The world of renting real estate has one of the most shifting and varying landscapes when it comes to offerings; often making it the most promising investment avenue when it comes to accessibility and scalability.
A landlord can begin tenancy with as little as renting out a spare bedroom in their home and scale up to renting out multiple blocks in apartments.
This is going to be part 1 of a blog post series that will be uncovering the many forms of rental real estate; their charms and pitfalls and how they ultimately fair in standing as a form of real estate investment.
The following forms of Rental Real Estate will be covered in this series, from the smallest going up in terms of investment.
- Rooms Rentals(Attached accommodation).
- House in Multiple Occupation (HMO).
- Attached Properties (Cottages and duplexes).
- Single-family homes.
- Cluster properties.
Part 1 – Room Rentals.
To begin this series, I will be uncovering the landscape of Room Renting.
Specifically, the renting of accommodation whereby the tenant and landlord live in the same home; and use the same entrance to get into the home and their rooms. Landlord and tenants will also share basic home amenities (kitchen, bathroom, living room) and basic home utilities (convenience products and general equipment).
Room Rentals – The Basics.
To begin with, of all the forms of real estate; Room Rentals are by far the most accessible form Rental Investment for the landlord as well as; in most cases, being the least costly avenue for a tenant to enter tenancy.
Costs Of Room Renting-
Essentially, the landlord of a Room Rental property only requires a single or multiple free and habitable rooms that can accommodate the living of another individual.
The essentials needed to accommodate a tenant such as the availability of specific basic amenities and utilities as water, electricity, kitchen space, bathroom space and all other basics of a home would have already been made available for the use of the landlord and require no additional costs to make available for a tenant. The only usual overhead of this type of rental is the general renovations and repairs that need to be made to the rental room for the tenant.
As well, uniquely; Room Rentals are the only form of renting that will not significantly benefit from the use of a 3rd part property manager (as will be further discussed under considerations.) This eliminates the often necessary cost of paying an agency to perform the related tasks.
Management Of Room Renting-
In renting environments where the tenant accommodates a separate property from the landlord; any maintenance repairs and renovations are expenses that do not directly benefit the landlord and only serve to improve the living standards of the current and future tenants.
When the landlord and tenant share a living space, renovations, and repairs while benefiting the tenant; they are also directly benefiting the landlords’ living standards.
Legality Of Room Renting-
Room Renting often has the least level of scrutiny concerning the legal expected state of the property to accommodate a tenant.
This is not only because the landlord is renting out less space on their property but also because the landlord is accommodating the same space as the tenant.
Essentially, if you can live there; they should be able to as well.
Also, depending on where you live and how much you charge; most Room Rentals may be below necessary tax brackets.
All in all, the legal requirements of Room Renting are manageable through a basic consultation with an estate agent and your tax agency.
What to expect From Room Renting (Landlords and Tenants).
As stated above, Room Renting is the most accessible form of both Rental Investment and tenancy for the landlord and tenant respectively, however; it is also known as the form of rentals that experiences the shortest tenancy periods for occupants. Why is that?
Of all the forms of Renting, Room Renting is also the most invasive form of renting; it involves and requires some critical considerations and inconvenient concessions from both the landlord and tenant(s).
The following are 6 of the most important considerations that have repeatedly come up in discussions with 4 current and previous Room Renters on what you should know before beginning Room Renting.
1. Compatibility is critical.
In most rental arrangements, the compatibility of the personalities of the tenant and landlord have little to no effect on the viability of the tenancy so long as the tenant is willing and able to pay the rent and live within contractual boundaries.
This is not the case in room renting. Room Renting poses a scenario whereby the personalities of the tenant and the landlord have moderate, if not equal importance to being able to operate within the contract. You’re not just tenant and landlord; you’re roommates as well.
The common theme from my discussions with current and previous Room Renters is that the tenancy will fare better when the landlord and tenant are similar in personality and lifestyles.
Where the two parties are not similar, conflict and rulings will usually rise; especially when it concerns curfews of movement in and out of the home and traffic of who can and cannot visit the home.
2. Access, Privacy, and Restrictions (House Rules).
The established boundaries of a Room Rental arrangement are often strenuous for the tenant and the landlord when it comes to movement within the house.
Because both parties are living in the same space, there are often cases of conflict in the event of curfews, traffic (people coming in and out of the house), access to rooms and amenities of the home and entrance into the property.
There is also a general concern for privacy on the side of the tenant; does the landlord have spare keys to the tenants’ room and if so; under what grounds are they allowed access to the tenants’ room?
In cases where there is only one entrance into the property (no side gates) and into the home; the issue of whether or not the tenant has keys to both for unfiltered access becomes a concern. And if not, the settings of curfews and procedures to go past curfew become necessary discussions.
There is usually an expected level of conformity from the tenant within this type of arrangement that can become taxing, as the landlord will in most cases require a certain level of subservience (direct wording) when it comes to certain aspects of activity within the home.
3. Amenity control.
Living inconveniences are not rare in Room Rentals; especially when it comes to the use of specific amenities such as the bathroom, kitchen, and laundry.
“Someone is going to take someone else’s snacks from the fridge and use someone else’s toothpaste.” – quotation from the masses.
Where possible, it almost always creates a better tenancy when the tenant is given the means and space to provision their amenities. Appointment of their bathroom, permission, and ability to bring in their refrigerator and other amenities.
Where this is not possible, cases of stress will arise in the event of both parties needing to use the amenities at the same time or general distrust when commodities are stored in a shared space and something goes missing.
4. Contributions To Basic Bills.
In this case, basic bills are primarily variable costs such as electricity and water bills but can account for any costs for utilities or commodities that are shared by both the tenant and the landlord.
In rental situations where the tenant has sole access and use to basic bills such as when they rent an apartment room or single-family home; the cost of basic bills is wholly on the tenant because they are the only person using the utilities.
In a Room Rental scenario, basic bills (on top of rent) are a common additional cost that is either a fixed or variable contribution depending on the landlord and the additional cost to utilities as a result of having the tenant.
5. Complaints and action.
As a blanket evaluation on all the forms of Renting out, the closer the tenant is to the landlord; the faster action is taken to amend specific complaints concerning the requirements of renovations and repairs to the property.
This blanket evaluation does not usually work for Room Renting.
For Room Renting, the need for specific detailing on how repairs and renovations are handled is far more important than for other renting arrangements.
In any other form of accommodation renting where the tenant occupies a separate living space from the landlord, a collateral list will typically be made; this will document all the current defects to the property occupied by the tenant before the tenant moves in.
Upon periodic inspections, the collateral list will be reviewed against the current state of the property. Where new defects come up, they will be evaluated as to whether they are the result of general wear and tear (repaired by the landlord) or negligent damage (repaired by the tenant).
In the case of Room Renting, a collateral list offers limited assistance because damage to the property is often difficult to appoint. This can often lead to slow repairs on simple things such as fixing handles and other small defects.
6. The dynamic: Friend – Family – Roommate or Tenant.
Unanimously, everyone I interviewed over Room Renting brought up the issue of uncertainty concerning their status at the home.
Landlords often find it difficult to draw the line as to how they interact with their tenants in this environment and this often causes issues for the tenant on how they can and are expected to behave around the house and with the landlord
Key Focus Points.
With personal scrutiny of the above 6 considerations to Room Renting, I believe the following points identify areas of amending to improve the Room Rental dynamic:
- Only Room Rent in a situation where personalities and outlooks are similar between the tenant and landlord.
- The sharing of bills is going to be a variable that needs to be discussed as to how and why it is as it is.
- Regulations, rules, and expectations should be discussed upfront concerning what the landlord expects from the tenant with social and property behavior.
Should You Room Rent?
Room Renting is not for everyone, and I would be inclined to say, it’s not for most people and definitely not for most people for long – both tenants and landlords.
Below I’ve outlined who would best benefit from the Room Renting model from both the perspective of the landlord and tenant.
What Type Of Landlord Is Room Renting For?
- You can accommodate a tenant (living and amenity space).
- You are aware of who you can and who you cannot accept as a tenant.
- You can create a clear distinguishment between tenant and friend/guest.
What Type Of Tenant Is Room Renting For?
- Best of students or singles (people just starting in independent living).
- Usually better for individuals who do not expect a lot of traffic (visitors).
Concluding Evaluation Of Room Renting.
Room Renting, as both a rental investment for a landlord and as a form of accommodation for a tenant does what it is meant to do rather well – which is, providing an accessible entryway into the industry.
On its own, both landlords and tenants can only scale so far within the boundary of room renting.
For the landlord, it works well in providing a reasonable bonus income to pay and cover small expenses such as basic bills or a portion of larger expenses such as a mortgage.
For the tenant, it gives a not to expensive gateway into independence and self-sufficiency.
For both, however, the limitations and concerns stated above are too integrated into the foundation of Room Renting that the entire arrangement can only work for specific people, in specific situations and at a specific point in their lives.
Families and most tenants moving from being young adults to full-on adults would not integrate well with the treatment and regulations found in most room renting situations.
The arrangement only works for you adults and very specific young adults at that.
Scoring Room Renting As An Investment.
As will be the case with all the other rental properties in this series, I will be scoring Room Rentals within the following 4 criteria as well as providing brief reasoning for the score:
- Accessibility – How easy is it to set up and start.
- Scalability – The ability to increase and handle the increased demand for the service.
- Return On Investment – How much you get for how much you put in.
- Return Potential – What can you reasonably expect to get out of this investment.
1. Accessibility (5/5).
If all you have is a spare room in your home and basic amenities. You are good to go
2. Scalability (1/5).
Not only does Room Renting experience the shortest tenancy periods of all renting avenues, but the model inherently can only sustain as many spare rooms as are available in the home which is often not many and not a preferable environment for both the tenant and landlord.
3. Return On Investment (5/5).
Your only real investment as a landlord in this situation is the cost of making the room habitable for the tenant and the additional cost of basic utility bills (portion usually covered by tenant). Your ROI is most likely the largest you’ll get in any form of renting.
4. Return Potential (2/5).
The rent acquired from Renting won’t likely be making a huge dent in repaying your mortgage but it can cover many small expenses and utility bills.
You won’t be adding a lot to your net worth but you can make enough for a holiday or two.