House Sharing For Profit - Part 2 -5
It is easier to get a bad tenant out and it takes less time. This can be a real
plus in protecting your positive cash flow.
The same holds true with a tenant who stops paying rent. You know
every week whether the tenant is going to pay or not. If not, you can get
them out in a day or two keeping your loss to a minimum.
You must receive a security deposit from your weekly tenants.
$150.00 might be about the right amount, plus $20.00 for a key deposit.
You should demand that the first week’s rent and the security deposit
is paid in cash. Explain that in the future they may pay by check so long as
no check bounces. The first time that happens it is back to cash.
Deposits help protect you in case a tenant does not pay on time or
causes damage to your property. Accept no sad tales. If an applicant can
not come up with the deposit and the first week’s rent in advance do not
accept them! If they can’t pay now they won’t pay later.
Have a rule that rents must be paid no later than Noon on the third day
of the week or you will charge a $25.00 late fee. If the tenant has not paid by
then explain you will consider the room abandoned. This will give you
some protection from a “move out” – a situation where the tenant moves out
without notice.
Have all rents due by Noon on Saturday. Friday is payday for many
people so Noon Saturday gives them time to get to the bank and deposit their
checks. Always collect a full weeks rent payment for the first week even if
the tenant is moving during the middle of the week. Prorate the second
week and then get full week payments every Saturday after that. Just break
down the weekly rate to a daily rate for the week that will be prorated.
How much should your charge? You should expect to get more for a
weekly rental than you would for a monthly room rental, because there is
more management involved. The only reason to rent rooms is to boost your
cash flow, so your weekly rental must be more profitable than your other
choices.
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If they were to rent a room in a decent motel it would cost at least $40
per day. Yes, they would have a private bath in a motel, but they would not
have the use of the other rooms available in a home. In your house they will
have the use of the kitchen to prepare meals if they wish. They will have the
living room where they can relax and interact with other tenants. All of
these features have value.
If you have three bedrooms and you rented one for $135 per week and
the other two for $110 per week your monthly income would be $1,420. A
fourth bedroom would bring the monthly total to $1,860. These are just
example numbers. You will have to set your own rates depending on the
rental environment in your area at the time.
The Owner Rules
You must have rules and regulations that are carefully explained to
every tenant. They will be living with others and must have the self-control
necessary to fit into the situation. By reading the rules along with them and
having them initial each paragraph there can be no misunderstanding about
what you expect of them. Your rules might look like the following:
RULES
Please red and initial each line:
1. Rents must be paid on time and in advance.
2. No checks will be accepted for first weeks rent and deposit, or if any future rent check
should be returned unpaid.
3. Rents are not refundable.
4. A Late Charge of $25.00 will be assessed at Noon following the rent due date.
5. Rent not paid by Noon of the 3rd day will be notice that the room has been abandoned
and may be re-rented.
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6. No overnight guests.
7. No pets.
8. Tenant will be responsible for the tenant’s guests.
9. No TV or stereo is to be audible from outside of tenant’s room.
10. Automobile repairs done on the property must be completed within four hours.
11. Tenants are required to keep room clean and sanitary.
12. No non-prescription drugs of any kind will be allowed on the premises.
13. No excessive drinking.
14. Nothing may be attached to walls, ceilings or floor.
15. Kitchen Rules: Supply your own kitchen utensils. Clean stove and oven after each
use. Clean table and counter tops after each use.
Wash and put away dishes immediately after each use.
16. Owner will not be responsible for any accidents or injuries to you or your guests or
for the loss of money, jewelry or any other valuables, including fire damage. You are
advised to have our belongings insured.
17. Violation of any of these rules will be grounds for legal action and eviction.
I have read and agree to abide by the above stated rules.
Signed ______________________________ Date _________
Print Name: ____________________________________
In addition to these rules you would have them fill out a rental
application just as if you were renting on a long-term basis.
Renting rooms on a monthly basis is a little less management
intensive, but it also produces a little less cash flow. When setting your
monthly rent for each room you should do some research and learn what
apartments are renting for.
-8
Your room rent will have to be below those rates to be competitive.
Just modify the rules to fit the monthly status.
Furnishings
Yes, the house must be furnished. The furnishing are personal
property and could be expensed in the year purchased or the cost could be
amortized over a period of years and added to your estimated management
and maintenance costs. Get advice from you accountant on this.
Each room might contain the following:
1. Bed, box springs, mattress, frame and headboard. (Tenants to
provide their own linen.)
2. Comfortable chair.
3. Night table.
4. Lamp(s).
5. Small desk.
6. Dresser or chest of drawers
7. Wall decoration (pictures, etc).
8. Extras might include: Electric fan, clock, TV stand?
Each room must have a lock on the door. Buy a couple of extra
locksets, so you can switch them when a tenant moves out. That will save
you the cost of re-keying every time you have a new tenant.
Common Rooms: might be furnished as follows:
Living Room: TV, Sofa, 2 or 3 comfortable chairs, end tables, lamps,
etc.
Kitchen: Microwave, toaster, fridge, stove, dishwasher.
Coin operated washer and dryer, shower curtains, backyard barbecue,
etc.
Good used furniture can be found in thrift shops and used furniture
stores.
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Other Ideas
You might adopt a policy of offering one tenant a reduction in the cost
of their rent if he or she acts as the house supervisor. They could take care
of the yard, put the garbage out, do minor clean up and keep an eye on
things.
When calculating your costs you could include a weekly
housekeeping service for the common rooms. This would assure you that
things did not get out of hand as far as the maintenance and sanitation of
your property is concerned. Housekeepers should report any problems
observed during their visit.
A weekly room cleaning service should be offered to each tenant.
The housekeeper, during her weekly visit, could clean the tenant’s room and
perhaps do some laundry.
You would add a charge to their weekly rent for this optional service
or don’t give them the choice. Just include the service as part of their rent.
That would assure you that your property was being taken care of. A service
like Merry Maids could be hired to do the cleaning.
Many renters will have their own TVs, but for those who don’t you
could have a couple that you offer to rent to them for a few dollar per week.
You could also offer to rent to them a package of towels and bedding.
If there is room on the property you could construct storage lockers
and rent them to your tenants.
One investor finds space in his homes to create another bedroom. A
house with a large family room is well suited for this. It is usually a matter
of constructing two walls to box in another room with a window. It can be
done quickly and at small cost.
If the lot is large enough you could purchase a used travel trailer,
place it on the property and rent it just like a small apartment. There are
some plumbing, electrical and zoning challenges here, but it could be done.
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We know of one investor who got his start by house sharing. He
bought a condo for a very small down payment. It was his home, but he
turned it into a profit center. He ran a classified ad under homes for rent like
so:
SHARE MY BEAUTIFUL HOME
Luxury Condo, Pool, Fitness
Center, Perfect Location
Among Young Professionals
$700 Monthly Call After 5pm
111-111-1111
This tactic allowed him to quickly save money for down payments on
single-family homes he used as rentals.
The Bottom Line Is The Bottom Line
There are many details to consider, but keep your goal in sight. If you
are an investor planning on finding financial freedom as quickly as possible
with single-family homes this is a powerful cash flow plan.
By renting rooms you can purchase homes at near market value (if
necessary) and maximize your monthly cash flow.
As the value of the home increases over a period of two or three years
you may stop renting rooms and rent on a yearly basis to a family. The extra
cash flow over that time period should have allowed you to add two or three
more homes to your portfolio.
Even when you become very skilled at buying homes below market
value as presented in “Single Family Homes – The No Risk Investment”
room rental is an option to use when you need increased cash flow.
Some call it their ace in the whole if they should be caught in an
economic downturn. During bad times homes are much more difficult to
rent, but rooms are in demand. With your range of knowledge you are ready
to make money under any financial circumstance.
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From now on I expect you will look at Room For Rent ads with new
respect! 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. |
