Landlords don’t always need to rent out a whole house. If you have only one single-family home, you can consider renting out each room. This increases the return on investment (ROI) and provides you the opportunity to rent to a variety of tenants. Alternatively, if you have an unused room in your residence, you could rent it out to make money on the side.
What are the Pros and Cons of Renting By Room?
If you’re marketing to the twenty- to thirty-year-old age group, you should know that your tenants likely aren’t looking for single-family homes. However, they’re still interested in living on their own. What they do prefer is an affordable place, preferably a room to rent, rather than an entire apartment unit. Let’s look at the pros and cons of renting out a room:
Pros of Renting Out a Room
#1 Potential for Profit
Let’s say you have a four-bedroom investment property that’ll go for around $3,000 a month. Instead of renting it out to one tenant, you could rent each room at $800 a month. That brings the total to $4,000 a month, which is significantly higher than what you would’ve initially gotten.
#2 Manageable Vacancies
We say “manageable” because it’s inevitable to have vacancies, however, by renting out rooms, you’ll always have rooms that won’t be vacant. That way, while you search for a replacement tenant, you’ll still earn profit from your filled rooms.
#3 Varied Lease Agreements
Not all tenants want a year-long lease agreement. Renting by room is an opportunity to offer different contracts and to cater to different tenants. Tenant A can sign a year-long contract, while Tenant B can sign a short-term contract, and so on.
#4 Recommendations from Renters
You’ll be able to rent your rooms fast. Chances are, your tenants have friends that they want to live with, so whenever there’s a vacancy, they’ll invite that friend to apply as a tenant.
Cons of Renting Out a Room
#1 Property Damage
Since you’re renting to twenty- to thirty-year-olds — and probably to student tenants — they likely won’t take care of the property the way that you wanted. To mitigate property damage, add a clause in your lease agreement. You’ll also want to collect a security deposit, however, this depends on state laws.
#2 Missing Rent
What if a tenant moves out? Until you can replace them, the remaining tenants won’t be responsible for paying their rent. Everyone has signed an individual lease agreement, hence, they are not considered roommates.
#3 Tenant Disputes
Tensions tend to run high when strangers live with one another. There’ll be fights over trivial matters such as not washing the dishes or not throwing out the trash. Solving their issues isn’t your concern, but if the property begins to suffer due to their dispute, you or your property management company have to get involved.
How to Rent Out a Room in a Single-Family Home
Whether you’re renting out your whole investment property to multiple tenants, or you’ve decided to rent out a room in your main residence, follow these steps to ensure a hassle-free experience:
#1 Review the Law
What does your homeowner’s association (HOA) say about renting out rooms? Do they allow it? Remember that not all HOAs allow homeowners to rent out rooms, while some allow only short-term rentals. You should also review local laws, as a few cities have strict rules on renting out rooms, such as restricting the number of tenants at a time. Ask your residential property management company or check your city’s website to find out if it’s allowed.
#2 Review Your Insurance Policy
Even if the government allows you to rent out a room, you should review your insurance policy to see if your insurer allows it. Insurance companies can prohibit renting by room because it makes your situation “riskier” on their end. Keep in mind that if even if it’s permitted, you’ll likely have to increase your premiums.
#3 Consider Remodeling Your Property
Consider separating the room-for-rent from the rest of the house. After all, you wouldn’t want a stranger snooping around your stuff, would you? Turn the basement into a bedroom with an en-suite bathroom to provide your tenants with privacy, and to avoid sharing a living space. If you don’t have a basement, rent out a bedroom with its own bathroom, preferably on the second floor.
#4 Set the Rental Rate
Ask your South Florida property management company to conduct a rental market analysis. They’ll look at comparable properties in the area and check websites like Craigslist to determine the ideal rental rate. If you’re renting out a room for the short-term, check websites like Airbnb and VRBO. Don’t make up an amount because you think that’s what your room is worth. In other words, your rental rate should be proportional to your property’s amenities.
#5 Conduct a Background Check
Remember that the tenant will live with you, so take the time to ask important questions, like where they work, where they’re currently renting, and how much they’re making. Ask critical questions to determine the qualities of your potential “roommate”. If their lifestyle makes you uncomfortable, look for another tenant, but don’t forget to abide by the Fair Housing Act (FHA).
#6 Create a Clear Lease
The lease for renting a room shouldn’t be different from the lease for a house. Your contract should clearly define what your tenant can’t do while they live with you. Can the tenant use the living room? Can they invite their friends over, and if so, can they stay overnight? Can the tenant store their food in the fridge? What are the tenant’s responsibilities when it comes to cleaning? Is it lawful to set a curfew? Sort out these details from the start.
#7 Hide Your Valuables
At the end of the day, your tenant is still a stranger. Hence, you shouldn’t leave your valuables out in the open. If possible, install a lock on your bedroom to keep your valuables secure whenever you’re away. Alternatively, you could invest in a safe to store private documents such as your birth certificate, Social Security details, and financial information.
Rent Out a Room With Luxury Property Care
If you’re interested in renting out a room to offset some of your costs or to profit more from your single-family property, contact Luxury Property Care. We are a team of experienced property managers that have managed a wide variety of residential properties in South Florida. We’ll ensure that the rental process is straightforward for you and your potential tenants.