Property investors who own a single-family rental home wish they had a long-term tenant under one lease. However, in some rental markets, it may be easier to offer multiple tenant leases. This is especially true if your rental property is in a college town such as Gainesville in Alachua County, or if renting to roommates may give you a better chance of filling your vacancies. The goal is, after all, making money out of your real estate asset.
Keep in mind, however, that with more tenants come more hassles. Since multiple people are living under one roof, disagreements are more likely to happen.
If you’re thinking about renting your home under multiple tenant leases, here are a few things to consider:
Advantages of Multiple Tenant Leases
When deciding whether or not to offer multiple tenant leases, it is important to examine the local real estate market. Single-family homes located in college towns may generate greater rental income if it is rented to multiple student tenants instead of just one. Rental housing is often more affordable than on-campus housing, which means that the demand will always be there. It’s unlikely that you’ll have trouble keeping the property occupied term after term.
Similarly, if your property is in an area where housing prices are excessively high, or if there is a sudden influx of employment opportunities, offering multiple tenant leases may be an attractive option for young professionals. This demographic will be looking for residences that are close to their jobs but for a fraction of the cost.
Even if each tenant pays less than the average rental rate, when combined with the other tenants’ rent, it would still amount to what you would get from one lease.
Disadvantages of Multiple Tenant Leases
The main disadvantage of offering multiple tenant leases is that tenants don’t always live together in harmony. Personalities will clash and disagreements will arise, especially if you’re leasing the home to complete strangers.
Managing more tenants also means putting in more work. Aside from conducting a background check on each tenant, you will also have to deal with additional tenant-related issues such as late rent payments, complaints, property damage, and so on.
Should You Offer Multiple Tenant Leases?
Ultimately, the decision to offer multiple tenant leases depends on whether your single-family rental home is in a market where it would make sense to. For example, if your property is in a family-friendly neighborhood where the demand for single-family homes is always high, there won’t be a need to offer multiple tenant leases.
Ask your property management company to provide you up-to-date rental market data. Reviewing data such as leasing trends, demographics, and more can help you speed up your decision-making process.
How You Can Manage Multiple Tenant Leases
#1 Create a Roommate Agreement
Roommate agreements are typically initiated by the roommates themselves, but as the landlord, you can encourage your tenants to create one. A roommate agreement is a contract that details the rules and responsibilities that each tenant must abide by. It can address issues such as:
- Cleaning responsibilities
- Whether food can be shared
- Rules regarding having people over
- Rules regarding shared living spaces
- Room assignments
- …and more.
#2 Make Rent Payment Policies Clear
The lease agreement should include a “joint and several liability” clause. This essentially provides that all tenants are responsible for the rent. If one tenant fails to pay his share, while the other tenants pay theirs, they are still responsible for ensuring that the full amount is paid. Keep in mind that how tenants split the rent is entirely up to them.
#3 Remind Tenants That They’re All Responsible
Before the tenants sign the lease, it’s a good idea to sit down with them to remind them of the consequences of their actions. Make it clear that if any tenant breaches the terms of the lease, you can legally terminate everyone’s lease agreement. All of your tenants must be aware that they are responsible for the actions of their roommates, and that finger-pointing won’t do anything.
#4 Screen Replacement Tenants
Every time a tenant moves out, don’t forget to screen the replacement tenant. It can be tempting to skip the screening process to fill vacancies as quickly as possible, but doing this will just put your property at risk. Before adding a new tenant to the lease, be sure to review their credit score, source of income, criminal history, and more. Don’t loosen your screening standards for any tenant.
#5 Advise the Tenants to Designate a Representative
Ask your tenants to appoint one person as the representative or “contact person”. This individual should be easy to contact and should be responsible for communicating property-related issues to the owner. Having a single point of contact makes it easier for you and your Florida property manager to communicate with your tenants, instead of getting in touch with them individually. The representative should be the one to receive and relay information regarding maintenance, repairs, and so on.
#6 Don’t Allow Subleasing
Subleasing will complicate matters — it’s best to avoid it completely. This is because sublessors are not signatories of the lease agreement, which means that they aren’t liable for rent and other obligations. In terms of rent payments, they will have to go through the original tenant who signed the lease agreement, and then the original tenant will have to forward the rent to the landlord. It sounds fairly straightforward, but things can become complicated if the sublessor fails to pay their rent.
While you may allow subleasing, it might make things more difficult in the long run. It’s up to you to determine whether allowing subleasing would still protect your best interests.
If offering multiple tenant leases is the general practice where your single-family rental property is located, it is best to consult a property management company first. Through their experience in the local real estate market, they can guide you through the complex process of leasing to multiple tenants.
At Luxury Property Care, we have managed hundreds of properties that are in situations such as yours. Our property managers are trained to oversee rental homes in unique markets where it would make sense to offer multiple tenant leases.