House Hacking: Real Estate Investment Strategy
There is a great strategy out there for investors to increase their returns where instead of renting to one tenant they can rent to multiple tenants all from the same property.
My Single Family Home
Let’s assume that you own a single-family residence. You have been renting out the residence to a family that has been there for many years and has paid rent but now they are looking to move to a new location. All these years you have seen your rents increase from $1000/month to $1050/month to $1100/month and so forth until they finally leave while they are paying $1200/month.
Although you have been able to increase the rent steadily as they have been there and they have been good Tenants, your expenses and return have been relatively low because by the time everything is said and done, after repairs and maintenance you are left with around $150-$200/month. In many books, that is a good return, but for you, the returns can be better.
Related: Keeping Your Property Habitable
What Should I Do Now?
As you sit there looking over your bank statements, it becomes clear to you that you are willing to accept a little more headache for a higher return. Now what should you do? Should you sell this property and try to find a property with a better return? Should you try to increase the rents of this property even more and possibly risk higher vacancy rates?
As you scroll around the Internet looking for different options you see that rooms near the neighborhood that you are renting your property are renting for $500. You know that there is a school nearby and that students don’t normally want to pay a full $1200/month for rent, so you start to think, “Maybe I should rent these rooms individually.” If you were to do so you could get up to $1500/month in rent and that would mean that you would be making around $450-$500/month on that very same property. That would more than double your profits!
Related: Rent Price Vs. Long Term Lease
Thinking Outside The Box
Now that you have thought about renting these rooms individually you start on the journey to find Tenants that would be acceptable. After going through a few different applicants you decide on your final three. These three seem to have their finances together enough that they pass your screening and you are happy to place them in the property.
Hope For The Best
One of the biggest downsides of a strategy like this is that you will inevitably run into Tenants who will not get along with each other and you will have to deal with that. Sometimes the tenants will work smoothly together and you will have no problems with increased return, but sometimes you will have problems with the Tenants and have to deal with those. For you, as an Investor, you decide that it is worth the headache of almost doubling your return on the property to deal with the potentiality of having Tenants not be able to get along with one another, and what is more, you see that even if you have one Tenant leave then you will still have $1000/month coming (assuming the other two stay) which will cover your expenses on the property either way. That is a win for you!
Until Next Time,