WTF is a Rooming House!?!
I’m going to introduce you to a whole category of Real Estate Investment that’s little known and under-appreciated. We’re going to talk about the investment opportunity but if you need to read a definition what exactly a rooming house is than check it here.
Rooming Houses are what we refer to in the industry as a cash cow. As such, your coin is gonna be made on a monthly basis. This is not a “buy for appreciation” play and not a turn key situation unless your very good at managing it.
In order to understand how these deals usually pan out check out “Anatomy of a Deal”.
Lets get brutally honest about who lives in these things. First and foremost this is an affordable option. Its hard to get any cheaper than renting a room alone. That said, these will generally be low income renters.
Its a mixture of senior citizens along with mentally and physically handicapped people. Of coarse there is also transients and just people in a life transition. Adding a few students and forieghn renters and you have a typical rent roll.
I will say I have met some fascinating and good people in my room rentals. These are not your typical renters which makes things interesting. There’s also the heartbreaking stories of people that simply got left behind by society.
Nevertheless, these buildings serve a purpose giving people a place to rent when traditional ways won’t work. Without these places there’s a lot of my tenants who would end up homeless or dependent on others.
If you read “Anatomy of a Deal” you can see how much cash you can pull from these investments. There are plenty of downsides and risks to be aware of.
Main thing is you have to have zero tolerance for shenanigans in these places. Lots of rules are necessary to keep drama to a minimum. NO SMOKING! NO GUESTS! NO DRUGS! ect. These are low income neighborhoods and if your not careful you will end up with a drug house or house of prostitution or who knows what. At that point your not doing anyone a positive service.
Screening is more strict also with no drug convictions in the last 5 years. We also require no violent crime in 5 years. No evictions is also a big one. If you get one bad apple you can lose all your good tenants in one swoop.
We also run into a lot of people who just don’t play well with others. What ends up happening is we ask a lot of people to leave. Since theres no lease we are under no obligation to let them stay if they cause trouble.
On the other side of the coin most of them don’t want any trouble. Some can even be model renters, although sometimes slightly weird. Wait….thats not fair to say……let me just say, sometimes…..’a lot’ weird.
I currently have about 40 units in about 5 buildings and love it. Its a little like riding a bucking bull, if you can hang on the payoff is good.
In investor circles these buildings have a bad rap. They are misunderstood, most think they can only be filled with degenerates. This is not the case, if managed correctly they can be a profitable asset. Along with providing a necessary option for certain people.
Rooming houses can be a way to make money while helping people who dont have a lot of options. I encourage people to invest in them, unless you have never been out of Beverly Hills. In which case forget it, stay inside your bubble.