The Pros and Cons of Renting Out Your House by the Room

In real estate, one question often arises when it comes to maximizing the income from a house with multiple rooms: would you rent the entire house to one tenant or rent out each room individually? Let's explore the benefits and challenges of both approaches.

Personal Experience

When I was divorced, I lived in a large house with four bedrooms, including a granny flat. Initially, I rented out the master bedroom and bath while my son and I used the other rooms. Over the years, the house saw numerous tenants, and by 20 years later, I was renting three upstairs bedrooms and the granny flat.

While renting the entire house to one person might have maximized income, it would have required finding additional accommodation for myself and reduced rental income. This is a common trade-off faced by many homeowners.

Renting by the Room: Increased Income vs. Profit and Tenant Management

With symmetry, renting by the room can increase the total income. However, the profit may not be as high because it often attracts less respectful or less long-term tenants. Short-term issues such as property damage may arise, which can reduce the eventual sale price of the property.

A client I represent owns several rental properties and operates them by renting individual rooms. He sets up the house to monitor utility use remotely and can adjust the HVAC system. This arrangement
provides a higher return on investment in terms of cash flow, but it comes at the cost of managing a high turnover of tenants, which can be time-consuming and challenging.

Subdivided Rentals: A Trend and a Risk

In Hong Kong, an interesting trend has emerged where homeowners subdivide their houses into smaller units to increase rental income. A two-bedroom apartment can be turned into six or even eight separate units, resulting in rental prices that are much lower per unit.

While subdividing may boost rental income, it often leads to a rapid turnover and lower respect for the property. Furthermore, subdivided units are illegal in Hong Kong due to fire safety concerns. Despite this, the demand remains strong due to skyrocketing apartment prices.

Conclusion

The decision to rent out your house by the room or as a whole depends on your specific situation, including the nature of your tenants, the legal and financial implications, and your time and energy management. While renting by the room can increase total income, it may come with additional challenges that could impact your overall profitability.