Renting by the Room — Is It Worth It?

People will always need a place to live, which makes for an incredibly solid and robust market. That creates an opportunity for savvy investors to gain a source of passive income that each month boosts their bank balance. The renting business includes single-family homes, condominiums, or apartments. But there are still some ways to increase your income on a single property.

If you have a property with multiple bedrooms, you might consider renting each of them separately, with the bathroom, kitchen, and living room being a communal space. But is renting by the room worth it? As it is usually the case, there are pros and cons to this method.

Though you will receive a higher rental income, you will have to deal with high tenant turnover, which might be inconvenient. You might also deal with conflicts between tenants, or there might be some hidden costs connected to bills and maintenance. 

Renting by the room is a great financial strategy, but there are some considerations that could make you rethink your decision. Here is what you should know:

Rental Rate

The biggest advantage of renting by the room is connected to the financial aspect. Both the landlord and the tenant might benefit from it. While you can check the man cave ideas and turn your apartment into one and rent it to a particular person, it might be more beneficial to rearrange every room into a functional living space and rent it to several people.

Each room has its own rental rate, which is usually calculated based on the size of the unit, its location, and the neighborhood. If your property is located in a highly desirable area, you can charge a little bit more for each room.

The rates for a single room are considerably lower. This is great news for people who cannot afford to pay, say, $2,000 for the whole property, but they can cash out $800. With the raging prices of real estate, there are many people who wish only to rent a room since it allows them to save for a down payment on their future house.

Even though a single rent will be lower, it still means a profit for you. Using the example from before, you have three rooms that are $800 each. That means you receive $2,400 each month, $400 more than if you rented the whole property to one tenant for an average of $2,000.

High Tenant Turnover

Renting by the room is known for its high tenant turnover. First of all, it is rather a temporary arrangement, and more often than not, people move somewhere where they will have more privacy. 

The renters essentially share their home with strangers, making it uncomfortable, especially if they are introverts. They might feel uncomfortable living with someone they do not know, especially if they have valuable possessions, such as a collection of rare coins or expensive jewelry. Some also feel uneasy about sharing the bathroom, kitchen, and other common areas with other people.

The good news is that with a single room being more affordable, you will have plenty of interested people, and you rather should not have problems finding new renters. Especially if your property is located in a desirable location, somebody might contact you in a matter of days.

Still, you will have to go over the whole process once again. Advertising your property, showing it, signing the lease, and so on takes time and costs money. The whole hassle and its frequency might simply become irritating.

Also, you will have to advertise your property again and go through the screening process, which can also be money- and time-consuming.

Additional Costs

While renting by the room comes with a higher return on investment, there are some additional costs that you have to account for. First of all, you might have to pay a little more for the maintenance costs. This is especially the case when you have a high turnover rate and have to refresh the rooms for new tenants.

You also have to be careful about calculating the expenses on utilities because you might have to pay them instead of your tenants. In many states, it is illegal to charge tenants separately for utilities if they have not been accurately and individually metered. It might be hard for properties with multiple tenants, and you will be responsible for paying them.

You have to include those hidden expenses in your calculations because you might overestimate your investment return.

Additional Phone Calls

Lastly, there might be some additional phone calls that you have to deal with when you rent by the room. There might be conflicts between tenants or they might want to change something, such as their room or the furniture. You also need to make sure that everyone is following the rules and regulations of the lease. 

Of course, you will not have to deal with it constantly, but when you do, call after a call can become tiresome and time-consuming. And if you have multiple properties like that, the frequency of possible issues and conflicts increases. It might be easier to deal with one tenant than three.

In Conclusion

Renting by the room is a great financial opportunity, but you might want to think twice before implementing it. The turnover rate might prove to be too high, and you might have to deal with constant conflicts between tenants. Also, there are some additional maintenance costs that you might not have considered.

Still, if you have a property with multiple bedrooms, renting by the room can boost your income. If you have a property in a desirable location, you will have plenty of interested tenants.

Before you make your decision, consider the things we mentioned above. Weigh the pros and cons and try to determine your return on investment. Only then will you know whether renting by the room is worth it.