Meals and cleaning included, or rooms only and let residents sort themselves out

Question

I hit the ceiling on my active deals and started underwriting a 12 room house that the current owner runs with two meals a day and weekly room cleaning. His rents are roughly 190 a month above the rooms-only houses I can find in the same area, and his labor line is a cook four hours a day plus a cleaner three days a week. Netting it out, the services add maybe 60 a room a month once I load payroll, food cost, and the extra insurance he carries.

So 60 a room for real payroll exposure and a kitchen that may or may not satisfy a health inspector depending on how the local code treats a boarding house kitchen, which is a state and local question and needs a written answer from the health department before closing. Not a great trade on paper.

The other side is what the services do to tenancy length. His average stay is over two years. The rooms-only houses I've looked at churn every seven or eight months, and each turn costs me a clean, a re-list, and usually two weeks vacant. If services are buying stability, 60 a room is cheap.

I can't separate the two effects with his books. He's the kind of operator residents like, and that might be doing the work rather than the meals.

Where do people land on this when they're the ones writing the payroll check.

tashaford30 · Answer

The thing I'd want before deciding is his turnover cost written out per event. You said two weeks vacant plus a clean plus a re-list, but on a 12 room house the re-list labor rarely gets counted, and it scales with churn. If a turn genuinely costs you 600 all in and rooms-only churns twice as often, the 60 a room stops being the interesting number. Keystone, does he track days vacant per room or just occupancy for the house?

paulgrant17 · Answer

My first rental hasn't closed yet so I'm reading this for the screening angle more than the payroll. What strikes me is that a house with meals probably attracts a different applicant than a house where you cook for yourself, and that difference could explain the two years by itself. If the food is a screening filter, you're paying 60 a room for better residents, which is a different justification than paying it for a service. Either way somebody has to run the health department question first.

Meals and cleaning included, or rooms only and let residents sort themselves out

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