Author Topic: Anyone own a SFH and rent to roommates?  (Read 5286 times)

Dividend Bro

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Anyone own a SFH and rent to roommates?
« on: April 03, 2015, 10:21:12 AM »
Hi All -

I'm looking to purchase real estate within the next couple years, and just wanted to gather some opinions/experiences/thoughts.

I'm just doing some preliminary research/scouting areas right now to get a feel for what's going on. I live in a pretty large city, in an upcoming neighboorhood with escalating property prices and rents. I'm currently renting and would like to stay in the area.

There are two options I'm looking at - one is to buy a single family home (they are not that cheap anymore) in my neighborhood and rent it out to a few roommates. This would allow me to get in hopefully at a good price for the house and be able to live where I want while reducing my monthly mortgage/living expense. Although you can't count on appreciation, I'm willing to wager a fair amount that in 5-10 years property values are going to be considerably higher than they are  today.

The second option is to just stay renting where I am at and get a more reasonably priced multifamily in the nearby burbs, that I could go check on and possibly occupy once I'm content with ditching the city life.

Obviously, one would need to run the numbers, determine cash flow goals, etc. Again, this is just preliminary brainstorming.

Has anyone pondered something similar and if you have gone the SFH/roommate route, how has it worked out? I have seen some people already doing this on craiglist and if you can stand living with a few people seems like a no-brainer to help pay your mortgage. Any negatives to consider besides the obvious? (privacy, risk of them stealing stuff, etc.)


braatenj

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Re: Anyone own a SFH and rent to roommates?
« Reply #1 on: April 03, 2015, 12:01:21 PM »
I have went this route to some extent, though we were renting to family both times that we did it. We (my wife and I (and our child)) rented the lower half of our house to my brother in law for approximately 2 years and then we were letting my father stay with us.

Without going into too many details, when you are living with another person(s) if you end up not getting along with them it can be extremely difficult to get them to leave your home unless they are not paying their rent and even then you still have to go through an eviction process. If they are just noisy or have habits that bother you, there is not much for legal grounds to have them removed from the home so you may be stuck in a situation where you are forced to live in very uncomfortable situation.

That being said, my other brother in law and my neighbor both have rented out multiple rooms to other people and gotten along great with them with no problems and made enough in rent to basically pay for the entire mortgage so it could go either way depending on the renter.

hokiegb

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Re: Anyone own a SFH and rent to roommates?
« Reply #2 on: April 03, 2015, 01:06:07 PM »
If you're worried about not getting along with roommates you could always make the lease month-to-month. Then if you don't get along you can just give them their 30 day notice that this is their last month.

And I have no idea where you live, but I'd probably look for a duplex in the area where you want to live. Pretty much every area I've lived had some small multi-family units in the area, either a duplex or a main house with a mother-in-law cottage, or an apartment over the garage, etc. If you can find one of those you could have the best of both!

TheOldestYoungMan

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Re: Anyone own a SFH and rent to roommates?
« Reply #3 on: April 03, 2015, 01:49:35 PM »
I do this for "extra money."  That is, I could still afford the place without the rent.

Having a roommate is preferable to living alone, and living alone is preferable to having a roommate.  This is sometimes difficult to imagine when you are in one situation vs. the other.  But every once in awhile I need to take a break between roommates, and it's nice that I can.

Every situation is probably easier to tolerate if you know you don't have to tolerate it.

I recently met a guy who "represents the landlord" to the other tenants he lives with.  They don't know he owns the house.  It's easy to find out, but who really checks?  Any issues he has he can just be like, sorry dude, the landlord said he's doubling the rent next year, you still want to stay?

I'm seriously considering doing this for any future tenants.

Always have a lease.  If you rent to a friend understand you may lose the friend.

I'm actually way more comfortable renting out rooms in my house than I am owning a straight up rental property.  I need to just try the other, I'm sure it's fun and awesome as well, but I have anxiety about it.

Rent is the easiest paycheck I ever got though.  It's worth occasionally having to clean up a kitchen I didn't mess up before I cook dinner to have half my mortgage paid for.

arob54600

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Re: Anyone own a SFH and rent to roommates?
« Reply #4 on: April 08, 2015, 09:43:57 AM »
I would really like to try this too.
My husband and I own a 3 bed,2 1/2 bath.
I swear we only use 50% of the whole house.
It would be cool to take our "guest" bedroom and turn it into money.
My husband hates the idea of strangers living with us, but I'm like hello $.

I was thinking that it would be cool to rent by the semester, there are a lot of colleges around us.
Any thoughts?

AJ

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Re: Anyone own a SFH and rent to roommates?
« Reply #5 on: April 08, 2015, 10:22:56 AM »
We do this and it's awesome! Hubby and I rent rooms to two college students and a private school teacher. We met all of them on Craigslist. It has turned out about a perfect as you could expect - not totally conflict-free, but they are kinda like family now. One just graduated and will be leaving soon, which is sad for us.

The suggestions I would have:
  • Rent month-to-month and have a formal rental agreement that spells out as much as you can think of.
  • Set up a chore chart with rotating jobs. It seems childish, but it is really helpful to keep everything honest and fair.
  • Have a scheduled time once a month or every other month to meet and give people a chance to bring up things that aren't working. This avoid having to write post-it notes with your grievances.

It took about a month for us to get used to living with other people. I'm an introvert, so it took a while to find the right groove of how to satisfy my need for alone time without ignoring or offending people. Plus, I was uncomfortable cooking in the kitchen if other people were using it. But you get used to it. Now the house feels empty when the girls are all out at the same time.

Plus bonus - built in pet sitters! (All of us brought pets into the household, so there's a lot of them)

Ricky

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Re: Anyone own a SFH and rent to roommates?
« Reply #6 on: April 08, 2015, 03:05:54 PM »
Every situation is probably easier to tolerate if you know you don't have to tolerate it.

This so true. It's just like work. If you don't HAVE to be at work, it's much more tolerable.

Before you fully commit to renting a room monthly, try Airbnb for a while!

Jonny000

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Re: Anyone own a SFH and rent to roommates?
« Reply #7 on: April 13, 2015, 04:28:07 PM »
I got started in real estate this way.  I bought a 3 bed 2 bath, with a monthly payment of about $850, and rented out the two extra bedrooms for $400 each. I had a total of 6 roommates while in that house. I had Two bad experiences, which cost me about $600 in lost rent. Otherwise, it was all good, and I made around $40,000 over the course of 5 years,(1/3 of the purchase price!) which I reinvested in more rentals.  Renting to roommates is a bit different than renting out an entire house. You don't need to be "friends" with tenants who are renting an entire house from you, but picking roommates you can be friends with, and who share the same values you do, makes a world of difference.  If you're a well connected person, or of an age where you have connections with people in their 20s, it can work out pretty well for you.   As far as whether to try this out vs a duplex or multifamily; multifamilies, depending on the details of cash flow, might be a better option if you are married, or plan to get married anytime soon.  Unless you're willing to live a married life with roommates, which I wouldn't do, you'll lose that extra income, whereas with a multifamily you can keep it in perpetuity.

clarkfan1979

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Re: Anyone own a SFH and rent to roommates?
« Reply #8 on: April 13, 2015, 08:25:51 PM »
I did this in grad school for 4 years. It was a 4 bed/2 bath SFH. Original mortgage was $1040/month. After a re-fi and higher insurance deductible, the mortgage was $950/month. I rented out 3 rooms for $325/each. No bad experiences. I charged a little less per room so I could get a lot of interest and be picky. My vacancy rate was 0%.

I would make sure that you can afford the mortgage without the roommates. The roommates would just serve as extra dough. However, I'm not sure that I followed my own advice. 

Static Void

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Re: Anyone own a SFH and rent to roommates?
« Reply #9 on: April 13, 2015, 09:03:18 PM »
We have a large house and most of the time rent out to 1 or 2 students or young adults downstairs. Works great. Students are great, they usually have a plan and a budget and then they leave. In our town, young adults usually end up leaving in a year or two to live in nearby San Francisco or Oakland, more glamorous.

We definitely enjoy the intervals between tenants, too.

We say no to dogs, smokers, and couples. (Trust me on those.)

Try to be a great landlord. Ask what needs fixing and get it taken care of and they'll love you.

Though, I will confess: I indulged in some "spider theatre" last week. Tenant mentioned a spider or two in her room. I went out immediately to Home Depot before they closed at 9pm. Put out traps and sprayed nasty poison around a couple of windows, knowing full well it has, approximately, zero effect on the presence of spiders. Just how it is. :)

...
 it can be extremely difficult to get them to leave your home unless they are not paying their rent and even then you still have to go through an eviction process. If they are just noisy or have habits that bother you, there is not much for legal grounds to have them removed from the home so you may be stuck in a situation where you are forced to live in very uncomfortable situation.
...

Always use a month to month lease. See: http://www.nolo.com/legal-encyclopedia/ending-month-month-lease
(And always do have an actual signed lease! It almost doesn't matter what it says, it just documents that you actually have an agreement.) In ten years, I've only once asked a tenant to leave, and I gave them six months.

In a shared situation, you can be pretty arbitrary about your tenants. See: http://www.craigslist.org/about/FHA#roommates

Quote
What are the laws for roommates and shared housing?

Federal Fair Housing laws for roommates and shared housing have two components: advertising and decision-making.

Advertising: Federal Fair Housing laws prohibit discriminatory advertising in all housing, regardless of how large or small the property. However, as discussed below, advertising which expresses a preference based upon sex is allowed in shared living situations where tenants will share a bathroom, kitchen, or other common area.

Decision-making: Although the prohibition on discriminatory advertising applies to roommate and shared housing situations, federal Fair Housing laws do not cover the basis of decisions made by landowners who own less than four units, and live in one of the units. This means that in a situation in which a landlord owns less than four rental units, and lives in one of the units, it is legal for the owner to discriminate in the selection process based on the aforementioned categories, but it is illegal for that owner to advertise or otherwise make a statement expressing that discriminatory preference.


Zoot

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Re: Anyone own a SFH and rent to roommates?
« Reply #10 on: April 16, 2015, 01:31:26 PM »
What are the tax implications of renting a room in your house?  Would this need to be declared as ordinary income, self-employment income, something else?  Or does it need to be declared at all?  I've always wondered how that works.

Megma

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Re: Anyone own a SFH and rent to roommates?
« Reply #11 on: April 16, 2015, 02:17:43 PM »
If you're worried about not getting along with roommates you could always make the lease month-to-month. Then if you don't get along you can just give them their 30 day notice that this is their last month.

I do exactly this. My bf and I live in a townhouse that I own with a random roommate from craigslist. His rent pays about 2/3 of the mortgage & HOA fee. The lease is month to month (with 45 days notice in our case), he can leave with notice or we can ask him to leave. He's been living with us for about a year but it was important that if we did not get along that we have an out. You can sell the month-to-month very easily to a tenant by saying you want to all get along and don't want anyone in the house to be unhappy, you are them.

Also as TheOldestYoungMan said, only buy a place you could still afford without roommates! I bought a house I could afford entirely on my own (without bf or roommate) but having two others also living there has really helped my savings rate.

I also chose to rent to him "all bills paid" because I thought it would be easier than saying you owe x rent, x electricity and x internet. Too much work!

Also you don't get the same tax benefits as owning a rental. You have to declare the income and you cannot deduct appreciation like you can for a rental. You can still deduct mortgage interest, I am not sure about maintenance because it hasn't really come up for me yet.

trobertson79

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Re: Anyone own a SFH and rent to roommates?
« Reply #12 on: April 16, 2015, 09:04:09 PM »
I've done this in a couple houses in Boston.  The one I'm in right now is a 6BR house near Harvard Square.  Mortgage is 4000/mo (soon to be 3150/mo after refinance).  Rooms rent for around 700-900/mo.  I used to live this way as a single guy and the whole having 0 housing expenses (other than maintaining my home) was great.  Now I have a Toddler and a co-parent and a part time live in nanny who I'm providing housing for while still having low housing costs.

There's a concept called "co-op houses" which I discovered here in Boston.  Basically rather than random people who rent places together for cheap rent, it describes people who live that way a bit more intentionally.  Cultivating community with shared dinners, shared chores, house events (concerts, cookouts), shared gardens.  I wasn't sure I wanted to do that because I'm not necessarily a social butterfly, but, I've found that that way of living and those people are better at making a great and respectful household than just any old random people.   When you put out that vibe, even the craigslist joiners (we get tons of grad students) come in expecting to be part of something rather than viewing the others as  a liability.


TheGrimSqueaker

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Re: Anyone own a SFH and rent to roommates?
« Reply #13 on: April 17, 2015, 12:19:39 AM »
Yes, I did this for several years. My specialty was senior citizens with mobility impairments. But for goodness' sake don't call them "roommates". Never give them the idea that you're their equal; it confuses the boundaries because you're supposed to be the alpha partner in this particular business relationship. Call them roomers, boarders, or tenants depending on how you structure the deal. I always used the word "tenant" because I didn't cook for them.

They should definitely know you own the house. If you feel as though you need an imaginary "bad cop" and have to pretend the owner is someone else, you need to work on your assertiveness before becoming a live-in landlord.

Other people have mentioned the need for a written contract. Definitely use a month-to-month rental agreement (which by the way is not the same as a "lease"). This can be terminated at will by either person with sufficient notice.

I found it optimal to include all the utilities except telephone and Internet service, although if you have access to unlimited bandwidth then Net service makes sense.

If you make a rule, you have to enforce it. Then you turn into Mommy (or Daddy) and your tenant feels comfortable upward-delegating all kinds of responsibility that shouldn't be yours, and you find yourself taking responsibility for making sure the tenant does his or her work. No good can come of that. So, instead of making chore lists, I found it easier to just require people to clean up after themselves in the common area of the house. I did all the cleaning, and made sure the rent was high enough to make it worth my while. All my tenants had to do was keep their room and bathroom tidy, and clean up after themselves in the kitchen and other places. If at any point they wanted the house to be cleaner than it was, they knew where the vacuum and cleaning supplies were.

See to it that your tenant understands that the items in your house, such as your furniture, DVDs, kitchen utensils and such are available for their use, but they are there at your convenience and may be disposed of, by you, at any time. Your belongings are not to be taken out of the house, moved into the tenant's room, or lent or given away to others. You'd be surprised how many tenants have no problem taking your crockpot to their church's potluck and then "forgetting" to bring it back, or bringing back the wrong (lesser quality) item or an item that has been damaged. Having all of this in writing, and going over the contract line by line with the tenant, reduces this.

Jesus Christ

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Re: Anyone own a SFH and rent to roommates?
« Reply #14 on: April 20, 2015, 07:36:29 PM »
I have done both routes and I would prefer to "being the room renter" rather than "renting out rooms"

Reasons Why:
You can leave whenever you want to.
You can cherry pick the elite neighborhoods or the waterfront homes from Craigslist that normally you could never afford
You don't have the burden of collecting money for rent or damages (makes it harder since they are now your friends and sort of have to be nice so you can sleep at night without looking over your shoulder.)
Most cases you are paying less than the homeowner who has the burden of carrying the mortgage and maintaining the place

« Last Edit: April 20, 2015, 07:39:14 PM by Jesus Christ »

zephyr911

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Re: Anyone own a SFH and rent to roommates?
« Reply #15 on: April 22, 2015, 06:57:45 AM »
Did it for years. Worked out OK, mostly. You may get some assholes, you may not.

trobertson79

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Re: Anyone own a SFH and rent to roommates?
« Reply #16 on: April 22, 2015, 08:21:26 PM »
Also, this makes more sense the higher the cost of living in your area.  It makes great sense here in Boston for instance, where getting a roommate earns me $800 or so per room.  Whereas in NC when I was doing that I would get maybe 300/room.  Either way you have to deal with showing, selecting, collecting, etc...  So, the more expensive the rent, the better the payoff for the "work" of renting rooms as well as the quality of life tradeoff.  Essentially my housemates are paying my mortgage and building me an asset that will be worth probably a million bucks in a couple decades.

zephyr911

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Re: Anyone own a SFH and rent to roommates?
« Reply #17 on: April 23, 2015, 10:50:15 AM »
What are the tax implications of renting a room in your house?  Would this need to be declared as ordinary income, self-employment income, something else?  Or does it need to be declared at all?  I've always wondered how that works.
Also you don't get the same tax benefits as owning a rental. You have to declare the income and you cannot deduct appreciation like you can for a rental. You can still deduct mortgage interest, I am not sure about maintenance because it hasn't really come up for me yet.
Hold up.

The broad consensus I have found in online help sites is that you should calculate the percentage of the home used by tenants (or offered for rent, in case of vacancies), and treat it as two separate properties. One is your primary residence, and the other is a rental. The rental portion of the home goes on a Schedule E. On that form, you report the rental income, and you deduct the calculated percentage of interest, taxes, insurance, maintenance, cleaning, repairs, utilities, depreciation - all the same deductions as any other rental. The other slice goes on a Schedule A, if you have enough deductions left to itemize, but obviously fewer of those categories apply to the personal side.

Because this legitimately recharacterizes a portion many costs that you would have incurred already - like utilities - as deductible costs, and because depreciation comes into play on the rental side, I often saw a net loss even after reporting substantial income. I also generally found that the remaining itemized deductions for taxes and interest were less than the standard deduction, meaning I got to skip the Schedule A and still deduct more.

I'd be curious to see where this approach is refuted, as it's consistently prescribed by virtually every source I've found.
« Last Edit: April 23, 2015, 02:29:27 PM by zephyr911 »