Over 10% Cash on Cash Return on Room by Room Rental in Colorado Springs
Jenny and Leah do a deal analysis on a 5 bedroom/3.5 bathroom tri-level house purchased by an out of state investor. By pursuing a room-by-room rental strategy, his returns are significantly higher than a typical single-family home. Listen to the episode to learn the details of this deal.

In this deal analysis, Leah and I analyze a property she closed on a few weeks ago with an out of state investor.  He has a great system in place for a non-owner occupied room by room rental model. This model brings great returns and provides a nice place to live for his tenants. 

Three Learning Options!
  1. Listen to the podcast “#57: Over 10% Cash on Cash Return on Room by Room Rental in Colorado Springs” on the Colorado Springs Real Estate Investing Podcast
  2. Watch the YouTube video (at the bottom.)
  3. Read the blog post. Note, the blog is an executive summary. Get the in-depth breakdown from the podcast or video.

Investor Profile

This client is an experienced investor who lives out of state.  Like one of our other clients, he has a couple of other properties in Colorado Springs in which he uses the room by room model.  He knew exactly what he was looking for and didn’t want to compromise on his strategy. 

Even though it’s a competitive market, he was adamant about not paying more than he thought the property was worth. This meant he was willing to be patient and wait for the right property at the right price to become available.

He was looking for a house with a lot of square footage, including a basement with open space.  In addition, he wanted at least 3 bathrooms and wouldn’t consider a property that had anything less.  Because of the number of tenants who will be renting the property, he also wanted ample parking. 

Appealing Features of the Property

The property is a tri-level style house that is in great shape.  It had four bedrooms, and the client converted some space in the basement to create to a 5th bedroom.  There are 3.5 baths, which ensures plenty of privacy for the tenants.  There’s also a large dining space, along with two different living areas, ensuring that tenants won’t feel cramped or on top of each other.

The tri-level style is Leah’s favorite for room by room rentals because the staggered layout of the house usually means at least two living areas and more space for tenants to spread out.  Many tri-levels have a basement rec room in addition to a family room on the main level. 

Property Contract Details

Contract

The house was listed at $395K, and they offered $403K.  Although the client had a cap at $400K, he was willing to offer a little more because the great condition of the property meant less money toward repairs and maintenance.

Inspection Issues

All of the major components had been recently replaced, including the furnace, AC, and water heater.  The floor was also brand new.  The only issue that came up during inspection was that the roof was in need of repair, but the sellers replaced it within two weeks.  Since the sellers knew that any buyer would object to such a big issue, it made sense for them to take care of it right away.

Property Financing Details

We used the Real Estate Investing Spreadsheet to run the numbers.  

Spreadsheet Analysis

Room by room deal analysis property overview spreadsheet

The 3.375% interest rate on an investment property is very low, and it will go a long way toward boosting the client’s returns over time.   

Though the property was in great shape, the client spent about $5K converting the basement space into a bedroom and other small changes to make the home ready for multiple tenants.  In room by room rentals, it’s important to ensure that each room has a lock and that the common areas are in good shape.

Property Operating Expenses

Room by room deal analysis monthly operating expenses spreadsheet

While the client doesn’t have property management, he does pay a local assistant to take care of on-site tasks, such as showing the house to potential tenants or giving access to anyone who needs to make a repair. 

The insurance for this type of rental strategy falls under a typical landlord policy.  The rate isn’t as good as homeowners insurance, but the price point is lower than short-term rentals.

Each room will rent for $650 a month.  The house also has a garage with 2 separate doors, so the client has the option of renting out garage space to 2 of the tenants, as well.  He hasn’t decided how much to charge yet, but that will boost his returns once he has it figured out.  Altogether, the total monthly rent is $3250, which is a great rate for a single-family home. 

As rents are rising at historic rates, it’s great that this tenant is giving people the opportunity to live in a really nice home for $650 a month.  There’s not enough housing in the Springs, so giving 5 people a house they can live in at that rate is a win-win for both the tenants and the investor. 

First Year Returns

Room by room deal analysis 
first year returns spreadsheet

The annual cashflow will be just over $10K a year, which is an incredible amount for a property in this area.  His cash-on-cash return is 11%, exceeding the 10% that many people aim for.  We advise our clients that 10% is typically unheard of in the Springs, but these returns show that a more unique renting model makes it possible. 

Conclusion

 A lot of audience members get excited when they hear about this type of rental model, and it’s worth exploring if you have the right temperament for it.  Leah asked this client how he deals with the interpersonal issues of his tenants, and he says that if tenants have issues or are causing problems, they are welcome to leave.  His no-nonsense approach keeps him from getting stressed out by small issues. 

The returns this client is getting on the property are great, but it took a lot of time and effort to make it happen.  The client was willing to wait as long as it took to find the exact property that fit his model and price point.  They fell out of contract on the first property they submitted an offer for, but he and Leah stuck with each other and eventually found this great home.  It’s important for people to know that in this type of market, clients aren’t always going to win their first offer. Finding the right property can be a journey, but this deal shows that having some patience can pay off. 

Connect with Us

If you’re interested in learning more about the room by room rental strategy as a non-owner-occupant, send me an email and I can show you what other clients are doing in this space.   We can set up an appointment, and I’ll help you figure out an investment strategy to help you achieve your goals.

YouTube Video

Over 10% Cash on Cash Return on Room by Room Rental in Colorado Springs

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Rental Property Spreadsheet • House Hacking Spreadsheet BRRRR Calculator Spreadsheet • Fix and Flip Deal Analyzer Investing Maps • Rehab Pricing Estimator
Authors
Jenny Bayless
Jenny Bayless is an investor-friendly agent with Envision Advisors, Colorado real estate investor, and the host of the Colorado Springs Real Estate Investing podcast.
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