Avoiding Negative Situations When Renting to Roommates
Renting to roommate tenants, or “co-tenant renters”, can be more challenging than renting to a single tenant. Renting to multiple, unrelated tenants raises issues when it comes to managing lease agreements, security deposits, rent collection, and tenant screening. Here are some tips for managing co-tenants.
Supply and demand
Know your house and how desirable your property is. You would expect a room in a high demand area to be rented out at a much higher price, but if your room/house is in a suburb area, the demand would likely be lower. Know who you're targeting. There is a website service called Rentometer that you could use to figure out the average rent price in the area. Another popular website that people use is Zillow. It is an online real estate marketplace that allows you to compare rent prices for different areas. You should use Zillow to research and figure out what the appropriate pricing would be to rent out your property. Chicago rent prices range from $800-$1800 per month, whereas San Francisco ranges from $2000-$4000. Dallas rent prices range from $900-$2500 per month, whereas Miami ranges from $850- $4000. It is critical to do your research on the neighborhood you are in and what other landlords are pricing their property at so you have an idea of where your property stands on the market.
Tenant screening
Tenants that pass your screening criteria should be less likely to cause conflict due to financial burdens or rule-breaking tendencies. All tenants should be treated the same in the screening process, whether they are the original tenant or a replacement. Don’t relax your screening standards for any tenant. You can have multiple people who want to apply for the room, but you should take the time to get to know a bit about each of them before offering the lease agreement. Screening all tenants is equally important in order to find qualified individuals who have verifiable income, a positive rental history, responsible financial habits and rule-abiding behavior.
Make roommates jointly reliable
Make sure your lease agreement states that tenants are “jointly and severally liable.” Joint liability means that if one of your roommates violates the lease, the other roommates on the lease are equally responsible. So, if one tenant pays rent late or damages the property, all the tenants are liable. While this may not seem fair from an individual tenant’s standpoint, it’s a standard provision in any lease, and a great protection for you, the landlord. To the landlord, this doesn’t really matter. If your rental is damaged in any way, it doesn’t matter who is responsible or how it happened, because all of the tenants will be held responsible. It is up to them to figure out a way to fix or pay for the damage.
Don’t allow for subleasing in your lease agreement
Subleasing is when a tenant whose name is on the lease rents a room, a portion of the property, or all of the property to another. Sublessees are not jointly and severally liable for rent or other lease obligations, as they don’t actually sign the lease. You want to make sure that you name every tenant in the new lease and have every tenant sign it. If you choose to allow sublets, make sure you screen the replacements thoroughly and draw up a new lease that names the new tenant jointly and severally liable along with the remaining tenants.
How to manage security deposits
When one tenant moves out, managing security deposits can be difficult. As a landlord it is highly recommended that you don’t personally divide the security deposit between the tenants. Rather, leave it as a lump sum and let your tenants divvy it up. The landlord need only worry about receiving the security deposit, and it should only be returned when the unit is completely vacated and you have the chance to inspect the property for damage. This means the co-tenants must work out for themselves how to handle the security deposit when one of them moves out. The simplest way to manage a security deposit between multiple tenants is for each roommate to put in the same amount when the lease is signed. Then, when they move out, their funds are redistributed equally. This approach can get complicated when part of the security deposit is withheld because of damage one roommate caused, or if one roommate moved out and the remaining person or persons on the lease found a new roommate. This is when the roommates have to settle any disputes on their own.
Collect one paycheck for the full rent
The easiest way to enforce rent payment from all tenants equally is to collect a single rent check for the full rent amount. This will create less administrative work on your end and help you enforce joint liability by treating your tenants as one person equally responsible for the full rent amount. This will make you less likely to get drawn into individual tenant financial issues. If one of the tenants can’t come up with his or her rent, he or she will need to work it out with the other tenants rather than with you.
Assign a tenant representative
Ask your tenants to assign one person as the “tenant representative.” This person should be responsible and available to communicate with you, the landlord, about any issues or concerns that you or the tenants have. Rather than having to contact each roommate individually, you can get in touch with the representative, which will save you time and simplify things like the scheduling of maintenance and repairs.
Suggest a roommate agreement
Roommate agreements provide basic expectations between co-tenants about shared responsibilities in regards to living in a rental unit. Landlords usually have no involvement with roommate agreements, but encouraging your tenants to have one will provide the best circumstances for a positive living arrangement at your property. Roommate agreements typically outline agreeable terms for how rent will be divided and who will write the check, how bills will be shared and paid, room assignments, cleaning responsibilities, security deposits, sublets, overnight guests, pets, parties, quiet hours, common use items (tv, stereo, toaster, blenders, etc), and obligations at move-out.