3 Things to Consider When Renting by the Room

The majority of people who own real estate tend to rent their properties out as a whole unit to one person or a single family. But if you want to boost your bottom line, consider renting by the room.

This can work whether the home is your principal residence—meaning you live in the home—or if it’s an investment property.

Renting individual rooms gives you access to multiple tenants, which means multiple rent checks. However, renting this way comes with additional headaches and stress.

Key Takeaways

• Renting a house or apartment to multiple tenants can benefit both tenants and landlords.
• However, landlords may want to consider the possibility of high tenant turnover.
• More tenants may lead to more noise complaints and more damage.
• Landlords may also need to consider additional expenses.

The Benefits

Because there are multiple people living in the property, tenants can reduce their rent expenses by sharing their cost with others.

Let’s say a three-bedroom home normally rents for $3,000 every month. A single tenant may not need that many rooms, and may not be able to afford that rent. But if a room went for $1,200 per month, it they may be able to swing it.

This gives the tenant their own private space as well as access to the rest of the living space. Moreover, if the landlord charges utilities separately, they can be split between tenants, further reducing their monthly burden.

Landlords can also receive more rental income by renting out rooms to different tenants. So that three-bedroom home that rents out to one family for $3,000 will bring in $3,600 each month if rented to three different tenants instead. Renting by the room also helps make rental income more reliable for landlords because it minimizes the effects associated with having vacancies.

Warning

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report to the Consumer Financial Protection Bureau or with the U.S. Department of Housing and Urban Development (HUD).

The Drawbacks

Still, there can be issues when renting by the room. Here are three.

1. High Tenant Turnover

For the most part, renting by the room tends to be a temporary arrangement. Tenants will eventually want a place of their own with more privacy and space.

As a result, landlords may have to replace tenants fairly frequently. Though it may not be hard to find replacements, listing a place to rent and screening possible tenants over and over again can become a hassle.

2. Additional Work

Another thing to consider when deciding if you should rent your rental property by the room is the additional work needed to manage several tenants—not to mention the potential for conflict and drama.

With more tenants under the same roof, it’s almost inevitable that a landlord will receive more calls about broken items, complaints, and disputes among roommates.

It’s also important to keep in mind that renting to more people will ultimately mean dealing with more damages and possibly more evictions. That may be a turn off for real estate investors who want to earn income from their properties passively.

3. Hidden Expenses

It’s very easy to omit important expenses when calculating potential returns for a rental property that is rented by the room. That is because many expenses that are usually passed on to a tenant end up being assumed by the landlord, including lawn care, heating expenses, and anything else that may be hard to measure the usage by each tenant. Without carefully considering these hidden expenses, landlords run the risk of overestimating their return on investment.

In many states, it’s illegal to charge a tenant for utilities unless the usage was accurately and individually metered. This is hard to do with a rental unit that has multiple tenants living in it. In the end, the landlord will have to cover these costs.

Is the Cost to Rent Rising?

Yes, the cost to rent is rising—in fact, in 2023, for the first time in a decade, the real median gross cost of renting (rent plus the average monthly cost of utilities, adjusted for inflation) grew faster per year than real median home values (3.8% vs. 1.8%, respectively). That’s the biggest annual increase in rental costs since at least 2011, according to the U.S. Census Bureau.

How Much Do Most People Spend on Rent?

The average renter spends almost a third (31%) of their income on rent, according to a 2023 survey by the U.S. Census Bureau.

Who Rents More, Younger or Older People?

Younger people rent more than older people, the Pew Research Center found. About two-thirds (65.9%) of people under age 35 are renters.

The Bottom Line

Renting by the room is one way for real estate investors to increase their rental revenue. However, there are a number of things to consider. More people may mean more damages, conflict, and drama. There might be more tenant turnover. Additionally, there are some expenses, such as electricity and water, that can’t be passed to tenants when individual rooms are rented. Taken together, some landlords might find that the hassle of renting by the room isn’t worth it.