If you own a single-family rental property, you may be tempted to rent it out to multiple tenants to collect more in rent. If you live in a college town or a city where rents are high, there may be a market for tenants who want the feel of a single-family property but can’t afford it on their own. However, you should make a few considerations before choosing this strategy. Here is a look at how to rent a single family home to multiple tenants.
Is it Legal to Rent a Single Family Home to Multiple Tenants?
Yes, it’s legal in most cases, but you may have to obtain special permission to do so. If the property is zoned as a single-family home, the local housing authority will assume that a single tenant or family occupies the property. Some cities have laws limiting the number of unrelated persons in a rental home, so you should check the local laws to ensure compliance.
You may have to change the zoning to multifamily depending on how many separate tenants live in the home. You may get away with it for a while without anyone noticing. But if neighbors complain or you have to evict someone, you may face repercussions if you’re not in compliance with local housing regulations. So, it never hurts to check.
How To Rent a Single-Family Home to Multiple Tenants
- Decide How You’re Going to Subdivide the Home: First, decide how you will subdivide the home. Perhaps it’s a three-bedroom, and you plan on renting the rooms to three separate tenants who will share the kitchen and living space. Or maybe you have a basement suite that you want to rent out separately from the main home. However you decide to divide it up, make sure that everyone has access to a kitchen and a bathroom and that the living situation is clear in any listings.
- Market the Property: Next, you’ll want to market the property to prospective tenants. You may want to enlist the help of a real estate agent, although not all realtors will work with rooms for rent unless you make it worth their while. Make it clear in any advertisements that the unit is a shared space, so you don’t waste your time fielding responses from clients who aren’t interested in this type of arrangement. The best ways to market rooms for rent are by posting signs around town, using websites like Craigslist or Facebook Marketplace, or mobile apps like Roomi that specialize in connecting roommates.
- Thoroughly Vet the Applicants: Once you start getting responses to your marketing efforts, you should begin to screen tenants thoroughly. That means checking their financial and credit history and doing your best to vet their character. Multiple strangers living in one single-family home can be a recipe for disaster if there are conflicting personalities. So, it may help to introduce the tenants to each other and ask if any of them have concerns about living together – although this may be easier said than done. But if you want to avoid future headaches, you should do your best to make sure everyone is comfortable with the living situation and won’t cause problems for any of the other tenants.
- Sign Lease Agreements: Once you’ve found a few tenants, you should have them sign a lease agreement. The easiest way to do this is to have them all sign one lease together. Although depending on the circumstances, this may not be possible. Many people may not feel comfortable signing a lease with a stranger. To avoid conflict, you should include a co-tenancy agreement in the lease that outlines each person’s financial obligations. That way, if one stops paying, the others aren’t liable. It would help if you also encouraged them to sign a rental agreement with each other, establishing the ground rules of the relationship, so everyone is on the same page from day one.
- Respond to Any Issues or Complaints: Once everyone moves in, it’s your job to respond to any issues or complaints. Hopefully, all you’ll need to do is stop by to perform routine maintenance and collect the rent. But if there are any conflicts between tenants, you may have to step in to mediate if the situation is serious. Having an established rental agreement can come in handy in this situation, so you can set expectations for things like pets, visiting friends, shared space usage, etc., and hold tenants accountable if they violate the rules.
Advantages of Renting By the Room
The primary advantage of renting by the room is the potential for increased rent. For example, you own a four-bedroom home that typically rents for around $2400. Finding four roommates may be more challenging than renting out each room individually. You may be able to rent each room for $700, which would earn you an extra $400 per month in rent compared to renting it to a group or a family.
It’s also often beneficial to the tenants who may not have anyone else to live with but can’t afford a place on their own. Renting a room can be especially helpful for younger people who may not qualify for a more expensive apartment and would rather pay off student loan debt or save for their own mortgage.
Disadvantages of Renting By the Room
But while the potential earnings may be attractive, there are several negatives about renting a home to multiple tenants. For one, there tends to be a high turnover rate with renting out rooms. If you’re renting to college kids, you’re naturally losing tenants periodically as they graduate. Even if you are renting to working professionals, renting a room is often a stepping stone to other things, so don’t expect many of your tenants to stay longer than a year or two. Plus, they may all be moving in and out at different times, making vacancy rate a permanent challenge, together with the added wear and tear that you can expect with high tenant turnover.
Also, renting to multiple tenants who are strangers creates the potential for increased conflict. It’s often hard to tell how people will get along until they are already living together. While it isn’t your job to insert yourself into every disagreement, if a tenant’s behavior is negatively impacting the living experience of the other tenants, it may affect your investment. So, you should be sympathetic to any reasonable complaints.
Is the Multiple Tenant Strategy Right for You?
It all depends on you and your investment strategy. Dealing with multiple tenants under one roof means more personalities, phone calls, and legwork you have to do. But it often translates to more cash flow as well. If the money is worth the high turnover rate and occasional tenant conflict, you should consider it. But if you would prefer a more reliable income stream and less drama, you may want to stick to renting to one tenant or family.