Rent by room investing works when you buy the property so that half-full occupancy still covers the mortgage. That single underwriting rule is what separates operators who survive a soft rental month from flippers who converted a house to bedrooms because they had no other exit.
Yoni Kaczynski of Cascade Coliving runs about 60 rooms across the Seattle area — three properties he owns, three more he manages for other investors — and he started buying in January 2025, when most investors in his market froze on rates and prices. His deals include a 4-bed/4-bath converted to nine bedrooms and a 6-bed/4-bath converted to a 13-bed/6-bath.
What follows is the deal math he underwrites to, the submarket screen that tells you where the spread actually lives, how to adjust vacancy assumptions as a market fills with supply, and the two operational issues that kill co-living deals faster than anything on the spreadsheet.
Key takeaways
- Underwrite so the property covers its mortgage at 50% room occupancy — and cut room prices to protect occupancy long before you ever get that low.
- The gap between mortgage payment and gross collections is not profit. Reserve out of it for breakage, vacancy, and rising utility and insurance costs.
- Room rents compress across price tiers. In the Seattle metro, King County homes cost roughly double Pierce County homes ($1M+ vs ~$600K), but weekly room rents differ by only about 10-15% — so the cash flow sits in the cheaper county.
- In saturated co-living markets like Texas and Florida, stress-test the deal for a 10-15% rent decrease and underwrite higher vacancy than you would in an early-stage market.
- Buy where on-site parking covers your room count. Street parking is what turns neighbors into complainants and complaints into municipal scrutiny.
From the Real Estate Pros Show
This article draws on an interview with Yoni Kaczynski of Cascade Coliving on the Real Estate Pros Show, hosted by Scott Bursey.
Why Investors Are Converting Houses to Rooms Right Now
The math on conventional single-family rentals stopped working in expensive metros, and the room became the unit of analysis instead of the house. As Yoni puts it: pay half a million for a house, rent it for two grand, and you don’t cover the mortgage. Dissect the same house down to the room level and it pencils.
His own portfolio is built entirely on that conversion. He bought a triplex and rented one unit by the room. He bought a house down the street off the MLS, turned a 4-bed/4-bath into an 8-bed, then a 9-bed/4-bath. The most recent one went from a 6-bed/4-bath to a 13-bed/6-bath. All of it rented by individual lease.
The more telling signal is who is calling him. Two experienced flippers — both with a track record — reached out separately with the same problem: they were into a project deeper than they could sell it for, the house wouldn’t move, and conventional rent wouldn’t cover the note. Their only remaining option was to rent it by the room.
That is the honest read on why co-living demand is growing on the investor side. It is not a trend; it is what is left when the spread between purchase price and market rent disappears. Yoni started in January 2025, a moment when plenty of investors sat out on rates and prices, and bought three houses in his first year specifically because the room-level model was the only structure that produced a positive number.
Worth noting on the tenant side too: people rent rooms because they cannot qualify for or afford an apartment. That demand does not disappear in a weak economy — it deepens.
The Underwriting Rule: Half Full Still Pays the Mortgage
Yoni’s primary buy test is simple enough to apply on the first pass: can this property be half occupied and still cover the mortgage? If the answer is no, he doesn’t buy it. And in practice he would cut room prices to hold occupancy long before ever drifting down toward 50%, which means the half-full test is a floor beneath a floor.
On gross rent, he treats the old 1% rule as the bare minimum — a $100,000 purchase should collect $1,000 a month — while acknowledging that standard is no longer achievable on conventional rentals. Co-living is what lets him push past it. On one property he bought for roughly $750,000, he collects close to $15,000 a month, which lands near 2%.
The part most new converts get wrong is treating the spread as income:
If my mortgage is $4,000 and I bring in $5,000, $1,000 is not profit. Some of that has to be set aside for things breaking, for vacancy, and understanding that those are real costs.
Three cost lines he explicitly underwrites in: maintenance and breakage (more people, more wear, more turnover events), vacancy, and rising utilities and insurance. He has watched utility costs climb while rent growth stayed slow — meaning the expense side is moving faster than the revenue side right now.
He is blunt about the alternative approach. Buying a property that loses money today on the expectation that appreciation will bail you out is, in his words, terrible advice. The 2020-2022 run convinced a lot of people that rents and values would catch up to a bad basis. A deal should make money today, or at minimum break even, unless you have a genuinely specific plan for why it won’t.
My underwriting is pretty strong where generally I try to buy a property where I can be half full and still pay my mortgage. And before I’d even get to occupancy that low, I’d cut my prices to keep my occupancy higher.
— Yoni Kaczynski, Cascade Coliving
Where the Spread Lives: Cheap Submarket, Similar Room Rents
Room rents compress across price tiers far more than home prices do. That single observation is the most transferable screening method in this strategy, and the King County versus Pierce County comparison shows it cleanly.
An average home in King County (Seattle) runs over $1 million. An average home in Pierce County (Tacoma) is around $600,000 — roughly half. But Yoni, who now owns and manages rooms in both counties, gets about $300 per week per room in King and $250 to $275 per week in Pierce. That is a difference of maybe 10-15%, against a purchase price difference of 100%.
Run that through any cash flow model and the conclusion is forced: the cheaper submarket wins, and it is not close. The expensive county has the prestige and the appreciation story; the cheaper one has the yield.
Apply the test in your own metro before you buy anything:
- Pull average home price in the expensive county and the adjacent cheaper one.
- Pull actual room rents, not apartment rents, in both — listings on co-living platforms are the fastest source.
- Compare the two ratios. Wherever the price gap is wide and the room-rent gap is narrow, that is where your cash flow concentrates.
Yoni’s broader read on geography: coastal markets are expensive, and in a coastal market he sees no realistic path to cash flow other than co-living — short of buying something very cheap or financing it creatively. Buy normally and rent normally on the coast and the deal does not work. The flip side is that affordability pressure is more severe in those markets, so tenant demand is stronger and saturation arrives slower.
Saturation, Platform Growth, and Underwriting Vacancy Accordingly
PadSplit functions as the booking and collections layer for rent-by-room, and tracking where it has expanded tells you how much competing supply to expect. Yoni’s analogy: you can run a vacation rental without Airbnb, but Airbnb brings the advertising, the collections, and the technology. PadSplit does the same for rooms.
The maturity curve runs roughly in this order — Atlanta first, then Houston and the rest of Texas, then Florida, then Arizona and the Sun Belt, and now up both coasts and into Chicago. Atlanta went from zero to over 10,000 rooms in under a decade.
Seattle is early on that curve and moving fast. When Yoni launched on the platform around March or April 2025, there were roughly 30 rooms listed in the area. By later that year there were about 130. He currently manages somewhere above 20% of the PadSplit units in Washington — a high market share, mostly because the market is still small.
The practical underwriting consequence is market-specific:
- Early-stage markets (expensive coastal metros, newer platform launches): slower supply growth, deeper affordability demand, saturation takes longer to arrive.
- Mature markets (Texas, Florida): still performs, but underwrite with a higher vacancy assumption from day one.
He also stress-tests pricing. As any co-living market fills in, room rents should be expected to drift down, and his standard is to confirm a deal survives a 10-15% decrease in rents before buying. Where there is good cash flow, saturation happens faster, because investors pour in chasing the fast win — the markets with the best current numbers are exactly the ones most likely to compress.
Parking, Neighbors, and Where Co-Living Is Legally Gray
The binding constraint on most co-living deals is not the municipal code — it is the neighbors. Yoni’s read is that rent-by-room sits in a gray area in many states: there are generally no laws against it, but no laws regulating it either. That absence is not permission, and it means scrutiny tends to arrive reactively, after somebody complains.
So the filter is neighborhood fit, applied before you write an offer:
- Avoid HOAs entirely. Neighbors under an HOA have a built-in mechanism and a receptive audience for complaints.
- Buy where on-site parking covers the room count. This is the single highest-value physical criterion in the strategy.
- Accept that not every house works. Floor plan and lot both have to support the conversion, and neither one is fixable after closing.
Parking is the trigger. Most neighbors genuinely do not care what happens inside someone else’s house. They care when cars line the street in front of theirs. That is when they start asking why there are so many vehicles at one address, realize a large number of people live there, and start asking whether it is legal — at which point you are explaining yourself to a code enforcement officer over something you could have avoided at acquisition.
The fix is entirely upstream. If the driveway and on-site spaces accommodate your tenants, you are not taking anyone’s street spot and the complaint never gets generated. Yoni frames it as being cognizant of your neighborhood and community, which is softer language for a hard screening rule: a house that forces tenants onto the street is a house you pass on, regardless of how the room count pencils.
Running the Operation: Screening, Staffing, and Tech Stack
Screening is the highest-leverage task in co-living, and it is why most conventional property managers will not take these properties. The renter pool skews lower income — people rent rooms because they cannot afford an apartment or house — and Yoni is clear that lower income does not mean bad tenant. The vast majority pay and cause no problems. But the downside of a bad placement is shared with every other tenant in the house, so the screen has to be tighter.
His process is a background check plus a live phone conversation, and the phone call is doing real work. He is listening for whether the story holds together. If an applicant says they have no pets and a dog is barking in the background, that does not add up. He rates his own screening a nine out of ten and reports very few tenant issues as a percentage.
Staffing is lean. One overseas contractor in the Philippines handles day-to-day management, and he communicates with her multiple times a day. As he scales, he is looking at VA placement firms rather than sourcing hires himself — recognizing that finding the right people is its own skill.
The tech stack currently in use:
- PadSplit — tenant portal, booking, collections
- ClickUp — project and task management
- Google Docs/Drive — documentation
- Grasshopper — shared virtual phone line so he and his assistant can both text and call tenants
- Stripe — payment processing for management clients
- A dedicated SOP system and cleaner-management software, both recent purchases
His warning on all of it: software is not cheap, and until you hit a certain scale the return isn’t there. Don’t buy ahead of the revenue to offset the cost. The automation he actually wants next is AI handling first-line maintenance triage — walking a tenant through basic troubleshooting on a dead light before a human, or an electrician, gets involved.
Frequently asked questions
What occupancy should I underwrite a rent-by-room deal at?
Underwrite to 50% occupancy. The test is whether the property still covers its mortgage with half the rooms empty — if it doesn’t, the margin is too thin to absorb a soft quarter or a few simultaneous turnovers.
In practice you should never operate near that number. An operator with pricing flexibility cuts room rates to protect occupancy well before getting there, which means the 50% test functions as a structural safety margin rather than a forecast.
Is the 1% rule or 2% rule realistic for co-living properties?
The 1% rule is the bare minimum for a co-living deal and is no longer achievable on conventional rentals in most markets. Renting by the room is what makes approaching 2% possible — a roughly $750,000 purchase collecting close to $15,000 a month lands near that mark.
Do not confuse gross collections with profit. The gap between your mortgage payment and your gross rent has to absorb maintenance, vacancy, and rising utility and insurance costs before anything is yours.
Why does a cheaper submarket cash flow better for rent-by-room than an expensive one?
Because room rents compress across price tiers while home prices do not. In the Seattle metro, King County homes average over $1 million and Pierce County homes around $600,000 — roughly double — but weekly room rents run about $300 in King versus $250 to $275 in Pierce, a gap of only 10-15%.
You pay twice as much for the asset and collect nearly the same rent per room. Run that comparison in your own metro before you commit to a target area; the cheaper adjacent county usually wins on yield.
How do I avoid problems with neighbors and local officials when renting by the room?
Buy properties where on-site parking covers the room count, and avoid HOAs. Parking is what generates complaints — neighbors rarely care what happens inside a house, but they notice when cars fill the street, and that is what leads them to start asking whether the arrangement is legal.
In many states there are no laws specifically against renting by the room and none regulating it either. That gray area means scrutiny usually arrives because someone complained, so the goal is to never generate the complaint in the first place.
Do I need a property manager for co-living, and why won’t most managers take it?
Most conventional property managers decline co-living because they are set up for single-tenant rentals and are not equipped for multiple individual leases, room-level turnover, and the heavier screening the model requires. That gap is why operator-managers — people who own rooms themselves and then manage for others — have emerged in markets as the strategy spreads.
If you self-manage, the two functions to get right are screening and day-to-day tenant communication. Both are delegable; Cascade Coliving runs day-to-day management through a single overseas contractor working from documented SOPs.
The bottom line
Before you look at a single floor plan, run the two screens in order: pick the cheaper adjacent submarket where room rents hold up against a much lower purchase price, then confirm the specific property covers its mortgage at half occupancy with reserves already deducted. A deal that fails either test is not fixable with better management.
