Short term leases on new rehabs

[Mike H.]

I thought I'd throw this out there to see what other people have done or might do if they were in the same boat.

Just finished up two rehabs over the past month and ended up taking two very short term leases on both - each with their own unique circumstances.

Let me describe the scenarios and then you tell me if I bumbled this one or not.

1) Finished the rehab on this house just after the first week in december. Showings were going ok but either nobody I wanted was pulling the trigger or else the people that did pull the trigger just didn't fit what I wanted there (income, job history, etc).

It was a week before xmas and somebody asked me about doing a 6 month lease. I told them no. I had no interest in a short term lease. And then I explained to them why. After the 6 months, I would be stuck with the turnover month and would essentially be taking a 1,300 hit.

The "Story". This was a younger couple (late 20's) with a couple of younger kids. Husband had a great job and great job history and income. They had sold their home and had another purchase of a home lined up. Their purchase deal had fallen through because the owners had backed out. But the sale of their home was still in place. They were basically reaching a point of not having anywhere to stay. But they wanted to be able to buy a home in the near future.

Again, I said no, the turnover month was just too big an obstacle - even though I knew it might be tough renting a house during xmas and new year's.

The guy then countered me and said they would do a 6 month lease with a month to month option after that and would pay an additional one month of rent to cover my turnover month. They'd also let me show it before they moved out so I could possibly limit that turnover expense.

I figured my upside there was an extra month plus I was getting someone that could move in immediately and that had near perfect application (his credit score was higher than mine :-)). My downside was that I wouldn't get it rented before the month and then I was just creating additional work for myself.

I took the upside and figured it would be much easier to find a really good renter come May/June than it was now. And thought the extra work was worth the shot at double dipping on their extra month provided I could get it leased right away.

Now here's my second story. I had assumed that with this one, there was no way I could do another short lease again. This was just a one time thing. Then I got a call from an insurance rep just as my rehabbing was wrapping up on this second property.

She asked if I would rent on a short term lease - this time 4 months. My automatic defense mechanism kicked in and I immediately said not interested. Then, as I was about to hang up, I figured I should at least be cordial and explain to her why. Same thing with the turnover costs of a month being my reason.

She then suggested maybe I could bump the rent. I did the math and wasn't really interested so I told her ok, I'd need 1,700 a month (rent was 1300) for the 4 month lease. At first she kind of balked at the number. Didn't think the insurance company would go for that at all. Asked if I could at least do 1,600. NOPE.

She told me she'd check into it and would get back to me. I figured it was a non-starter to be honest and figured that would be that. 30 minutes later she called back and asked if her client could see it that night. Sure.

He loved it - even though the rehab was only about 80% done. No countertops, no light fixtures. But he was in.

Again, I got a renter in immediately whereas it probably wouldn't have had someone in there til Feb 1 so I figured that alone made me an extra 850. I'll get 1,600 more in rent over the 4 months plus they go to month to month after that so I have a shot at making a little more. But thats at least 2,450 additional in revenue. Then, I charged a 250 pet fee instead of deposit so now I'm up 2,700. And I also got a 30 day window for showings before they move out to help limit the turnover period.

Even if I take an entire month,, at 1,300 in vacancy there, I figured I'm still making an additional 1,400 on this deal and the only thing I'm having to do is to do another set of showings. I'm also much more likely to find a better tenant come spring/summer as well. And if I really get lucky and the restoration company takes 6 months instead of 4, I'll be looking at a minimum additional profit of 2,200 with a shot at making an additional 3,500 in total.

Again, I'm the absolute first person to say short term leases are absolutely terrible. But then I turn around and grab two of them back to back on two of my better houses I've done to date.

Did I make a mistake here? Big mistake? Small mistake? Or did I make the right call? On one? On both?

Part of me thinks the main reason I did this was to see if I could pull off the double dip on these houses. :-)

Either way, just curious to see what people think since this is so completely out of the norm from my renting philosophy......