House Sharing For Profit - Part 1 Introduction
The question often asked about this CFI Tactic is, “What the heck is
house sharing?” The answer is logical if you will think about it for a
moment. If we had titled it “Make Your Fortune Renting Rooms” chances
are no one would seriously consider the plan. Renting rooms just does not
seem very exciting. It seems like a throwback to the rooming houses of
yesteryear. Please read on because I think this is a different take on that
theme and one that can speed you on your way to financial freedom.
A proven path to financial success is through investment in single-
family homes. We won’t go into all of the terrific benefits single-family
homes offer the small investor. House sharing can be a wonderful
idea for the investor who wants to quickly maximize cash flow.
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The small real estate investors who invest in single-family homes
have found that even when they get a good, below market buy on a house it
is sometime difficult to get as much monthly positive cash flow as they
would like. Cash is king in any investment plan, but even more so in real
estate. The more surplus cash you can acquire the sooner you will have
enough for a down payment on another home. The quicker you can buy
good homes the sooner you will reach critical mass – that point where you
have moved into financial freedom. So let’s get started explaining the plan.
When you buy something in volume and then sell it in smaller
quantities you can have a profit markup on every sale. An ice cream shop
buys ice cream in five-gallon containers and sells servings in cones at a
profit of about $1.50 per cone.
If you were to subdivide land the individual lots are worth more than
the whole piece, right? Sure they are, the developer sells the lots for a fat
profit. If he builds a house on each lot he will make even more profit when
he sells.
The same can hold true for a home. If you rent the whole house to
one family on a monthly basis it has one value. If you figuratively divide
the house up into rooms and rent them on a weekly or monthly basis the
value of your investment will increase, because it will produce more income.
You can earn more money each month by renting every bedroom to a
different person then you can by renting the entire house to one family.
This is a key that can allow you to leap ahead in your real estate
investing program. It is not difficult to find suitable investment houses. If
you use the plan presented in “Single Family Homes – The No Risk
Investment” you will even find homes priced below market value. House
sharing can help you in two ways. If you have purchased a house on terms
that will give you good, positive cash flow by renting to just one family –
you can generate even more cash flow by renting rooms instead.
And if you buy a house and then find that you can’t get as much
monthly rent as you planned by renting to one family you can save the
investment by renting rooms. This plan can act like an income insurance
policy.
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If there is a sudden shift in rents in your area, perhaps a factory closes and
other rental owners drop their rents, you can survive by renting rooms. This
is another tool to help you become a successful real estate investor.
Let’s Subdivide
No, you are not going too physically subdivide the home. You will
just divide it in an economic manner. That’s right, no walls to knock out and
no contractors to pay. You are just going to buy a house and rent bedrooms
to tenants on a weekly or monthly basis.
A four bedroom, two bath house will be your number one candidate,
but a three bedroom two bath house can also be profitable.
In many cases the cost of a four-bedroom house is not much more
than a three, so in a shared housing project it will produce more income for
the dollars spent in purchase.
In most modern construction one of the bedrooms will be a “master
bedroom” and have a private bath. This bedroom will rent for a higher rate
than the other bedrooms. The additional two or three bedrooms would share
the home’s second bathroom.
The kitchen, family room, living room, yard and patio would all be
“common areas” to be used by all occupants. The garage could be rented for
an extra monthly fee. Lawn and yard maintenance would be the your
responsibility.
Any house you invest in should be well located in a good
neighborhood, so it will be attractive to tenants and easy to sell should you
ever decide to do so. Proximity to centers of employment will be an
important factor. You will be renting to working people both blue and white
collar and they will want to be near their jobs. They will be single people
and will not be interested in the location of schools. Access to public
transportation is always desirable, but not critical in this case.
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Choose the houses you buy with an eye toward the future. One day
you may be renting to families, so you will want a good, modern home in a
nice area with desirable features. Most often home sharing is a means for
accelerating your investment program. Your longer-range goal will be to
have properties that are as management free as possible.
That means you would stop renting rooms and rent your homes to
families following the plan in “Single Family Homes”. That goal could
occur anytime depending on the economy, the local real estate market and
how skillful you become in buying profitable homes. From that point the
value of your homes, and your net worth, will just continue to grow without
undue demand upon your time.
The Tenant
Housing is expensive and it becomes more so every year. There are
many honest, hardworking people who need and want affordable housing.
Room rental is their sensible choice. Many are starting new jobs, have
recently had a divorce, are new to the area, or are just trying to save money
for one purpose or another. There are many to choose from and many of
them are quality people.
As in any rental situation it will be important to screen tenants
carefully. Screening is even more important in this situation, where two to
four strangers will be sharing a home.
You best policy will be to limit your tenants to those over 25-years of
age, if this is possible without running afoul of any discrimination laws in
your area. You want mature, settled people who can live under these
circumstances with as few problems as possible.
You will find many young people just leaving their parent’s home.
We all know how hard it is to get started in this age of high prices and not so
high wages. The question is do we want the problems many young people
bring with them? Late hours, loud music, junk cars, parties, etc.?
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Evaluate each applicant on an individual basis, but emphasis your strict rules
for any young person you consider.
For all tenants your screening process should include an evaluation of
their personal appearance, the condition of their car and a check of their
credit, employment and past rental history. Follow the guidelines in “Single
Family Homes - The No Risk Investment”.
If you wish to check for any criminal record you could have a clause
in your rental application giving you permission to do that. That information
is available on the Internet for a modest fee.
Here are some web sites where you can find various kinds of
information to help in screening tenants. The URLs all start with “www”:
criminal-records.com, public-records.net, infotel.net, secret-subjects.com,
instant-info.com, and squireprotection.com.
You must carefully screen tenants not only for your protection, but
also for the protection of the tenants they will be living with. If any legal
problems should arise you will have records that show you checked the
person’s background and found no history of serious problems or
misbehavior.
Remember! It is better to reject someone you are not sure about then
to take a chance and have a difficult time getting them out of your room and
your house. Be fair and friendly, but be a tough businessperson!
You have a choice of renting rooms by the week or by the month.
The Weekly Advantage
Renting rooms on a weekly basis puts you in a different category then
if you were renting on a monthly basis. Laws are different from state to
state, so check yours. You will learn that you have more control, because
you fall under rooming house law. This document and accompanying materials are designed to provide authoritative information in regard to the subject matter covered in it. It is for illustration purposes only and presented with the understanding that the author and publisher are not engaged in rendering legal, accounting or other professional opinions. If legal advice or other expert assistance is required, the services of a competent professional should be sought. |
