Renting to roommates: 5 key considerations
If you’re renting apartments to roommates, there are some special considerations to keep in mind when it comes for lease agreements, security deposits and potential roommate disputes. Experts weigh in on ways to keep relationships between roommates — and their housing providers — headache-free.
Every roommate should go through your standard application process, such as a background and credit check, even if one of the roommates is capable of qualifying for a lease independently, says Bryson Weed, co-founder and managing partner at Utah-based Island View Capital Partners. It can protect both you and your renters.
Early in Weed’s real estate career, one of his residents asked if a friend could move into the unit as a roommate. He agreed without asking the friend to go through the full screening process because the original resident had already met his qualifications. After moving in, the friend began stealing money from their roommate, according to Weed.
“Had we done a background check and credit check on the new roommate, I’m positive something would have come up that would have clued us in,” he says.
Both you and your renters should understand the scope of what they’re agreeing to when signing a lease.
If a lease holds renters joint and severally liable, all the roommates on the lease and each roommate individually can be responsible for the full rent and any damages, says Ann O’Connell, legal editor and attorney at Nolo, an online legal resource and publisher.
While it’s not an unusual lease feature, it’s still a good idea to explain it to roommates and make sure they understand that they can be held responsible for the full rent and any damage caused, not just their portion, if their roommates can’t pay, she says.
Whether you collect a single deposit on behalf of a group of roommates or accept individual deposits can make a difference if you need to use a portion of the deposit to cover unpaid rent or damage repair costs.
If each roommate has their own security deposit, a property owner would have to figure out from whom to deduct any unpaid rent or damage repair costs, O’Connell says. When the group has a collective security deposit, the property owner can let the roommates determine how to handle the remaining amount.
What happens if you accept a group security deposit and one renter moves out before their roommates? As long as at least one of the original renters remains, owners aren’t obligated to return the deposit, O’Connell says.
Juan Huizar, Sage Real Estate president and broker in Long Beach, California, says he typically does not return a portion of the security deposit if a roommate moves out or accept deposits from people joining a roommate group, instead letting the residents determine how to divide responsibility for the deposit.
It’s not unusual for roommate groups to change over time, and trying to slice and dice the security deposit as people come and go can get difficult, he says.
Property owners can choose whether to require one collective rent payment each month or let each roommate pay their share of the rent individually.
Letting roommates designate one person to submit the full rent payment each month can simplify the process. However, rent management tools like Story's make it easy for roommates to split rent into individual shares and keep track of each person’s payments, Weed says.
Regardless of how you collect rent, it’s a good idea to clearly communicate payment instructions to renters.
Even close friends who’ve chosen to live together can clash. Roommate agreements, which let renters establish house rules and create a process for resolving disputes, can help prevent conflicts or keep them from escalating, O’Connell says. While the property owner wouldn’t be party to the agreement, an owner could encourage roommate residents to consider establishing one, she says.
Nolo suggests roommates cover hot-button topics, including:
- Rent and utilities: How will bills be divided up, who’s responsible for handling payments, and what happens if someone fails to pay on time?
- What’s shared and what’s personal: Who gets each bedroom and bathroom, and are there any rules governing common spaces? When it comes to possessions, which items are OK for all roommates to use, and which are off-limits? It’s a good idea to cover food sharing too.
- Chores: How will roommates split responsibility of household tasks?
- Guests and noise: Should there be rules governing when guests can visit or when roommates can host parties, watch TV or play music?
- Early move-out: If one roommate wants to leave before the lease ends, how much notice must they give, who’s responsible for finding a replacement, and will they get any of the security deposit back?
Roommates may try to rely on the property owner’s authority to address conflicts that arise, Weed says. In some cases, it’s best to let them handle the issue on their own, but it’s also important to know when to step in.
“There are some purely personal situations where residents need to address the situation themselves, but as soon as anyone’s in danger, or a law is being broken, I need to make that my problem,” Weed says.
If a roommate conflict rises to the level of domestic violence, victims may have access to housing protections, like early lease termination rights or the right to have locks changed, O’Connell says. Consult with an expert to make sure you understand your responsibilities under federal, state and local laws.
While renting to roommates comes with unique considerations for property owners, the right precautions can help preserve relationships and prevent conflict.
“There’s a relationship involved there,” Weed says, “and it’s important to keep that in mind.”
By Lauren Zumbach from Story by J.P. Morgan