A real-estate investor says he's cracked the code to producing 'at least $1,000 of positive cash flow every month,' but his rent-by-the-room strategy isn't for everyone

• Peter Keane-Rivera owns single-family homes that he rents by the room to maximize cash flow.
• It's a more hands-on strategy but offers higher returns and diversified cash flow.

Peter Keane-Rivera owns two single-family homes in the greater Seattle area, but he has nine tenants paying rent.

His investment strategy is to "buy the biggest house you can and fill up all the rooms with paying tenants," the 32-year-old told Business Insider. "And, if you can, add some value to the house as you go along — you don't have to do it all at once — then refinance, either to a lower rate or a cash-out, and use that money to do it again."

Keane-Rivera purchased his first home — a 3-bedroom that he converted into a 4-bedroom — in 2017, and his second — a five-bedroom with an unfinished mother-in-law suite — in 2019. As of 2024, he has four long-term tenants in the first home. He lives in the second home, has four long-term tenants in the other bedrooms, and converted the mother-in-law suite into a short-term vacation rental.

He's shopping around for a third home, as his rent-by-the-room strategy has generated healthy cash flow.

"I know how to upgrade properties to make them produce at least $1,000 of positive cash flow every month," said Keane-Rivera. The rule of thumb that works for him is: "You need the number of rooms to be around six to seven when your property value is around $600,000 to $700,000, and you're looking at a 6.5% interest rate."

There are other factors, such as "the nature and the layout of the house, where it's located, and what improvements can be made," he added.

Keane-Rivera says he brings in between $849 and $1,450 monthly per room. That doesn't include his Airbnb unit, which is the most lucrative and averages $2,666 a month.

His rental income would look a lot different if he listed his single-family homes as one unit, he said: "For instance, if I just rented out my rental property that I don't live in, I'd probably get $900 to $1,000 less per month. I really want that $12,000 at the end of the year."

Of course, the extra $12,000 comes with trade-offs.

Challenges that come with renting by the room: 'Managing personalities'

More tenants typically means more work.

If you're renting a property by the room, "It's definitely more hands-on," said Keane-Rivera. "There's definitely more to coordinate. You're not dealing with one tenant; you're dealing with five, six, maybe seven."

As a landlord, you're essentially on call at all times but expect the phone to ring more if you have multiple tenants sharing a space.

"Someone calling at 9 p.m. because something's wrong is going to happen more often," he said. "If your investment strategy is to get a modest return with minimal effort, you should probably look at something else. If you want to get a higher return and you don't mind spending the extra effort, it's something you should look into."

Finding tenants to share a space hasn't yet been a challenge for Keane-Rivera, who lists his rooms on Roomster, Roomies, and Facebook Marketplace.

"There are a lot of different sub-groups looking for something more economical: people coming out of college, people getting their first job, people who just got divorced," he said. "I would say everyone that rents with me is looking to save money."

The challenge, sometimes, is roommate compatibility: "You're definitely managing personalities. If you have too many alpha males under one roof, you have problems. You get calls and texts saying someone did this, and it's never immediate; it's always at the breaking point. So I look for people who I think would live cohesively with one another."

That takes time and effort. Whenever he's looking to fill a vacancy, he interviews multiple prospective tenants to find someone who qualifies financially and is a good personality fit.

Renting by the room is more hands-on and not for everyone, but can create more cash flow and lower your overall risk.

"You diversify your cash flow by having four tenants under one roof instead of one," said Keane-Rivera. "Very rarely will you have all your tenants move out and if you do, that's indicative of some bigger problem that you should probably go fix."

It's a particularly appealing option during tricky market conditions and could be a way for rookie investors to get their foot in the door, he added: "The way prices on homes keep going nowadays if the younger generation doesn't have their parents' ability to cut them a down payment check or doesn't have a six-figure tech job I'm going to think they're going to have a very hard time purchasing a home. If they want to actually get into one, this is a viable option for them."