with 25% down you need to put up $32,500 to purchase and you nearly make that back in the first year on rents. Again basing this on 100% occupancy, that works out to be just over 92% return on your initial investment, in the first year!!! That is pretty darn good.
So at face value with the information presented, it would definitely intrigue me as it looks good and that’s why rooming houses/boarding houses can be so attractive. Huge cash flow and great returns.
The caveats being locations, property conditions, and supply of renters/vacancy rates. All of this falls apart if you have to spend half of the income or more each month on repairs, or if vacancy rates are 50%, or if the location is so remote tenants constantly turn over as they cannot get to work and it creates tons of work on your part to make this profitable.
So yes at face value this appears to be viable, but your work isn’t done yet.
It’s actually pretty interesting the amount of interest this post has created. I’ve been secretly working on a course walking people through running a rooming house, but perhaps I need to put together a low cost course walking people through analyzing rooming houses to understand their profitability and how they work.
If this is of interest to folks, leave me a comment! If there is enough interest, I may be able to rearrange my priorities.
Hope that helped Bill,
Bill
Is it possible to rent a house to become a rooming house until you’re in a better position to purchase the home?
Hi Nedra,
It is, but you need a landlord/property owner willing to work with you to do this. It may take dozens and dozens of people saying know, but if you were persistent, it will work eventually.
It would typically be under some sort of Lease to Own or Rent To Own scenario and it may require an upfront deposit on your behalf or it could be negotiated that the current owner gets much higher rent than normal. There would be a million different ways to set it up, but it all comes down to what you could negotiate.
Bill
Hi Bill
What a fascinating article. I am actually just looking at buying some rooming houses in McCauley and Boyle St., Edmonton. But maybe I shouldn’t. Any chance of touching bases with you to talk it through?
Thanks,
Noel
Hi Noel,
Rooming houses can be a huge amount of positive cash flow. I have one property that would gross over $93,000 a year on roughly $40,000 a year expenses if it was full 100% of the time. That’s $53k of income per year in a happy world.
With the current local economy I may end up with only a couple days vacancy a month, there always seems to be a tenant with cash problems and there are always ongoing repairs, so more accurately I am closer to around $35-40,000 after expenses per year, and it is a full duplex so there are plenty of rooms, but you can see how it can be attractive.
Oh and this is earned on a part time basis since I don’t work anywhere near 40 hours per week on this property. Some weeks are more, but on average this property gets about five hours or less of my attention per week which works out to be a pretty good hourly rate.
You just need to go into it eyes wide open. This means understanding the rules governing these types of properties, the understanding that some of the clientele may not be perfect while others are, that there will be problems that you have to deal with, that it won’t always be perfect and that in the end if it’s part of your plan to move you forward it can work quite well.
I sent you an email earlier with my contact info if you’d like a a little bit more info. I am in the very early stages of putting together some training on operating your own rooming house. I already have the majority of the forms and checklists prepared, just need to put it together in an understandable format. If there are people interested in this, feel free to leave a comment!
Bill
What is the Alberta act?
Hi Diana,
The Alberta Act I referred to in other comments is in regards to the Residential Tenancies Act and the Innkeeper’s Act in the province of Alberta where I am based. Most of the information on the site is generic and applicable everywhere, but occasionally people form some of my other local sites make inquiries here that refer to those Acts.
In general The Educated Landlord site avoids going into specifics about laws and rules as they vary so much from state to state, province ot province and country to country, but I try to answer what I can, where I can!
Thanks,
Bill
I loved this article and found it very helpful. I am looking on turning my rental into a boarding house. Please send me more tips thanks! I am also a member on bigger pockets.
Well thanks Godess,
I have some more articles on this topic lined up and hopefully can get them out soon.There are definitely some learning curves to go with this type of business and I’m actually hoping to put a course together showing how you can make this work as a business model.
Regards,
Bill
Bill, great article!
just a quick question, when you have a on-site manager who could be a renter as well in this rooming house or shared accommodation, won’t Alberta tenancy Act be the governing rule anymore?
As for the up-down style, how to deal with illegal suite issue in your opinion?
Hi Tom,
If you have an on-site manager, you still fall under Residential Tenancy Act in Alberta. If they were subletting rooms from the onsite manager, you could get around it, but it’s very deep dark gray. And this only applies in Alberta, rules are different everywhere folks, so know what rules apply to your location if you rent rooms out.
As for illegal suites, before you buy one, what is the worst thing that can happen. You can get reported and get your suite shut down, plus face some hefty renovation charges to remove anything illegal like kitchens. Some locations may even have fines depending on the illegality and type of complaint.
If you can live with only the single income, worst case, and can cover any costs or fines, then you can roll the dice. If losing that second income puts you in a negative cash situation, then is it worth it? I’ve been there before and survived, but it’s very stressful (actually I forgot about this, but we actually turned the one properties basement suite into a room rental and actually made more money in the end, albeit with extra expenses and more man hours of work to keep it filled).
Regards,
Bill
Awesome post as usually Bill.
Personal experience is very useful, it doesn’t matter what way you share it. Personally I prefer some stories where you explain how you came up with certain rules for landlording. However, even if you send just quick tips, that works too.
Thanks for doing this!
Thanks Igor!
I’ve been a little busy so far this month, but hope to get more articles and stories out consistently over the next few months.
Bill