Can I Make Money With a Shared Housing Business?

Do the Numbers Before You Enter Into a Contract

This is a question every group home or coliving operator should answer before signing a lease or buying a property. How much you can make depends on your city's rental market, the property itself, and what it really costs to run a house with several residents. Cities like Los Angeles, New York, and Raleigh have a high cost of living, which drives up both what residents pay and what you pay. Here is how to figure out whether a property will be profitable.

Start With a Simple Breakdown

Here is a typical example for a 3 bedroom, 2 bath home:

• Rent: $1,500 a month

• Income: 2 residents per room, each paying $600, for $3,600 a month

• Utilities: water $90, light $350, gas $90

Subtract the rent and utilities from $3,600 and you have $1,570 left. That looks like a great profit, but it is only a starting point. A shared housing business has many other costs.

The Costs That Are Easy to Miss

• Internet and trash: Use the actual monthly amounts. Residents expect reliable Wi-Fi, so budget for a plan that can handle everyone at once.

• Vacancy: Beds will not be full every month. Set aside 5 to 10 percent of your gross income for empty beds and turnover.

• Late and unpaid rent: Plan for it, especially when residents are on fixed incomes or you are waiting on payments from an agency or program.

• Insurance: A standard landlord policy may not cover rooms rented to unrelated individuals. Get a quote for shared housing or group living coverage, including liability.

• Repairs and maintenance: More people in one home means more wear on plumbing, appliances, flooring, and paint. Budget for repairs every month.

• Supplies, cleaning, and pest control: Toilet paper, cleaning products, light bulbs, and regular service for the common areas are usually the operator's cost.

• Furnishings: Beds, mattresses, linens, and furniture wear out quickly. Set money aside each month to replace them.

• Management and staffing: If you pay a house manager or staff, include that cost. If you manage the home yourself, your time still has value.

• Licenses, software, marketing, and taxes: Business licenses, inspections, background checks, listing fees, bookkeeping, and income taxes all come out of your profit.

Don't Forget Startup Costs

Before the first resident moves in, you will pay for the security deposit and first month's rent, beds and furniture, smoke and carbon monoxide detectors, fire extinguishers, needed repairs, legal fees for your lease and resident agreements, and your first marketing. Your profit has to pay all of that back.

To see how long that takes, divide your startup costs by your monthly profit. For example, $9,000 in startup costs divided by $1,000 a month in profit means 9 months to break even. Until then, the property has not made you any money.

A More Complete Example

Here is the same house with more of the real costs included. These amounts are examples only, so use actual quotes and bills for your property and your city.

• Gross income (6 residents at $600): +$3,600

• Vacancy allowance (10 percent): -$360

• Rent: -$1,500

• Water, light, and gas: -$530

• Internet and trash: -$120

• Insurance: -$100

• Repairs and maintenance: -$150

• Supplies, cleaning, and pest control: -$150

• Furnishings replacement: -$75

• Software, screening, and marketing: -$50

Net monthly profit: $565 (before management, staffing, and taxes)

The same house that looked like $1,570 a month earns closer to $565 once these costs are counted. That can still be a good property, but you need to know the real number before you commit.

Signs of a Profitable Property

• Gross income is at least two times the rent or mortgage.

• The numbers still work at 80 percent occupancy. If the property only makes money when every bed is full, it is a risky deal.

• You can earn back your startup costs within 12 months.

• The property can legally house the number of people your numbers depend on.

Questions to Answer Before You Sign

• What do comparable rooms or beds rent for in this neighborhood?

• How many people can legally live in the property under local zoning, occupancy, and fire codes?

• Does the lease or HOA allow you to rent rooms to unrelated individuals? Get the owner's permission in writing.

• Who are your residents and who pays? Private pay, SSI, VA, county, and agency contracts each pay different rates on different schedules.

• How quickly can you fill the beds, and how long do residents usually stay?

• Will the property still make a profit if two beds are empty for a month?

Run Your Own Numbers

Don't make it complex. Keep it simple and do the numbers, because the numbers don't lie. The SOS Housing Profit Calculator now comes with a Shared Housing Profitability Guide, so you can check any property you are thinking about buying or leasing before you enter into a contract.