Three years ago, I started managing rooming houses on a trial basis for a RE investor who was ready to throw in the towel and sell them. Possibly to me. I wasn't confident in my ability to manage the kind of clientele associated with rooming houses, so we agreed for me to do a trial run before making an offer.

I've now been doing it for 3 1/2 years. I'm managing four houses for the RE investor and two of my own. Total rooms: 37. Occupancy rate: 99%-ish. I'm still finishing up my second house and rented three of the rooms without advertising before it was even finished. Rate of return: after subtracting the cost of utilities (which are provided), rents collected are about 230% more than renting the houses as SFH.

If you're having a hard time figuring out how to make the numbers work in this market, you might consider branching into rooming houses. There's a definite demand!

ROBIN: Can you describe the rooming houses of yours, and the ones you manage; I'm imagining they are different in some ways.

Two rooming houses I know of in the town we live in have several bedrooms and a few shared rooms, i.e. kitchen, LR/DR.

Robin,

Tell me how your tenants find you. I'm getting interest, and am usually keeping one room filled, but getting several rooms occupied simultaneously is proving difficult. My budget-conscious South Americans who are tired of living stacked like cordwood (not in my places) are suddenly privacy-conscious. Somehow "utilities included" doesn't attract them. The little old South American abuelita-nanny who lives in a hotel and wants a kitchen doesn't want to share a house with men, even though the rooms have electronic coded locks. The guy couch-surfing with his sister's family and totally wanting the biggest room... but never committing. The young 20something who's getting kicked out of the nest... eventually... is a positive prospect, but instead of it being a "bring your clothes and your phone" kind of place, he wants to bring his gaming chair. And his camo fridge. (Each room has a minifridge already.) And his full length mirror. (There's already a 3/4 mirror in the hall.) And his dresser from Ashley's. (There's already a dresser.) And his own sheets. (Mine are awesome. He didn't touch them and hate them, he just automatically wanted to re-furnish my already-furnished rooms.)

In general, the people who visit the house love it. I'm underpriced for what I'm offering. But it's hard to get people to take the plunge.

I have my own rentals and manage others as well. They both have been more successful as room rentals.

I live near 2 universities, so this helps. I have international students who come with nothing so the places are furnished.

So, sometimes, there will be issues "he hasn't cleaned" she ate my food". I try not to get involved, but sometimes it's necessary.

How do you handle these issues if they come up? (If you do at all)

Robin - did you lock in terms of that first sale with an option?

If you did I can help you structure this out so you can be increasing your yield significantly higher yet.

Huge congratulations to you for courageously having risen to the challenge and even succeeded with managing rooming houses. I would have thought that you could have taken on the management task. You've always struck me as sharp and strong.

I think that GKARL wrote, "As the Rooming House Turns," noting his experiences and high activity in his own lucrative rooming house. Would you please share details of your own tenant pool or management style? Are the places in college towns or near large companies?

Wow, so many questions! Here are my short answers. Would this be a good topic for the upcoming convention?

Ray, I'd love to talk to you about how to structure the option.

House structure: When I went looking for a property to turn into a rooming house, I looked for a colonial with DR/LR/kitchen on the first floor, 3 BR on the second floor, and a walk-up attic. The floor plan should allow a straight shot from the front door to the kitchen. I walled off the living room and dining room to make them into bedrooms. That gave me six bedrooms to start with. The basement could be an additional option for adding bedrooms.

One of the properties I manage, though, is a ranch-style home. The owner put two rooms in the basement to get six rooms. The key is to convert common areas (living room, family room, dining room) into bedrooms. The only common areas we have are the bathrooms and a kitchen with a table and a few chairs. Additional common areas just accumulate stuff that tenants can’t fit in their bedrooms, and most tenants don’t have a great need for socializing.

Having two toilets is essential. If you go over six people, two showers is pretty important too.

The numbers: My first rooming house cost me $120K all in. It has six bedrooms. Five of them rent for $460 single/$540 double occupancy. The smaller bedroom rents for $380 (I should probably be charging $400). I added a studio apartment in the basement for $12,000, and it rents for $740/mo.

House #2 will be about $130K all in. It has 5 bedrooms and I’m converting the attic into a studio apartment. The two largest rooms rent for $500 single/$560 double occupancy. The smaller ones are $475/mo. The studio will rent for $740/mo. I’m debating whether to put one large or two postage-stamp rooms in the basement.

The owner I manage for, let’s call him Tom, went low-end. His places are ugly, his investment was much less, his rooms are cheaper, and his returns are significantly higher. People who are looking for cheap don’t care if the walls are MDF and there is only one outlet in the room.

I provide all utilities and internet, which runs between $500-700/mo.

Evictions: I inherited a room agreement from the owner, which states about five times that it is a SHORT-TERM rental. This is key because the laws for long-term require eviction; the laws for short-term (i.e. hotels) state that the person can be removed for trespassing. That said, I went a couple of rounds with the police without any luck (“It doesn’t look like a short-term rental to me” and “I’m not going to risk the lives of my men for someone who hasn’t paid rent”). So I just increased my deposit to account for the cost of eviction and treat them like a MTM rental. We’ve had to evict several tenants, but the frequency has decreased dramatically as I’ve gotten better at screening and management.

Tenant pool: The other owners I talked to told me that their ideal prospect was a single guy, forties or over. While I do have a number of residents that fit that profile, I have a surprising number of single women, some young people, and several couples. I’m managing enough rooms and have been doing it long enough that I’m starting to get referrals from existing tenants, or tenants who have broken up with their girlfriend and are ready to move back in.

Deanna: do you require your Hispanic tenants to provide a social security number? If you relax that requirement, you might deepen your tenant pool.

Between writing this morning and now, I think one of my South American prospects might go for it. He had not seemed to think too hard when we did the walkthrough Wed night. You know the difference between someone glancing at a space (furnishings, kitchen, bath, etc) vs someone visualuzing living there. I had interpreted it as disinterest/a mismatch, but perhaps it was "my mind was already made up." I thought he was balking at my move-in fee and interpreted that as his dealbreaker.

For my sfh's, I've done business with dozens of South Americans, so I have a good word-of-mouth reputation and a good track record of success. But sometimes those cultural issues pop up here and there.

Oh-- originally, I furnished my rooms with stupid-big Roku tvs in an attempt to appeal to my single-guy demographic. But because I don't know the best subscriptions for my demographic, I figured a decent phone and data plans were a given, so people would run their tv's using their phone as a hotspot. But Mr. Camo Fridge asked if I would be able to arrange for wifi for his PS5 games.

So, for those who include data, how do you keep it running? Does it need rebooting periodically? How do you control it? With a laptop, or remotely, or an app, or...? Do you use a vpn to keep from being personally liable if a roomer misuses your internet connection? Do you use local fiber, or ATT home wifi? (TMobile home internet doesn't serve my town.) What kind of rates/speeds are people getting? Is it residential because it's a home in a neighborhood or is it commercial because it's a biz?

Re: internet, I just have the same standard internet that I have in my own house, with a router for wifi. We're supposed to get download speed of "up to" 500 meg, but it's more like 200 meg. I only ever got one nasty notice about bootleg movies being watched, made it public, and the problem disappeared.