Made in America – a new model with a common sense approach

Yes, we rent the rooms separately to different people.  All of the tenants are thoroughly screened & vetted and we try to match them by personality & lifestyles.  It's pretty common around university towns.  I started switching everything I do to shared housing back in 2007 but I've been doing it off and on since college years in the late 80's.  It's a tougher thing to set up but the returns speak for themselves.  I love that fact that there is always rent being paid by someone in the house and I avoid all of the vandalism & theft that can occur with an empty house.  The rents in the house in the above example went from $900 as a single family to $2,300 as shared housing (gross rents)  The net rent now is almost double what the property grossed before – when it was actually rented.  I think you have been buying 2/1s or 3/1s in your market?  I think if memory serves me correctly.  It can work with shared baths.  I've had 3 different rents in a 3/1 although I favor at least two baths.

I've been in Atlanta for over 20 years and know my market very well.  I tend to hunt and land deals that the venture capital & hedge funds avoid or off-market deals that they can't source.  I'm pretty sure my model will work in other markets.  Bear in mind that these aren't the "boarding" houses that Freckle might allude to.  The US economy has very serious cracks, no doubt there at all.  Those of us with the fortitude to do something different will profit very well.  A 2bed/2ba property we are buying for about $30k with $10k in renovations will rent for about $1,300 gross a month and nets $550/mo after utils and all expenses.  Our front end partner will see an obscene return on it when we sell it off to a passive investor for about $60k and gets a guaranteed 10% return for 18 months.  If it doesn't hit, we reach in our pockets and pay him back.  We are doing this on a small scale and it seems to be working well.  Happy to chat and compare note!  Andy

I can't for the life of me imagining collecting weekly rents unless I lived in the unit.  I have a few renters that I let pay bi-weekly at a slightly higher rent.  With over 400 doors in the program now, it's tough enough running around town collecting what we've got.  Fortunately, most of these units are with private homeowners where we just rented a room, two or three in their homes.  We have just started pursuing multi-family units like this tri-plex being offered for about $60k….shared housing will turn this one into a real performer. Plus, the hedge funds stay away from multi family but it's perfect for shared housing:

https://www.youtube.com/watch?v=I77d2n8Hmtc  (open market listing)

Engel – The model will work even in the worst parts of KC as I used it here in SW Atlanta which has the same kinds of tenants.  I actually started my program there in 2008 to get around all of the damages, vandalism & evictions I started running into.  We rarely do anything in those kinds of areas today but I am starting to look at the Ft Mac area of Atlanta again as there is a 488 acre redevelopment coming that way.  In terms of renovations, everything I do in investing is geared towards shared housing.  On the renovations, we stick to more expensive ceiling fans, nickel hardware, nicer faucets & hand sprayers in the showers, 6-panel doors & solid flooring where we can.  My guess is that you would be doing the same things for a retail buyer in KC as you would for a renter.  Most times, we can reuse carpet with a good cleaning. If I were in KC, I would take a spin into some of the newer housing near the churches to get a feel for what your renters will be comparing you against.  Nothing I do is geared to a retail buyer as the properties are worth more and sell for more as rented & performing investment properties than they would retail.  We sell them off with a 10% net rent guaranty and that pretty much determines the sales price.  The units can always be taken to full retail with granite countertops and the works at the appropriate time.  I'll spend a little more on hardware, lights, faucets and use designer paints to pull it all together.  Accent walls make a huge difference and the renters notice.  

There are other advantages.  We keep control over and often furnish the common areas of the house.  We'll put $1k or $2k  into the rehab budget for used furniture, depending on the size of the unit.  My Mom always said once you sit in it..it's used!  If we rented the house outright, we lose access over it. With shared housing, we can key in and see what's going on at any point in time……and we do so.  We let all of our renters know that we'll be by at random times to keep everyone on their toes.  Some of the nicest looking/sounding renters turn out to be the biggest druggies or drunks.  We have almost none of that.  

You'd be surprised at the quality of many of our renters:  lawyers (no jokes), nurses, executives, sales reps, a ton of divorced people with destroyed credit.  The apartment communities won't rent to those with bad credit but we take the time to look at the cause.  Every walk of life is renting from us…..and most of our rents are $750+ some as high as $2,500 (private terrace in gated community) with most falling in the $500 to $750 range.  These all includes utilities with a cap ceiling depending on the size of the house.  Most of our renters appreciate an all inclusive rate and any overages are now split pro-rata among the occupants….they are in a much better position to police util usage than I am.  You have to have a cap to kill the free rider problem or renters wasting utils because they feel like they are paying for it.  

You won't see shared housing sweeping the nation…so what!  It's filling our pockets, keeping our units filled at over market rents, minimizing our expenses and getting double digit returns.  I'm sure you can find someone in KC to partner with to develop this.  Not sure how many units you have there now but try switching one of to this and let me know how it goes.  I am eyeing Memphis as another market for us and Phoenix is already in the works.  You'd be amazed at the number of non-performing investment properties that investors are bringing to us now.  I'm seeing properties in metro Atlanta that haven't been rented in years.  It's probably the same in most markets.  Whatever your model, know it well and have boots on the ground!

All  great point Jay.  Our foreign partners do get frustrated by getting rents after the 21st of the month.  Many of our tenants do pay by check now but our bank usually holds the funds for 5 to 10 business days…even though I believe by law they aren't supposed to hold that long.  I think 5 days is pretty standard now.  The longer time appears to be for a couple of specific banks who are having issues.  Some of my renters want to & do pay electronically but it's rare. Alot of our renters have damaged credit.  When we did more work inner city, almost everyone paid in cash or money orders…..which we still have to confirm were legit…you'd be amazed at how many phony money orders we got in those days.  We don't work with that type of clientele these days.  Most of our rents today are pretty solid and just wanting to save money by renting affordable housing.  It's a win-win for everyone.

We don't do boarding housing or "SRO" (single room occupancy) housing…our concept is shared housing where the tenant gets a private room but gets to shared the rest of common areas.  All utilities are included and we usually furnish the common areas for renters use.  In most areas, we are limited to no more than 4 unrelated people living in a home.  Happy Investing!  Andy