The most common way to rent out your property is to a single tenant but should you also start considering renting out to multiple tenants?
In some cases, having multiple tenants can be financially advantageous but it does not come without risks.
How do you decide? Below we look at some of the risks involved, but first, let’s understand what the different rental arrangements mean.
Types Of Rental Arrangements
There are 2 main ways that you can rent out your property:
1. Rent out the whole unit under one contract
Renting out to a single party involves only one contract, which means it’s fairly straightforward. This is the traditional method of renting out a property, making tenant management a lot easier.
2. Rent out to multiple tenants under multiple contracts
If a property has multiple rooms, there is the option of renting out the individual rooms to different tenants. This method of renting, referred to as rooming, is common in areas close to universities as students are usually not able to afford renting out an entire property on their own.
A rooming house refers to a property where 4 or more people live together in rented rooms. The rooming house is managed by an operator, who also has the authority to decide who lives in the property without consulting residents.
Renting out the rooms individually is an attempt at utilising the property to its full potential. Also, in some cases you could generate higher income from renting out to multiple tenants.
Some Units May Work For Multiple Tenants
Certain properties may be more appropriate for rooming vs. others. Such as, properties that are in close proximity to colleges or universities and have multiple rooms.
Landed properties are typically more suitable for renting out to multiple tenants because there is more space and privacy involved. However, while renting out rooms in apartments to multiple tenants is also an option, this would depend on how much space is available.
Having multiple tenants could mean more income. For example, you may only be able to rent out a whole unit to a family for $1500 but if you were to rent it out to multiple tenants, you could rent it at $600 per tenant. This is because, while $1800 may be too expensive for the family to bear, breaking up the charges between 3 tenants would be more affordable.
All things considered, there are still risks to renting out to multiple tenants.
What Are The Risks Of Renting To Multiple Co-Tenants?
Properties that rent out to multiple tenants tend to attract less reliable tenants which are only able to commit to short term leases.
As we mentioned earlier, some of these tenants are university students that do not have stable incomes and therefore cannot commit to longer leases. Shorter leases would mean less certainty and the need to look for new tenants more frequently.
Higher Maintenance Costs
Home owners are responsible for maintaining common areas such as hallways, courtyards, parking lots etc. This also includes plumbing systems, roofing, heating and cooling systems and other maintenance costs involved in the home.
Having more tenants would mean more wear and tear and may lead to higher maintenance costs. Keep in mind that each tenant may have their partners or friends dropping by and using the house.
All of this can add up quite rapidly, which is why maintaining multiple tenant properties can end up being quite expensive.
Requires A Licence
Another thing you will need to rent out your property under rooming house arrangements is a rooming house operator licence. This falls under Section 16 of the Rooming House Operator Act and will require you to apply for the licence and provide necessary documentation. This will take time and cost you about $240 in fees.
You will also need to register your house under Division 4 of Part 6 of the Public Health and Wellbeing Act 2008. Failure to do so can result in heavy penalties.
Higher Chances Of Vacancy
This relates to our first point where multiple tenant properties typically have shorter leases. In this case, there is a higher chance of a gap in waiting time when one tenant leaves and you’re looking to secure a new one, making it tricky to make full use of the space.
If this happens, it might be more difficult to ensure that income received for renting out the property covers all expenses incurred.
If you’re renting out your property to multiple people, it is unlikely that you will be able to coordinate the lease periods. As such, rental returns may not be as steady.