Rent by the Room?

[chigz_fj]

Hi All,

I have heard this come up a lot of times recently from conversations.

But from a rental perspective, does this 'rent by room strategy work effectively? Does this cost more to manage from a Property Management perspective?

Suppose you buy a new build which has 5 bedrooms, and couple the room are en-suites, so they can get more rent value in contrast to the rooms without an en-suite. So you are probably looking at 1000 p/w in rent. Whereas if you just rent the house to a family, then you could probably get between 750-800 p/w.

Technically - rent by the room would more or less cover the repayments, with the current low interest rates, etc.. But how much would someone factor in for PM costs?
Does anyone have experience of this personally? What are the 'uknowns' to consider this?

Personally, I am looking to buy a new one myself, and rent 2-3 rooms, which would cover a good part of the interest portion of the mortgage repayments. The long-term view would be to rent out the entire property 5 years later.

[DaveW]

It's not hard manage if you include in the rent by the room all the utility expenses.
If you have a couple who wants to rent the room with an ensuite you could fetch more.

Consider also you are providing furniture.

[John the builder]

renting a room and more than 6 tenants might make you a ""boardinghouse" and this has implication under building act and RTA

[Bluecoat]

Why would you forego 800x 52 weeks vs sporadic $1000. Personally I wouldn't do it unless your income increases from for example $450 to $2400 for the effort required. With these sort of rents you are likely be in a expansive area with low yield.

[DaveW]

Both the above points are very valid.

Keep your occupancy below 6 people - it makes for a happier household also.

Only do it if you are making a decent (at least 50%) markup. Allow for vacancies, if you are in ma decent area you can expect rooms to fill quick - it is becoming a new norm for people to rent a room in a house all inclusive.

[Rosco]

Be careful buying based on Rent by Room. Especially of developers over inflating values because of the higher possible rent.

What happens to your return if this isn't sustainable and you have to rent as a normal house again?

Ross

[Wayne]

Be careful buying based on Rent by Room. Especially of developers over inflating values because of the higher possible rent.

What happens to your return if this isn't sustainable and you have to rent as a normal house again?

Ross

Or want to sell - the market will be more limited (investors only) than a 'normal' house.
Not saying it is bad but best to go into it with eye open.

[FJW]

Rent by the rooms are a great strategy and you can really boost the amount of income your are getting from the property however there are a lot of pitfalls that you need to be aware about as if done the wrong way it can become a disaster.

Generally speaking the PM costs are more as there is far more work....10% of the rent is normal opposed to 7-8% when the house is under one tenancy.

From what I've seen the best rent by the rooms have the following;

Coin operated washer and dryer
Weekly cleaner to come in to clean the common rooms
Grounds taken care of
Tenants get their own lockable cupboard in the kitchen.....don't supply the crockery / cuttlery etc
One key for all the locks for management set

There are plenty more but that is all I can think of off the top of my head

[kazzp]

I looked into this as well but when I factored in all the extra costs as you have to include power etc, higher vacancy rates, larger property management fees, insurance, more wear and tear, you have to provide chattels like washing machine, fridge, bed etc I figured it only works out much better than a normal rental if you manage it yourself which I didn't want to do as it's a lot of work....I also didn't like the uncertainty of income compared with getting a tenant and locking them in for a year.

[FJW]

Its not uncommon to get a 6 month fixed term lease....the rent by the room that I look after the tenants are all middle aged and have been there for years and counting...but as mentioned, you put someone in that doesn't fit with the rest of the dynamics and things errupt

[DaveW]

Its not uncommon to get a 6 month fixed term lease....the rent by the room that I look after the tenants are all middle aged and have been there for years and counting...but as mentioned, you put someone in that doesn't fit with the rest of the dynamics and things errupt

You can minimize that downside. The current occupants need to meet the new prospect. If any are not comfortable with the fit then it's not the right person.

If anyone steps out of line then just give notice to move out.

[Chnewbie]

Hi. I have been renting by the room for the last 5 years. I own a 6 bedroom 2 tb which I am now selling due to planning on shifting to stock market investment. By experience its quite lucrative. All 5 years have been positively geared and costs to leasing is low about an average of $ 300-500 a year. Its rather easy to get tenants from trademe and they are mostly visitors on working holidays and students which we prefer. We have 3-4 tenants staying more than 3 years and only leave due to changes in circumstances like job transfer to another city. Our biggest cost is a repaint of the unit which cost around $3k.

[sn1965]

Location is key.

If you’re in an area that’s fairly central nearby to universities, CBD, public transport etc - it could work out great with like minded students & professionals.

If you’re in the suburbs not so much, you’re going to be really working for the profit and losing out at times. I’ve seen friends who have tried this in West Auckland for example, absolute nightmare. Attracts low income & beneficiary tenants often with social and substance abuse issues causing fights, disagreements, damages, police call outs etc. One friend initially started out self managing, engaged two property managers who both cancelled management due to time and effort involved and ended up turning them back into normal rentals.

Keeping in mind no matter the location, you run the risk of vacancy around Xmas/New years etc especially and more so with students.

[Frezzinghot]

Be careful buying based on Rent by Room. Especially of developers over inflating values because of the higher possible rent.

What happens to your return if this isn't sustainable and you have to rent as a normal house again?

Ross

I am looking at a rent by room townhouse, 4 bedroom, all own ensuites with adequate parking. What are the major pitfalls apart from vacancy rates?

[artemis]

I am looking at a rent by room townhouse, 4 bedroom, all own ensuites with adequate parking. What are the major pitfalls apart from vacancy rates?

Once occupancy is at 6 then it is a boarding house and a separate set of rules and landlord responsibilities. Good info on Tenancy Services website. With 4 bedrooms it would be pretty easy to end up with 6 tenants.

People say it takes a fair bit more management. Haven't done it myself but have had a place with a group of young working tenants. Lots of paperwork and the tenants didn't understand their responsibilities very well. Like just upped sticks and left and had to be chased up to sign out and sort bond. Once or twice from overseas.