As the owner of an income property, your goal is to secure a steady stream of rent and, ideally, command top dollar from your tenants. But what's the most effective way to do that? You may be inclined to rent out your home as a single unit to one tenant or family. That way, there's one lease and less hassle. But depending on where your income property is located, it could actually pay to rent out the rooms in that home individually instead of renting out the entire home at once.
The benefits of renting out individual rooms
When you rent out rooms individually, you secure multiple tenants -- and that means multiple rent checks. That's good for a few reasons. First, you may be able to upcharge your tenants on a room-by-room basis more easily than on a whole-house basis. Say your home would normally rent for $2,000 a month based on its size and location. If you have three rooms in that home to rent out individually, you might get away with charging $750 per room, and that could be an easier sell than asking a single tenant to pay $2,250 instead of $2,000.
Furthermore, when you rent out rooms individually, you may be less likely to deal with extended periods of complete vacancies. Imagine you rent your home to a family and that family opts not to renew its lease. It could then take you a few months to find a new tenant to occupy it. Now let's say you rent out three rooms on an individual basis, and one tenant decides not to renew. Even if it takes a few months to replace that tenant, you'll still have income coming your way from your other tenants.
The drawbacks of renting out individual rooms
When you rent out rooms individually, as opposed to renting out your home as a single unit, there's more legwork to deal with and more tenants to accommodate. That could end up being more time consuming for you as a landlord. Also, you may experience higher turnover when you rent out rooms individually, and that could lead to vacancy issues (perhaps short-lived ones, but issues nonetheless).
But one really big challenge you might face when renting out rooms individually is finding strangers who are willing to reside together under the same roof and share your home's common areas. On a basic level, tenants who sign up for this arrangement risk personality and lifestyle clashes. And from a health perspective, sharing a home with strangers may be disconcerting, especially in light of the coronavirus pandemic. Therefore, while renting out rooms individually may result in higher rent and give you a little more income stability, you may, on the flipside, struggle to keep those rooms filled on an ongoing basis.
What's the right call for you?
Renting out rooms in your home individually could work out under the right circumstances. This sort of arrangement tends to work well in college towns. Often, students are willing to live together even if they're not necessarily friends, so you may have success with this model if your home is university adjacent. This setup might also work well in a transient city (think Manhattan) that tends to see a lot of turnover.
But renting out rooms individually may not work well if you own a suburban home, or if your home is located in a city where people tend to stay put. As such, when deciding which approach is best for you, think about the location of your home and how that might play into your rental strategy.
Of course, if you've struggled to rent out your home as a single unit, you could always try renting out rooms individually as an experiment of sorts. But if you've never had any trouble finding tenants when renting your home as a single unit, then you may want to stick with what already works.