Tuesday, February 17, 2015

Short Term Rentals

Blog reader Katie B sent me the following questions, which I will answer here:
Love your blog!  Try to read it as often as my crazy life allows. I especially sat up for your 12/23/14 blog where you wrote in your, Saving for Financial Freedom article about renting out rooms in a home that you live in, for free -  that you do not own. Wow!... loved that idea....I’m wondering if it would be too much to ask you to write about the specifics of how one would do  this?  Questions off the top of my head are:
    - What would the owners  need to see/hear from me that would help them trust me in this type of
      -  does it only work if you rent short-term at a higher rate?  Isn’t the turnover a hassle?  I’d like
            to get a 2-3 good housemates in and keep them around for a year or two.....
Katie, I have the advantage of being a licensed real estate broker which means I know the laws regarding landlord/tenant relations. I have access to the most current legal agreements between landlords and tenants, such as rental agreements, legal notices, and various addenda that pertain to renting property. I professionally screen all of my prospective tenants. I have strict requirements for whom I will consider as tenants. This builds trust when I approach an owner about renting their property. 

In addition, I have now used this technique on five different houses, so can demonstrate a successful history of doing this type of rental without problems. In the beginning, I would have my new prospective property owner call and visit the current property/owner to see how I handled the property and meet some of my housemates. They found that the property was clean and well-maintained, that the tenants and neighbors were happy with the arrangement, and that my tenants were responsible, working professionals.

It is true that you can command higher rents with short term rentals. Short term, furnished rentals appeal to a specific niche of the market that very few landlords offer. So I basically control the market for these types of properties close to downtown Seattle. 
And yes, turnover can be a hassle. But I live and work from home, so it really is not a big imposition. And because my house is so attractive and so convenient to downtown Seattle, I have less turnover than you might imagine. One tenant rented a room in my place sight unseen, and stayed for 2 1/2 years on a month-to-month lease.

         - how are you finding the homes and .... are you agreeing to take on tasks they would normally do (advertising,
            interviewing, setting house rules, keeping the rooms occupied, maintaining the house?, etc?). 

I find these homes the same way other tenants do, usually on Craigslist or other online sites. But most prospective tenants looks for the nicest house or apartment they can afford, mostly 1-2 bedroom homes. I look for different houses - I want a beautiful house, close to downtown and employment centers, with lots of bedrooms. I could not qualify to rent these properties on my income alone.

And yes, I assume all responsibility for the lease. The owner only has to deal with me, and they are pretty much guaranteed a long term lease, hassle free for them.

         - what are the pitfalls in this type of arrangement? (both with the owner & the housemates)?
Some people do not like sharing kitchens and bathrooms. Some people like more privacy. This arrangement is not for everyone. But for an empty-nester single person like me, or someone equally social, it is a fantastic living arrangement.

         -  is there a certain type of renter you gear your advertising to?  Certain part of town?
                (would this work if it weren’t around downtown?)
My typical tenant falls into one of the following categories: someone moving to Seattle for a temporary job or for love, someone in a relationship transition or break-up,  or someone remodeling their home. Short term furnished room rentals are perfect for them. These are typically working professionals, many with six-figure incomes, not young students as people often think.

I stay close to downtown, or other major employers. I do not think this model will work ANYWHERE, but this is what works for me.

Thanks for the questions, Katie, and
Happy Investing!

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