How to Get Double the Income from a Property by Renting Rooms Individually

0:00So, there's a couple things you want to get right with this student housing rent by the room strategy. The first one is the right college. The second one is the right house or the right property, obviously. And then thirdly, the right tenants. So, I start off with going to the US News Top Colleges report. And those are like the top colleges in the nation on the national list at least. And — it up today, actually. — Oh, yeah. Oh, yeah. Yeah, there's a lot of them out there. And like there's like over 450 on the national list or whatever.

0:35And these aren't necessarily Ivy League colleges specifically, but they are very top colleges that have a lot of grad programs. So, like you know, they might have the pharmacy, dental degrees, nursing, engineering, etc. And so, I like investing there those universities because I get people who are very serious. Maybe they got straight A's in high school, did well on the SATs, and they're well-rounded. And so, they're really focused on not wasting their parents' money and getting that doctorate degree, maybe even.

1:09So, I usually start there for finding the right college. And then for finding the right property, I use this acronym BIG, B I G. B stands for big, actually. So, the larger the square footage, kind of the better because the more bedrooms you can add. I usually aim for 1,500 sq ft or more because that usually can get to five or six bedrooms. And if you want to know how many minimum bedrooms a house can have, usually you just divide the square footage by 300, and that's like the minimum that it can have.

1:41So, 1,500 sq ft / 300 is five bedrooms. 1,800 / 300 is six bedrooms. So, then if I can get it to like six bedrooms, usually the cash flow is is really strong. I stands for inviting neighborhood. So, you want to be in a safe neighborhood for these students. Like, if a parent comes to visit the house and they see like a lot of trash, maybe some homeless walking around, or some gangsters, or whatever, they're going to go like, "I don't want my kid to stay here, right?" So, the neighborhood's super important.

2:13You have to feel very safe, like let's say walking from the neighborhood to the school, or driving from the neighborhood to the school. And then G is geographically nearby the school. So, you for students, it's very important to be as close as possible to the campus. So, if they have their 8:00 a.m. Classes, they usually wake up like at 7:45 a.m., roll out of bed, and you know, try to get to that their classes really quickly. So, to them, proximity is super important. So, those are kind of the factors that I look for when I target the student the best student house.

2:48And then of course, you know, the tenants themselves, usually I target like grad school students, you know, people who seem very professional in their communication with me. They're like, you know, "Hello Dr. Chao," or "Hello Mr. Chao, I'd love to get a tour of your house," versus saying like, "Yo, what's up? Can I crash in your crib?" You know, — — like they seem like, "Okay, I don't know if I want this person at my house, right?" — Yeah. Yeah, that's interesting. So, do the does your typical I guess you call them tenants, right?

3:25I mean, they're still tenants or residents. Do does do they sign a year-long lease then? Or if are they just there cuz most of them are there for 9 months, right? If it's a typical semester. — So, everyone does sign a 1-year lease, and they're allowed to sublet during the summer sessions, usually. And we can help them find summer school students as well, but we do August to August leases. Like let's say we buy Sometimes it might be shorter if we're buying in the middle of the year. So, let's say we buy in February or something, we might do a lease from February to July 31st, but then after that everyone's on a August to August lease.

4:04With the August to August and then we make very few exceptions to that. But, the thing is these students for on-campus housing, they're paying like 1,200 a month. Plus, they have to pay for a meal plan and for a parking permit, which is another, you know, 50 80 dollars a month just for the parking permit. So, they're saving a ton of money by paying only, you know, 650 to 720 or 750 for these rent by the room models. And they're they don't have to stay with a roommate, they don't have to share a bathroom with, you know, 12 other people at the dormitory.

4:39So it's a lot It's like It makes a lot of sense to them and it's a very strong market because of that. Very high in demand. I've really never had vacancies in like California, for instance. I just never really had a vacancy. Maybe like 2 weeks so that I could put in new flooring, but that's because I chose it. But, after that it's always been like back-to-back leases. — Wow. And you only have to lease one time a year for all the properties, so — Yeah. And some And some people stay for several years. So, we have like 2-year leases sometimes, too.

5:11Like we had this group of 12 baseball students that signed until basically, August of 2028. Because they really liked the place and that house I bought for 367,000. It's a duplex, actually. And it houses 12 baseball students, so it's making 7,360 a month in rental income, for something we put little more than 60K down payment on. — Yeah, that's incredible. And And so, how how is a house like that broken up then?

5:43I mean, six people in each side of a a sounds like a lot. But like how big are those units and how many bathrooms and what does that what does a floor plan look like? — Yeah, so you want to have at least two shared bathrooms per unit. That way basically you maintain a three person to one ratio. So six people to two bathrooms is a pretty good ratio. If you push past that it starts to feel a little bit overcrowded. You generally don't want to go past seven or or eight people for sure.

6:16Because then you're sharing one kitchen and then that could get pretty messy. But with that being said as far as square footage, you know, I use the rule of 300. That particular duplex was about 4,000 square foot. So about 2,000 per side. And I did have to I did a a bit of a conversion and I did put in a kitchen for one of the units. But yeah, it it's a pretty spacious duplex. — So each each of those 12 has their own bedroom? — So two of them share one bedroom for each unit.

6:50So each unit had five bedrooms, two bathrooms. Sorry. And then two of them were in one bedroom for I guess two of the bedrooms. So — Got it. Okay. Came 12. Yeah. — Interesting. Wow. Okay. A- and do you generally target duplexes or what do you what do you find works the best in ter- I know you described, you know, the big philosophy, but in terms of like your ideal property type, what does that look like? — Yeah, generally, you know, even if it's like a three bed, two bath, you can get that to five or six bedrooms if there's enough square footage and it and depending on the layout of the house.

7:31Let's say you have a family room, dining room, and a living room. A lot of times students don't need all that much common space. In fact, we're in the era of streaming and Netflix and these Gen Z people, they, I, you know, say, "Oh, there we used to have cable TV." They're like, "What the heck is cable TV?" they they YouTube, you know, and Netflix. So, basically, they hang out in their rooms most of the time and they never even use the common area, you know, based off the feedback that we get. Plus I do a house hack right now and no one uses the common space.

8:02So, basically, yeah, it's, you don't need that much and you can convert, let's say, the dining room and the family room into bedrooms and then keep the living room as the main common space. So, as long as you have like one big common or generally nice common space, that's good enough for students. And that's, that's how I'm able to get those extra bedrooms in there. — So, the common space, that's not the kitchen, right? Like you're saying separate from the kitchen. So, you leave one like living room area? — Sometimes, sometimes not.

8:33So, it just depends. — — There are some houses where the kitchen, there's like the kitchen and there's a little bit of a space right next to the kitchen and that's kind of like the common space. You don't need a whole, whole lot, like I said. Sometimes, you can even have the garage be the common space. Kind of like how you see Airbnbs, they have like a pool table in the garage and that's and maybe a sofa and that's like the new common space. So, you could do something like that as well. — Okay. And how do your neighbor, have you ever had any issues with neighbors, complaining that there's too many people in a house or anything like that?

9:07— So, what's interesting about this strategy is de facto, if you're close by, if you're in a neighborhood close by the school, generally, the neighbors already expect that there's going to be students, a lot of students staying there. And so, they kind of come to expect it. To be honest, I've definitely had neighbors complain when students left trash on the lawn and they're like, "That's not a good look. Can you please clean that up?" and complaints, you know, I've even had somebody complain to the city about trash on the lawn, but generally, you just clean it up, you know. And then you tell your tenants, "Hey, you can't you can't do that." but yeah, that was like a very specific case.

9:43But yeah, you you sometimes might get a complaint, but as long as you have like clear house rules. And nowadays, I put in something called a head tenant program where every house has a head tenant. It's kind of like a the RA, and they maintain the cleanliness of the house. They help do the house tours. They also help resolve housemate conflicts if that occurs. And we give them $50 off per month for the rent in exchange for taking on those responsibilities. — Got it. Okay. — Yeah. We're empowering the tenants. — Yeah.

10:14Yeah, that's great. And they're there, you know, to be able to deal with it every day as opposed to, you know, you, you know, not being being there as as much. So, that was my other question though is like when people are sharing space, it just it can lead to conflicts, you know, you ate my cheese sandwich out of the the fridge and you know, I had my name on it. And so, so so you generally leave that up to the head head tenant? Is that Okay.

10:46— nowadays, we do. And and I would say we we do have a three-strike policy if we get complaints or they're not keeping the place clean and and sanitary, then they'll get three strikes. And by the third time, we'll revoke the head tenant status. We'll give it to somebody else or offer it to somebody else. — I see. Okay. And how often do you have to be there? And do you like do do you have it professionally cleaned? Or like is there a manager that has to go through it? Or it does it kind of like they maintain it well themselves?

11:18— Yeah, so again, it depends on the type of tenant you bring in. More professional tenants you usually clean clean up after themselves. I also find that groups, like group of friends, they will figure things out among themselves. And if if it you know somebody's leaving dirty dishes in the sink, they'll work it out and say hey, you know, stop doing that. And since they're all friends, they they you know, self-regulate basically. It's when you have strangers or people who don't know each other then you put them in one house, sometimes there is some housemate conflict of that because of that.

11:51So the head tenant generally is our first line of defense and then we do have somebody who's kind of like local boots on the ground who checks in. Do they do like quarterly house inspections? They will run like a town hall meeting at the beginning when everyone moves in. It's kind of just like a icebreaker so everyone gets to know each other and also divide up the chores. So during the town hall meeting, the facilitator, the the boots on the ground person will say, "What's the plan for dividing up the chores?

12:22How do you guys want to handle that? How do you want to handle if someone leaves dirty dishes in the sink? You know, what's our plan for each of those?" And then that really sets up the expectations or you know, the in the right way so that the tenants kind of know how to deal with those conflicts. — Okay. Have you ever had to remove a tenant because they're just not acting right? — Kind of thing. Oh, well, the one that threw the wild Halloween party, he was also smoking marijuana and and it was illegal at the time in California.

12:55So we told the parent and the parent actually removed their son and said, "I'm so sorry about this." And we'll find you a replacement. So they they actually found a a new person to take over that person's lease. So the nice part about all this is the parents co-signing on all the leases. So you have the parent act as a guarantor if there's a hole punched in the wall or something like that, obviously the parents now on the hook for it. So they always end up paying. And for for things like this, they take responsibility.

13:26But yeah, with that being said, it's not super common. Usually we have like a step-by-step system where the head tenant starts facilitating that discussion and then the boots-on-the-ground person might jump in. — Got it. Okay. Man, it sounds like there's some good checks and balances worked in here being that it's a student housing, you know, that cuz I've I've heard other people doing this just in random setups. That's not student housing and neighbors are more of a concern cuz it's they're not close to a a school where it's expected and then you don't have parents cosigning.

14:02So, it kind of reminds me of when I first started with with rental properties, I was in the army and I was I had properties around bases and I loved renting to to soldiers cuz I knew if that soldier doesn't pay or there's some issue, I can call their commander tomorrow and they're they're government property basically and so that commander can call them in their office and say, "Go pay your rent or you know, we're going to figure out, you know, a solution here." So, yeah, so it's nice to have parents that you can reach out to as well and kind of have some checks and balances there.

14:39— Exactly. Having that higher level of authorities is important for sure. — Yeah. Yeah. What So, do you have like a a price-point-to-income ratio that you tend to target when you're deciding something is or isn't a deal? — Yeah. That's a good question. Depends on if you're going for cash flow or high appreciating markets. I tend to aim for just at least $1,500 to $2,000 a month in cash flow.

15:09I think that's very achievable. But I'm a lot more picky nowadays, I would say. I I kind of aim for like the 2% rule. So, basically like for that house I bought for 367,000, you know, I kind of want 2% of that to be the rental income if possible. So that you know, that's a example of like the 2% rule. I would say it's it's not always easy to hit 2%, but you can aim for like between 1.5% to 2%. So again, if if a house is let's say it's 300k, 2% of 300k is 6,000, right?

15:45So you want 6,000 a month coming in as rental income. — Yeah, got it. That's a that's a good rule of thumb and I think it's so much better than what most people are targeting with the 1% rule today. It's like That's hard if if you're bringing in 1% gross on a monthly basis, you take out all those expenses and it is hard to make money. — Yeah, that's with the higher interest rates and all that for sure. So I think 1.5% to 2% is a really good range. Just try to try to aim for that. — Got it. — Okay. — And then you you have what you call the prime method for finding high quality tenants.

16:22Cuz I'm sure like I know when I did long-term rentals especially like your all your success is dictated on the tenant that you bring in. You can have the best property in the world, best investment, you bring in a bad tenant and it's all over. So what's the prime method and how does that ensure that you have a good tenant? — Yeah, great question. So prime is an acronym. It's it's a way to find high quality prime tenants and P stands for placement of advertisements. So you always want to place your ads in front of your target tenant.

16:55So for me it's college students. So I usually place on like Facebook college housing groups and there's a lot of them out there where basically people are place posting rooms for rent. There's roomies.com for people looking for housemates essentially or for room for rent. There's a lot of them out there. There's there's affiliate college off-campus sites. So that's a really good place as well. And you just want to get your ad in front of your target tenant, right? Otherwise, you're fishing in an empty pond because or a pond filled with fish that you don't want to catch, right?

17:30So yeah, you want to place your ad in the right places. So R stands for review of social media. So typically, I'll look up the person on Facebook, Instagram, LinkedIn. And if they're having a lot of pictures of them partying, drinking, doing drugs, or smoking, I might not want them at my house. So I will always look through do a quick social media search. I stands for identifying the type of tenant. So as mentioned earlier, like are they being professional in their communication with me?

18:01Or are they saying, "Yo, what's up? I need a place to crash, you know, or whatever." I I I kind of determine, okay, is this guy very entitled? Are they Did they get angry easily? You know, are they potentially not very professional? That type of stuff. And then let's see. M stands for measure responsiveness. So the more responsive they are, the more responsible I find they are. So like if they're getting back to me really quickly with all the paperwork, I prefer that type of tenant over somebody who takes weeks.

18:37For example, if I say, "Hey, your rent is late." or I send a an email out to them, I don't want to wait like 3 weeks for them to respond and say, "Oh, sorry, here's the rent." and worry about like what the heck is happening for those 3 weeks, right? So the more responsive, the better. And then E stands for ensuring proof of income. So I always want three times the month's rent as income. So if the rent is 700 plus utilities is another 100, then I want to see $2,400 coming in. Either from the parent or from student loan or financial aid.

19:11And the good news about students is they have so many ways to pay rent, the student loans and financial aid or their parents. And so I had one tenant who actually paid for an entire year but never even moved in. And that was because they had a full ride scholarship and they said, "You know, we signed a lease with you guys and so we're going to pay it. Don't worry about that. It's actually not us paying, it's the scholarship paying anyways and if we don't use it, we'll lose it anyways." So they paid for an entire year but he actually ended up staying home to take care of his grandparents.

19:43But yeah, it didn't matter to him cuz he wasn't the one paying the bill. — It's the best tenant in the whole world. — Yeah. — — Exactly. That's the tenant that is crazy. — Yeah.