Maximizing Your Rental Income: Four Tips From My House-Hacking Experience

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For first-time and aspiring house hackers, avoiding mistakes early in your investing career is crucial in speeding up your momentum when building your foundation. 

Right now, competition is high, and investors are finding themselves in markets where great deals are becoming rare. It could not be a more important time to sharpen your skills, round out your education on your strategy, and learn from those who have made mistakes so you avoid starting your investment journey on the wrong foot.

To try and help you mitigate any future loss, I’ll share four things I learned from my house-hacking experience. 

1. Stick to Your Application Requirements

As a first-time landlord, it is crucial to adhere strictly to your application requirements. Prescreening should be first on your list with rental applicants, starting when you receive a call or message from a prospective tenant. Always prescreen before meeting potential tenants in person. The easiest way to do this is by setting rental criteria and explaining them over the phone. 

My criteria prior to a typical rental application process look like this:

• Gross monthly income must equal approximately three times the monthly rent or more.
• Must have a favorable credit score. At times, I’ve seen landlords accept lower credit score ranges with a double 1.5x-2x security deposit.
• Employment information, with acceptable proof of the required up-to-date current monthly income.
• Good references from all previous landlords.
• No evictions in the past seven years (depending on state or local law).
• Agree to pet policies.
• Agree to the total number of occupants allowed, such as a two-per-bedroom, per state law.
• You must bring a valid ID.

You can read this list over the phone to the prospective rental tenant and ask them if they meet these requirements. If not, renting out part of your home to them may not be in your best interest, as it’s a waste of your time screening them further and booking a showing.

When it comes to the application process, I would always recommend allowing any prospective tenant to fill out an application and include more information than the prescreening process. 

In addition to these, your application should include the following, at the very minimum:

• Name of all adults on the lease
• Birthdate
• Name and DOB of any additional residents
• Government ID
• Social Security number(s)
• Contact information
• Vehicle information
  • Make
  • Model
  • License plate number(s)
• Current address
• Current rental rate
• Reason for moving
• Emergency contact information
  • Name
  • Relationship
  • Email
  • Phone number
• Current landlord contact information
• Previous address
• Previous rental rate
• Reason for leaving
• Previous landlord contact information (if possible)
• Current employer
  • Name of company
  • Address
  • Hire date
  • Income level
  • Contact information
• Past employer
  • Name of company
  • Address
  • Hire date
  • Departure date
  • Income level
  • Contact information
• Pet information (if applicable)
• Terms & conditions agreement

Always require an application fee, which will cover the cost of the background check. 

However, before bothering with the components of screening that cost you money, scan the rental application to ensure candidates meet your initial criteria. A prospective tenant who meets the expectations on an application outlined here should mitigate a lot of your concerns when it comes to their ability to make a monthly rent payment on time. 

2. Offer Numerous Lease Terms

When it comes to house hacking, you will have higher probabilities of turnover with the nature of your rental being either a small multifamily property or a smaller private living space inside your primary residence if you decide to rent by the room. Most, if not all, the tenants from my house hacks were not looking to rent out a bedroom for too much longer in their adult lives and moved on to much bigger properties, either renting or owning them. It is important to offer flexible leasing options to ensure you maximize your retention rate and increase tenant satisfaction. 

Traditionally, you’ll run your comps on a 12-month lease and base your listing price in the range of what the market dictates. Offering more flexibility in your lease duration can maximize rental income and improve your chances of retaining current tenants through various lease renewal options.

By providing a variety of lease terms, you can attract a wider range of tenants and charge higher rents for certain lease agreements. For example, a six-month lease may come with a higher monthly rent than a traditional long-term lease. I have found that this can be a very lucrative option, and have offered as low as a three-month lease for a tenant that was a referral. The rent on a three-month lease was 33% higher than my other tenants on a 12-month traditional lease. 

Not only will you be improving your cash flow position with shorter lease terms, but retaining current tenants with different options will dramatically improve your retention rate and decrease your vacancy rate. For example, if a tenant with a good track record is looking to stay for a different duration than offered in a lease renewal package, it may make sense for you to consider offering a shorter lease with a higher rental rate, or a longer-term lease. 

The caveat: Many landlords believe, and few studies show, that the lowest rental rates are usually found October through April, bottoming right after the December holiday season.

3. Maintain a Clean Shared Living Space

Spoiler alert: It is the landlord’s responsibility to ensure common spaces have rules in place to ensure all parties understand the standard of quality expected. You must lead by example. 

Shared spaces often lead to disputes among tenants. Keeping these areas clean can minimize conflicts and foster a more harmonious living environment. 

Some of these spaces that will require the most attention are mentioned here, and some may be specific to how you operate your house hack.  

Laundry room

This will be crucial for single-family rent-by-the-room and multifamily properties with shared laundry rooms.  

A dirty laundry room can become a breeding ground for bacteria and mold, which can negatively impact both tenants and everyone’s health. Regular cleaning helps prevent unpleasant odors and potential contamination. 

Shared laundry facilities can sometimes lead to disputes over machine usage. Keeping the space tidy, posting clear instructions on how to use the machines, and adding a sign-up calendar help reduce these conflicts and ensure a more pleasant experience for all users. A well-kept laundry room contributes to the overall impression of the property, reflects positively on you as a landlord, and can enhance tenant satisfaction and retention.

Yard 

The yard will be another crucial spot for single-family rent-by-the-room and multifamily properties with shared outdoor spaces. 

Tenants value outdoor spaces that are clean and well-kept. A pleasant yard can serve as an extension of their living space, providing an area for relaxation, socializing, or recreational activities. 

Regular yard upkeep helps maintain the property’s overall value. Neglected outdoor spaces can lead to overgrowth, which may cause structural damage, pest control issues, and compliance with regulations from local ordinances or HOAs, potentially decreasing the property’s value.

Kitchen 

The kitchen is one of the most, if not the most, trafficked area in your house hack if you are renting by the room. 

It is absolutely essential to keep the kitchen clean to prevent contamination and the spread of bacteria. Regular cleaning helps avoid issues like mold growth, unpleasant odors, and foodborne illnesses. 

Regular cleaning also helps in identifying and addressing minor issues before they become major problems. For instance, cleaning grease buildup from stovetops and vents can prevent potential fire hazards and maintain the kitchen’s functionality.

Living room 

Lastly, the living room will be essential to maintain a high-quality standard of living if you are renting by the room. 

The living room is a central space where tenants relax, entertain guests, and spend a significant amount of time. A clean, comfortable, and well-maintained living room enhances your tenants’ overall comfort and enjoyment of the space. Regular maintenance helps identify and address any issues like water stains, mold growth, or structural problems before they become major concerns, which can prevent long-term damage to the property.

Finally, a clean and organized living room enhances the overall aesthetic of the property. It reflects well on you as a landlord and contributes to the property’s marketability and appeal to potential tenants.

4. Establish Boundaries and Clear Expectations

You may develop friendships with your tenants, and that’s great. However, you’re still their landlord. You still have to collect rent and respond to maintenance requests in a timely fashion. 

The age-old debate of keeping your identity as the landlord anonymous from your tenants has great merit on both sides, and I would encourage you to understand both sides of the argument before you decide one way or the other.

Personally, I would try to keep my identity anonymous while house hacking as the landlord. This may be harder to achieve if you are renting by the room in your primary living area and collecting rent under your name, so let BiggerPockets help you with our vast property management options available, including RentRedi, that will help you self-manage confidently. 

I have broken down a few pros and cons of building a friendly relationship and becoming too friendly, and what a perfect balance may look like for you:

Pros of building a friendly relationship 

• Open communication: A friendly relationship can lead to better communication. Tenants might feel more comfortable discussing maintenance issues, concerns, or potential problems openly.
• Tenant retention: Positive relationships can enhance tenant satisfaction, which may lead to longer tenancies and fewer vacancies.

Cons of becoming too friendly

• Blurring boundaries: A close personal relationship can blur professional boundaries, which could lead to difficulties in enforcing rules or dealing with conflicts, as personal feelings could complicate decision-making. Being friends with tenants might make it harder to address issues like rent arrears, property damage, or lease violations impartially. What happens if you have to evict a tenant who has now become your friend? It will not make the process any easier, that’s for sure!
• Perceived favoritism: In some cases, overly friendly relationships can lead to potential legal or professional complications. Other tenants might perceive favoritism if they see you are closer to one tenant than others, which can lead to dissatisfaction or disputes.

Finding the right balance

While friendliness is important, maintaining a professional demeanor helps ensure that the landlord-tenant relationship remains clearly defined and fair. Define the boundaries of your relationship to avoid complications. Being personable and approachable while keeping interactions focused on property management can help maintain professionalism.

Additionally, make sure you foster a positive atmosphere, where tenants feel comfortable communicating without necessarily becoming close friends. Regular check-ins and being responsive to their needs can help achieve this balance. For important issues or decisions, always keep documentation of your communications and agreements. This helps maintain a clear record and ensures transparency.

Final Thoughts

First-time and aspiring house hackers should understand and avoid common pitfalls to significantly enhance success and accelerate progress. In a market where exceptional deals are increasingly rare, honing your skills, expanding your knowledge, and learning from the experiences of others are essential steps toward achieving your investment goals.

By applying the four key lessons from my own house-hacking journey, you can better position yourself to maximize your rental income and build a solid foundation for future success without making mistakes right off the bat. Remember, the key to thriving in house hacking lies in continuous learning and adapting your approach to meet the ever-evolving challenges of real estate investing. Stay informed, be proactive, and leverage these insights to set yourself on a path to greater profitability and achievement in your house-hacking endeavors.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.