Admittedly, it can be nerve-wracking to rent your property to several strangers. Will everyone get along? Will the rent arrive on time? Will you be subject to incessant complaints and drama?
When you consider the possibility of renting to more than one tenant, you are likely balancing the additional revenue with the possible headaches. The good news? Those risks can be mitigated, and you can still make good money from your property with the right approach.
I would like to share with you the major tactics that will assist you in securing your investment and maintaining smooth operations.
Know What You’re Getting Into
To begin with, it is important to understand the difference between renting to several strangers and renting to only one person or family.
When you rent out to several unknown individuals, you are forming a mini-community. You have varied personalities, schedules, habits, and lifestyles living under a common roof. Yes, there is a higher likelihood of conflict. But so is the potential for higher rental income. This is why correct risk management is so crucial.
Conduct a Background Check on Every Tenant
Screening tenants is your initial line of defense. This step is not to be overlooked when you have a number of strangers to deal with.
Conduct thorough background checks on all people. Obtain credit reports, confirm employment, check rental records, and carry out criminal background checks. Do not allow a person’s charisma or tragic tale to cause you to cut corners. One bad tenant can spoil the whole lot.
Make phone calls to their former landlords—not only their current one but their previous ones too. The existing landlord may provide a glowing review simply to get rid of an undesirable tenant. Ask specific questions:
- Did they pay rent on time?
- How did they treat the property?
- Would you rent to them again?
Ensure that every tenant makes sufficient income. A rule of thumb: they must pay at least a third of the rent. This ensures that they can afford to live there.
Get Your Paperwork Right
Legal details aren’t fun, but they are necessary when dealing with several tenants.
Select your type of lease. You have two main options:
- Individual leases imply that every tenant is required to pay only his or her rental fee. In case one individual withdraws or ceases payment, the others do not have to make it up.
- Joint leases make everybody accountable for the entire rent. This keeps you safer, but it may cause conflicts among the housemates.
You must have your lease spell out everything:
- House rules
- Quiet hours
- Guest policies
- Cleaning schedules
- Who pays utilities and how
The clearer you are in the beginning, the fewer arguments you will have in the future.
Also, check your local laws. There are places that have special regulations regarding renting to various unrelated individuals. You do not want to get into fines and legal problems in the future.
Get the Right Insurance
When you rent to several tenants unrelated to one another, you may not be well covered by your usual landlord insurance. Visit your insurance agent and explain your situation.
Make it mandatory for all tenants to take renter’s insurance. This insures their property and provides them with liability coverage in case they unintentionally destroy the property of another person. Get them to provide you with evidence of insurance prior to occupancy.
You may also require additional liability coverage on your part. An increase in the number of people is accompanied by higher risks of accidents. It is far better to have insurance and not need it, than to need it and not have it.
Set Up Simple Money Systems
Most landlord-tenant fights are a result of money issues. And they are even worse when there are a number of people involved.
Collect rent on an individual basis. Do not accept cash. In doing so, you have no doubts as to who paid and who did not. Credit card payment systems that monitor all data and send automatic reminders should be used. There will be no more excuses like, “I thought somebody else paid it.”
Collect security deposits from tenants one by one. In case of damage, you are aware of who did what. Take as many photographs and videos as you can before anybody moves in. Do the same when they move out.
Be absolutely clear on late charges and what happens when one fails to pay. Then, just always keep to your rules. If you let one slide, everyone will want to be treated the same way.
Develop a Strategy to Manage Conflicts
Arguments occur when strangers are living together. The thing is, you are not a therapist, but you should have some system for addressing those issues before they get out of hand.
Establish effective communication channels. Will you text, email, or call tenants? Treat dissimilar issues in different ways—emergency versus noise versus roommate issues.
In minor battles among housemates, ask them to resolve it on their own. You are a landlord, not a referee. But make it clear that you will step in if it becomes serious or when one of them violates the lease regulations.
Write everything down. Keep records in case one tenant has a complaint against the other. You will require this paper trail when you need to evict somebody or go to court.
Stay on Top of Maintenance
An increased number of individuals implies an increased amount of wear and tear. Don’t wait for things to break.
Perform regular walk-throughs of your property. Of course, you have to give proper notice. It aids in the detection of minor issues before they turn out to be costly repairs. It further demonstrates to your tenants that you care about the property.
Ensure that tenants find it easy to report maintenance issues, and get things mended within a short time. When more than one person is impacted by a faulty heater or a leaking pipe, anger mounts quickly. Responsiveness shows that you are a good landlord, which encourages them to share any issues with you early rather than concealing them.
Reflect on Your Long-term Objectives
The handling of multiple tenants ought to be in line with your overall property investment strategy. Do you want as much cash flow as possible? Or are you more concerned with the increasing value of the property? The level of risk you adapt to should be commensurate with your investment requirements.
If you move into co-living properties because of the better earnings, you should realize that it is more work than ordinary rentals. The additional funding is accompanied by additional accountability. Before leaping, you must have the time, systems, and personality for this.
Others employ property managers to deal with day-to-day inconveniences. Yes, it costs money. But it may take the stress off you and save you time. Calculate the cost of the management fees to determine whether it is worth it in your case.
Know When to Let Someone Go
No matter how well you do, sometimes it simply does not work out with a tenant. It is significant to know when and how to separate.
Note down any lease breach. Precisely follow your local eviction regulations. Although a tenant may be causing serious trouble, shortcuts are not beneficial when it comes to your wallet and legal issues.
Sometimes, the rational choice is “cash for keys”—paying a problem tenant to leave. You may find it awkward to pay someone who is torturing you, but usually, it is quicker and cheaper than a formal eviction.
Wrapping It Up
Risk management with multiple tenants is not about avoiding all potential issues, which is unachievable. It is about having systems that reduce the risk, guarantee the safety of your investment, and assist you in dealing with problems that arise.
Additional revenue with several tenants can actually increase your returns. But you have to do it in a clever way. Screen carefully, record all data, communicate effectively, and be attentive to your property and tenants.
