Short answer: Renting by the room collects more total rent than one tenant pays for the whole house, but it also costs more to run. The fair comparison is cash flow after vacancy, expenses, and the mortgage. In the round-number example below, the same $200,000 house clears about $47 a month with one tenant and about $1,393 a month as six rooms at $175 a week, with $26,000 more cash invested.
Do not compare rent to rent
Six rooms at $175 a week is about $4,550 a month. The same house rents whole for $1,800. It is tempting to stop there and call it two and a half times.
That comparison is wrong, because the two rentals do not cost the same to run. By the room, you pay the utilities, furnish the rooms, and fill them more often. Compare what is left at the end.
One house, two ways
This is a round-number example to show the method. It is not a real property.
The house: $200,000, bought as four bedrooms and two bathrooms. 20 percent down, a 30-year loan at 7 percent, so the payment is about $1,064 a month. Closing costs are 3 percent.
By the room: two unused rooms turned into bedrooms, for six. Every room shares a bathroom, three to a bath, and rents for $175 a week.
| Step | One tenant | By the room |
|---|---|---|
| Rent if always full, per year | $21,600 | $54,600 |
| Vacancy | 5% | 10% |
| Rent after vacancy | $20,520 | $49,140 |
| Operating expenses | 35% | 40% |
| Net operating income (NOI) | $13,338 | $29,484 |
| Mortgage payments, per year | $12,774 | $12,774 |
| Cash flow, per year | $564 | $16,710 |
| Cash flow, per month | $47 | $1,393 |
| Cash you put in | $46,000 | $72,000 |
| Cash-on-cash return | 1.2% | 23.2% |
| Debt coverage (DSCR) | 1.04 | 2.31 |
The extra $26,000 by the room is $20,000 to turn two unused rooms into bedrooms and $6,000 to furnish six rooms. Those follow PadSplit’s own guidance: it suggests budgeting about $1,000 a bedroom to furnish, and says capturing unused space for an extra bedroom could cost $5,000 to $10,000. This example uses the top of that range, because PadSplit’s page dates from 2021. Get a contractor’s price for your house.
The extra $26,000 brings in about $16,150 more a year. It pays for itself in well under two years.
The five numbers, in plain words
- Rent if always full. Weekly rent times 52, for every room. This is the ceiling, and you will never hit it.
- Rent after vacancy. The ceiling minus the weeks rooms sit empty.
- Net operating income. What is left after taxes, insurance, utilities, fees, repairs, and reserves. The mortgage is not in this number.
- Cash-on-cash return. The year’s cash flow divided by the cash you invested.
- Debt coverage. NOI divided by the year’s mortgage payments. Above 1.0 the house covers its loan. Lenders and careful owners want room above that.
Now break it
A deal that only works when everything goes right is not a deal. Three quick tests on the same house:
Vacancy doubles to 20 percent. Cash flow drops to about $1,120 a month. Still fine.
Rooms rent for $140 a week, 20 percent less. Cash flow drops to about $901 a month, and cash-on-cash to 15.0 percent. Still passes.
Rooms rent for $125 a week. Cash flow drops to about $691 a month, and cash-on-cash falls to 11.5 percent. On my rules that house fails.
The rent per room moves the result more than anything else on the page. Get that number from real listings in that zip code, not from a hopeful guess.
Now add rooms
Four bedrooms is where a house starts, not where it should end. Aim for six to eight by turning unused space, such as a dining room, den, or bonus room, into bedrooms. Keep it to no more than four bedrooms per bathroom.
Same house, same loan, every room at $175 a week sharing a bathroom, $10,000 to convert each added bedroom, and $1,000 a room to furnish.
| Rooms | Cash flow, per month | Cash in | Cash-on-cash return | Bedrooms per bathroom |
|---|---|---|---|---|
| 4, as bought | $574 | $50,000 | 13.8% | 2 |
| 6 | $1,393 | $72,000 | 23.2% | 3 |
| 8 | $2,212 | $94,000 | 28.2% | 4 |
The house, the mortgage, and the taxes stay the same. Every added room is almost all profit, which is why the room count matters as much as the price.
A room with its own bathroom rents for more. My working average is $250 a week against $175 for a shared bath, which is about $325 a month more per room. Each one needs a bathroom built, and this example does not cost that out.
My four walk-away numbers
A by-the-room deal has to clear all four before I spend more time on it:
- Cash-on-cash return of 12 percent or more
- Debt coverage of 1.25 or more
- Cash flow of $400 a month or more
- Cash flow of $100 a month per room or more
The example clears all four at $175 a week. At $125 a week it misses the first one, so I would move on.
When the whole-house rental wins
- Rooms do not rent there. No jobs or transit nearby means long vacancies.
- The house does not fit. Three small bedrooms, one bathroom, and no unused space to turn into more bedrooms is a family rental, not a coliving house.
- You will not manage it and will not pay someone who will. Rooms take more attention than one tenant on a long lease.
Run your own house
Put your numbers into the rent-by-the-room calculator. It runs this same table and checks the four walk-away numbers for you. If the model is new to you, start with what coliving investing is.
For a real figure to set next to the example: one of my six Atlanta properties nets about $3,200 a month after all expenses and management.
Common questions
How much more does renting by the room make?
On my own properties, renting by the room has produced two to three times the cash flow of renting the same house to one tenant. The example on this page shows a bigger gap because the whole-house version barely breaks even at today's interest rates. Run your own numbers before you trust either figure.
What does a room rent for?
My working averages are $175 a week for a room that shares a bathroom and $250 a week for a room with its own bathroom. Rents vary by city and by street, so check real listings in the zip code you are looking at.
What vacancy rate should I use for rooms?
I use 10 percent as a starting point and 15 percent in a market that is new or soft. Rooms turn over more often than whole houses, so do not use a whole-house vacancy rate.
What expense ratio should I use for rooms?
I start at 40 percent of collected rent, and most by-the-room houses I have seen land between 35 and 45 percent. That covers taxes, insurance, utilities, fees, repairs, and reserves, and not the mortgage.
Is cash-on-cash return or cash flow more important?
Look at both. Cash flow tells you whether the house pays you each month. Cash-on-cash tells you whether that pay is worth the cash you had to put in.
Education only, not financial, legal, or tax advice. Worked examples use round numbers to show the method and are not real properties unless they say so.