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