Subletting as first REI experience

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Subletting as first REI experience

William Waller
Member since 2018 · 5 posts · 1 vote

Hey Guys! 

I have an interesting situation/opportunity on my hands. First, a brief overview of my situation. 

For the past 5-6 months, I have been living on bigger pockets and learning as much as I can about real estate investment. I decided on focusing on BRRR in the Colorado Springs area as that is where I am from. However, I am currently living in New Zealand. I would love to buy here but as a non-resident, I am not allowed to.

My employer has just purchased a new home and is moving out of his current home that is managed by a local property management company. He has agreed to transfer the lease over to me to sublet it out. It is unfurnished, and the owner will remain responsible for repairs, etc... 

The lease is for $2800/month. I will be able to rent the rooms out for a total of $3800/month with current market conditions. I will be responsible for keeping the rooms full (housing crisis in the area so will not be an issue), notifying the management company of any repairs that need to be made, and furnishing the place. I also have tenants ready to move in that I know and trust. It is a month to month lease. 

This seems to be such a profitable and low-risk way to be gain some landlord experience and get some cash flow to put towards my own property. Is there anything that I am missing or things that I should be wary of going into a situation like this?

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Bill S.Pro Member
Moderator
Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
7y

@William Waller what could go possibly wrong??? Well probably nothing, but all kinds of stuff that you read about here on the forums happens to folks every day that blows my mind.

Biggest issue is whether or not the current lease allows for sub-letting. Good leases out-right prohibit it for the very reason you are asking. I don't want some newbie with zero experience selecting people to live in my property. In addition the number of adults in the property will skyrocket. More people means more wear and tear on MY property with no more rent to compensate for wear and tear. 

What will happen with damages, who pays for that? Doesn't your employer want their full damage deposit back?

Bottom line, you do a good job of screening tenants and managing the property and probably nothing bad happens. At the same time, tons of stuff could go wrong and blow up in your face (things we have never dreamed of too).

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  • Dan MackinBusiness Member
    Real Estate Agent · Erie, CO · Member since 2014 · 1k+ posts · 512 votes
    7y

    Not the exact same thing, but @J. Martin has been doing somewhat similar things to this in the Bay area for a while now. Maybe he could chime in a bit.

    720-466-3378
    1Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    7y

    @William Waller what could go possibly wrong??? Well probably nothing, but all kinds of stuff that you read about here on the forums happens to folks every day that blows my mind.

    Biggest issue is whether or not the current lease allows for sub-letting. Good leases out-right prohibit it for the very reason you are asking. I don't want some newbie with zero experience selecting people to live in my property. In addition the number of adults in the property will skyrocket. More people means more wear and tear on MY property with no more rent to compensate for wear and tear. 

    What will happen with damages, who pays for that? Doesn't your employer want their full damage deposit back?

    Bottom line, you do a good job of screening tenants and managing the property and probably nothing bad happens. At the same time, tons of stuff could go wrong and blow up in your face (things we have never dreamed of too).

    2Reply
  • Dean Letfus
    Specialist · Memphis, TN · Member since 2012 · 1k+ posts · 1k+ votes
    7y

    @William Waller, I am a kiwi investing in the USA for years. There is nothing stopping you buying in the USA. PM me I can help you with any info you need. It's easy as man.

    1Reply
  • William Waller
    OP
    Member since 2018 · 5 posts · 1 vote
    7y
    Originally posted by @Bill S.:

    @William Waller what could go possibly wrong??? Well probably nothing, but all kinds of stuff that you read about here on the forums happens to folks every day that blows my mind.

    Biggest issue is whether or not the current lease allows for sub-letting. Good leases out-right prohibit it for the very reason you are asking. I don't want some newbie with zero experience selecting people to live in my property. In addition the number of adults in the property will skyrocket. More people means more wear and tear on MY property with no more rent to compensate for wear and tear. 

    What will happen with damages, who pays for that? Doesn't your employer want their full damage deposit back?

    Bottom line, you do a good job of screening tenants and managing the property and probably nothing bad happens. At the same time, tons of stuff could go wrong and blow up in your face (things we have never dreamed of too).

    Thanks for the feedback! Sounds like a lot of the potential disastrous things that could happen are no different than if it was a property I owned. A little more detail on the area that the house is in below to paint a better picture;

    In the area I am living, subletting tends to be allowed on the leasing agreements as almost all of the homes are occupied by adults on 3 to 6-month cycles (very transient and touristy town). So most of the homeowners rent out their homes to one person that then fills the rest of the rooms and is on the hook for vacancy and damages, the only difference between that and my situation is I wont be living in the house. The leases tend to cap the number of people allowed to live in the house for wear and tear purposes. The one I'm looking at is a 3 bedroom with a max of 5 people. 

    My employer will be getting his damage deposit back and I will then be placing one down on the property, and likewise getting a damage deposit from everyone that's renting a room. I'd like to have a sublet agreement with all of my tenants. I'm assuming I need to find the local law on lodging the subletting agreement.

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  • J. MartinPro Member
    Rental Property Investor · Oakland, CA · Member since 2011 · 3k+ posts · 2k+ votes
    7y
    Originally posted by @Dan Mackin:

    Not the exact same thing, but @J. Martin has been doing somewhat similar things to this in the Bay area for a while now. Maybe he could chime in a bit.

     Yes, been doing it for some years now. I don't do bedrooms. But as long as they understand their responsibilities... (shared cleaning, etc). Or charge for weekly or semi-weekly cleaning with the rent. 

    I usually rent out furnished, for 30+ days. And don't do bedrooms any more. Too much work for the money. But if you clear $1k/mo basically for property management and guaranteeing the rents... if your estimates are right, after vacancy.. it could be a good way to start making money and learning the ropes. 

    The subleasing biz is currently my main source of income (20 units total, although I own a few of them..)

    1Reply
  • Erin Colander
    Property Manager · Parker, CO · Member since 2013 · 1 post · 0 votes
    7y

    Who is your target market for this business plan? If you have a large company close by and this property type would attract newbies coming in, you may want to scope out that option as a fully furnished corporate rental. If you have any HOA be sure to read by-laws to ensure there are no sub letting or short term language prohibiting you from moving forward in addition to the lease agreement. Good Luck!

    0Reply
  • William Waller
    OP
    Member since 2018 · 5 posts · 1 vote
    7y
    Originally posted by @Erin Colander:

    Who is your target market for this business plan? If you have a large company close by and this property type would attract newbies coming in, you may want to scope out that option as a fully furnished corporate rental. If you have any HOA be sure to read by-laws to ensure there are no sub letting or short term language prohibiting you from moving forward in addition to the lease agreement. Good Luck!

     The target market is semi-long term tourists. The town I'm in has a population of 30,000 full-time residents but 3 million visitors annually. Lots of corporate groups that come through though so could be a good idea, thanks for that!

    0Reply
  • Caleb Hart
    Member since 2018 · 17 posts · 2 votes
    7y

    Might I pry into where in New Zealand you are looking to do this? Just out of pure curiosity 

    0Reply
  • William Waller
    OP
    Member since 2018 · 5 posts · 1 vote
    7y
    Originally posted by @Caleb Hart:

    Might I pry into where in New Zealand you are looking to do this? Just out of pure curiosity 

    Queenstown!

    0Reply
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