Renting from landlord and renting it out to my own tenants business scenario question

[dkborys]

Dear forum members,


I am new to this forum. Here is the case:





I would like to start a business that is based on renting. I
would like to rent a property from the owner (or property manager) for e.g.: $ 1900
and rent it to tenant (s) for $2500. (I basically believe I can manage to get
better money from tenants than the owner )





To do a single deal I think I will have to have:

a)
Contract with the landlord with his consent to
my intention to rent his house to smb. else than myself (I am not going to live it
that house even a day. This is not `sublease` or `assignment of contract` case, so I can not use it)









b) B) A few contracts with `my tenants`


Q: Did anyone try this type of business model?





Does anyone know more about legal structure of this type of
contract with the landlord? And the tenant?


Thank you in advance for sharing!





David B

 

[Thomas Beyer]

[quote user=dkborys].. I basically believe I can manage to get
better money from tenants than the owner


Why do you believe this ? Do you have better marketing skills than an experienced property manager, are you better at internet marketing, or in sales, or are you just cramming it full of roomies, or what is your competitive edge ? Is it sustainable ? Is it restricted to the location where you physically live ?



I suggest you open a property management firm instead, and charge a higher % of management, as investor will flock your way if you can prove that they can get $2500 in rent if they usually get only $1900. Then charge 15% management fee instead of the usual 10%, and scale it up from there.



To become a PM you have to be licensed in most provinces.



[quote user=dkborys]This is not `sublease`
yes, it is, as you are on the main lease with a right to lease to others.



What's in for the landlord ? Why rent to you for $1900 if he could rent to 20 other people, too. Perhaps rent for $2100 from him, and then keep the $400 difference. Is this scalable to 10 or 100 units ?

 

[Alvaro Sanchez]

Once I learned from a lady who had 10-12 units in North Carolina, she would rent out a condo, lease furniture and then rent them out to high tech consultants. It's a niche market and you have to have an "in" in order to fully implemented. Then 9-11 came, consulting stopped and then she went belly-up.



In you want to start a business, focus on generating income without being there as a form of passive income. Otherwise, that is not a business but another job.

 

[MooseHead]

[quote user=dkborys]
This is not `sublease` or `assignment of contract` case, so I can not use it)




This certainly sounds like an assignment of a rental unit. Perhaps it is different in your province? I'd love to hear your experience with this if you decide to give it a shot. In my humble opinion.. this idea is going to cause you a lot of headaches. I'm not trying to disuade you from pursuing this.. but to me this is a "hope for the best and prepare for the worst scenario."



If you believe you have the skill set to get $2500 for a rental unit when the market rent is $1900.. give property management a try like Thomas has said. I know I'd be willing to hire a management company at 15% if they could find me a quality tenant willing to pay 30% more in rent than the market standard.



How do you plan on charging 30%+ on rent? If a landlord is charging $1900 for a certain apartment, then that means there is another landlord likely charging roughly the same price for a comparable unit. Why would somebody opt to pay a premium for a certain apartment when there is another just like it at a much cheaper price?



Have you considered a company which specializes in apartment assignments? There are a lot of tenants stuck in a lease that want out for whatever reason. If done correctly, there is certainly a market for finding qualified tenants to assign a rental unit to.

 

[terri]

I know someone in Toronto that does something similar to the senario posted above about the woman that does furnished executive condos. They pay the landlord a fixed monthly rent and furnish it themselves. They don't market executives but rather an alternative to airbnb. Location is key for them, it has to be in a desirable "downtown" area. If I understand it correctly, however, you plan on renting it long term unfurnished from the landlord and re-renting it to someone else long term unfurnished. I don't see how this is any different from a sublet. What services are you providing the tenant that it would be worth their while to pay $2500/mo to you instead of $1900/mo to the landlord/property management company?



curious,

Terri

 

[MDaalder]

I recently ran into this as well. Had an apparently 20 year, multiple rentals experienced landlord renting a condo 2 doors down the hall for $700 less than my own units in the building. I contacted the landlord and asked if this person would consider letting me sublet the unit and wouldn't go for it. Then asked if the indivdual would consider letting me manage the property, get a higher rent and solid tenants and the answer was no. You will be happy to know that this person was not a REIN member.

 

[dkborys]

@ Thomas Beyer:



"Do you have better marketing skills than an experienced property manager, are you better at internet marketing, or in sales, or are you just cramming it full of roomies"



Thanks for your insights. I believe that I can market it better on the Internet do better pictures & I would like to rent rooms instead of suites/ whole units. It is not restricted to particular location. It just requires a lot of work to manage properties on "rent by room" basis and I would like to get paid for this work & ability.



I hesitate to open Property management company & charge 15%. Market is full of property management companies. I offer different solution: fixed income to the landlord, not just 100% of whatever I can get minus 10% of my fees. Here is the value added to the landlord - be sure to get the money as agreed in the contract, not based on my efforts. I take the risk.



As was analyzing "sublease" contract. It is generally designed for situation where you let someone replace yourself. The other person takes your rights and responsibilities. Obviously, this is not the case since my "tenants" will have different rights & responsibilities than I have. "assignment of contract" is similar in this respect. I would need hte right to rent the property without restritions regarding the number of tenents & the rent I charge. Therefore, I think that "sublet" or "assignments of contract" are not proper in this business model.



I think that this idea is a misfit for apartment buildings as is is more difficult to get substantially more money for renting separate rooms in apartment than it is in a single family house.

 

[dkborys]

@ Terri:



Thank you for sharing. Perhaps my case is a variation of a sublet agreement. Please bear in mind that I am going to sublet to more people & charge different amount than I am charged.

I apparently have to do more research about it to be sure what legal structure is proper..



Regarding additional services: I would like to rent a house from landlord and rent single rooms to my tenants. This requires more property management efforts, more advertising, tenant checks etc. I would like to pay fixed amount to landlord- that is his bonus.



Tenants are going to have clear rules regarding their common life and I have an idea how to select them so that they are happy together. The property is also going to be selected and prepared by myself to accommodate "rent by room" tenants.



I believe this is enough to justify and make feasible to charge $2500, do the whole work and be charged $1900.



Thanks @ I would love to hear feedback from all of you!

David

 

[Choner]

Hi David,

I believe what you're looking to do is called a sandwich lease. I don't know much about it other than it sounds like the strategy you've described. I would Google sandwich lease and see what you find. I'm sure you'll be able to find the info you need.



Good luck!

 

[housingrental]

If you take this course of action be prepared to be sued and likely spend more money and time on litigation than on your core business of re-renting out properties.



My recommendation: Become a leasing agent.

 

[Thomas Beyer]

[quote user=dkborys] .. I am going to sublet to more people & charge different amount than I am charged.
The landlord will have to agree to that. Many will not, but some may !



The issue is additional wear and tear on the house, and disturbance to neighbors !



In most cities this is called a "rooming house" and is licensed separately from normal tenancy law, as it usually attracts less desirable tenants. It is usually a separate zoning, like a hotel, and as such only allowed in special commercial zones, frequently downtown in less desirable parts of downtown.



Of course, one can always do things illegally and get away with it. Some people steal apples at Safeway and don't get caught and therefore think it is OK.

 

[dkborys]

@ Thomas Beyer



Hi Thomas,



"roming house" is a different type of business. Details are here:

http://www.toronto.ca/licensing/pdf/c285_rooming_houses.pdf



"PERSONAL-CARE ROOMING HOUSE ` A rooming house or other building or portion of it which is used or is intended to be used, for gain, for the purposes of human habitation, where the owner provides meals and where service is given to

residents in caring for their personal needs or health, or both."



Consquently, a separate license is reqiured for persons wishing to provide "meals and where service is given to

residents in caring for their personal needs or health, or both."



I want to offer shared accomodation only. I Alberta, RTA or "Minimum housing requirements" do not prohibit shared accommodation. There is no separate license required.



If there are any legal circumstances that disallow renting rooms in a house, please let anyone know where such law exists. Otherwise it may turn out that you are just guessing that it is not in accordance to the law. That might cost money - the one we do not earn on the knowledge.



Thanks,

David

 

[dkborys]

@ Adam



That sounds scary and I would like to know why would my business be sued? I obtain consent from landlord in the contract. The Actual activity that I described in my first post is not forbidden by the law- if it is, please let me know which part is illegal an where is the applicable law? What is the factual base of you opinion that this type of activity is vulnerable to litigation?



Again, once we start building opinions on "guesses" we start loosing money.



Thanks,

David

 

[MosaicRentals]

Sounds like sub-letting to me. I could not see why an owner would allow their home to be re-rented for a higher amount that they do not benefit from and still be responsible for all the services and maintenance that will be required. But I guess if the approach was right they may be out there.

 

[brentdavies]

It is a sub lease. The person on the application is not the resident.



When I was a property manager, this was always a recipe to disaster. I had no control on the tenant, so the tenant from hell was the resident. Tenants ranged from good to very bad, with lots of illegal operations such as drug houses, rooming houses in upscale condos, and scam artists. And the stories I could tell!



This will work with a mom-pop landlord with no street smarts.

 

[Thomas Beyer]

[quote user=dkborys]I want to offer shared accomodation only. I Alberta, RTA or "Minimum housing requirements" do not prohibit shared accommodation.
If RTA OKs it does not mean that the owner will.



[quote user=dkborys]There is no separate license required.
Perhaps not in Alberta. In other cities I am aware of (mainly Ontario) there is an attempt to regulate student housing, for example, and treat it as "commercial" and as such do not allow single family houses for this purpose without proper authorization or zoning.



The key issue for you is finding a stupid enough landlord. Who is enforcing the rules ? Who pays for the wrecked carpets, punched in dry wall or vomit in the hallway ? Who pays for additional water usage due to more people having a shower, a bath or flushing teh toilets ?



Again, I can see this working in a lower class neighborhood where the landlord is OK with getting $1500/month for a 3BR and you rent it for $2100. try it. Then tell us how it worked out in a year or two, and if this is a scalable business model !

 

[housingrental]

Here is your factual basis - all issues you will encounter if you do this on any scale.

You might do a few properties and not have any issues for a small period of time.

Over time, and with any amount of properties, you have a high probability of litigation.



This will vary based on province, city, and specific contract but here are some potential issues:



City by-law on occupancy and property standards issues - note MANY areas have by-laws in place that limit occupancy and rental terms in units - even for those that do not provide food - OR have additional fees - OR require upgrades to the property (such as fire rated doors and fire rated auto door closer on each bedroom)



Provincial safety codes (fire, electrical,building) - Of especial note is ESA conformity



REBA non conformity



Condo law non conformity



Being unable to obtain insurance for your business, or insurance that does not properly cover you in scenario's you will likely encounter



Uncollected rent - your renters do not pay you, you still need to pay the landlord.



Advertising cost, paralegal cost, LTB and court cost, your time



Damage to property - the person you rent to causes $30,000 of damage, they have no income and no assets and/or have left the country, you do not have insurance to cover this, you owe the landlord the $30,000 you are out of pocket for. Frequent small damage repair - $500 - and occasional big damage repair needed. When you have your first fire are you covered or will you be sued from the owner or owner's insurance company for $100,000+ ?



There is a reason this isn't any sizable business offering this service.



If you can succeed at this business, you will be able to succeed as a leasing agent, commercial Realtor focused on renting, or a property manager. I recommend you dedicate your time to exploring these options.







[quote user=dkborys]@ Adam



That sounds scary and I would like to know why would my business be sued? I obtain consent from landlord in the contract. The Actual activity that I described in my first post is not forbidden by the law- if it is, please let me know which part is illegal an where is the applicable law? What is the factual base of you opinion that this type of activity is vulnerable to litigation?



Again, once we start building opinions on "guesses" we start loosing money.



Thanks,

David

 

[housingrental]

Thomas was very generous with his last post's last paragraph.



This is a BAD idea.



Dedicate your time to a viable business model.





[quote user=ThomasBeyer][quote user=dkborys]I want to offer shared accomodation only. I Alberta, RTA or "Minimum housing requirements" do not prohibit shared accommodation.




Again, I can see this working in a lower class neighborhood where the landlord is OK with getting $1500/month for a 3BR and you rent it for $2100. try it. Then tell us how it worked out in a year or two, and if this is a scalable business model !