Maximizing Rental Returns: Insights from My House-Hacking Journey

For first-time and aspiring house hackers, avoiding mistakes early in your investing career is crucial for building a solid foundation and gaining momentum quickly.

Competition is fierce, and investors are finding great deals harder to come by. This makes it more important than ever to sharpen your skills, expand your knowledge of your strategy, and learn from others' mistakes to avoid starting your investment journey on the wrong foot.

To help you mitigate future losses, I’ll share four lessons I learned from my house-hacking experience.

Stick to Your Application Requirements

As a first-time landlord, adhering strictly to your application requirements is vital. Start with prescreening rental applicants as soon as you receive a call or message from a prospective tenant. The simplest way to do this is by setting rental criteria and explaining them over the phone.

My criteria before the rental application process typically include:

Gross monthly income must be about three times the monthly rent or more.

Must have a favorable credit score. Sometimes, lower credit scores are accepted with a higher security deposit.

Employment information with proof of current monthly income.

Good references from all previous landlords.

No evictions in the past seven years (depending on state or local law).

Agreement to pet policies.

Agreement to the total number of occupants allowed, such as two per bedroom per state law.

A valid ID.

You can read this list over the phone to prospective tenants and ask if they meet these requirements. If not, it’s better not to proceed with screening them further or booking a showing.

When it comes to the application process, I recommend allowing prospective tenants to fill out an application with more detailed information than the prescreening process. Your application should include the following at a minimum:

Name of all adults on the lease

Birthdate

Name and DOB of any additional residents

Government ID

Social Security number(s)

Contact information (phone number and email)

Vehicle information (make, model, license plate number(s))

Current address and rental rate, reason for moving, and current landlord contact information

Previous address and rental rate, reason for leaving, and previous landlord contact information (if possible)

Current employer information (name, address, hire date, income level, contact information)

Past employer information (name, address, hire and departure dates, income level, contact information)

Pet information (if applicable)

Terms & conditions agreement

Always require an application fee to cover the cost of the background check. However, before spending money on the screening process, review the rental application to ensure candidates meet your initial criteria. A prospective tenant who meets these criteria should alleviate many concerns about their ability to pay rent on time.

Offer Numerous Lease Terms

House hacking often leads to higher tenant turnover, especially if you’re renting out rooms or small multifamily units. Many of my tenants moved on to larger properties. Offering flexible lease terms can maximize retention rates and tenant satisfaction.

Typically, you’ll base your listing price on a 12-month lease. Offering various lease durations can attract a wider range of tenants and allow you to charge higher rents for shorter-term leases. For example, a six-month lease might come with a higher rent than a traditional long-term lease. I’ve even offered three-month leases at a 33% higher rent than a 12-month lease.

Shorter lease terms can improve cash flow and tenant retention, reducing vacancy rates. If a tenant with a good track record wants a different lease duration, consider offering a shorter or longer lease at a higher rent.

The caveat: Rental rates are usually lowest from October through April, bottoming out after the December holiday season.

Maintain a Clean Shared Living Space

As a landlord, it’s your responsibility to set and maintain standards for common areas. Lead by example to minimize disputes and create a harmonious living environment.

Focus on these shared spaces:

Laundry room: Essential for single-family rent-by-the-room and multifamily properties. A clean laundry room prevents bacteria and mold, reduces disputes over machine usage, and enhances tenant satisfaction.

Yard: Important for properties with shared outdoor spaces. A clean yard provides a pleasant area for tenants, maintains property value, and prevents issues like overgrowth and pest control problems.

Kitchen: Crucial for rent-by-the-room properties. Regular cleaning prevents contamination, mold growth, and foodborne illnesses, and helps identify minor issues before they become major problems.

Living room: Enhances tenant comfort and enjoyment. Regular maintenance helps identify and address issues, maintains property value, and enhances the overall aesthetic of the property.

Establish Boundaries and Clear Expectations

While it’s great to develop friendships with your tenants, remember you’re still their landlord. You must collect rent and respond to maintenance requests promptly.

Deciding whether to keep your landlord identity anonymous is a personal choice. Consider the pros and cons:

Pros of a friendly relationship: Better communication, enhanced tenant satisfaction, and longer tenancies.

Cons of becoming too friendly: Blurred boundaries, difficulties in enforcing rules, perceived favoritism, and potential legal or professional complications.

Find the right balance by maintaining a professional demeanor, defining relationship boundaries, fostering a positive atmosphere, and keeping documentation of communications and agreements.

Final Thoughts

First-time and aspiring house hackers should understand and avoid common pitfalls to enhance success and accelerate progress. In a competitive market, honing your skills, expanding your knowledge, and learning from others are essential steps toward achieving your investment goals.

By applying these four key lessons from my house-hacking journey, you can better position yourself to maximize rental income and build a solid foundation for future success. Continuous learning and adapting your approach to meet real estate investing challenges are key to thriving in house hacking. Stay informed, be proactive, and leverage these insights to achieve greater profitability and success.

In previous post; "How to become a real estate broker?"