Renting to college kids, owner occupied/ how liable am I?

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Renting to college kids, owner occupied/ how liable am I?

Michael Johnson
Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes

Im planning on buying a single family house in Fort Myers, Florida, and rent it to college kids. Rent out the rooms and I'll live in the garage (dream come true kinda).

NOW, if I tell the tenants, "Sure have people over but if you are going to have alot of people over, do it out back (basically no raging parties inside). Get it out of your system. Without destroying my house with people you dont know."

BUT THEN, lets say someone is underage and the party gets busted. How can I keep myself safe from that kind of liability.

of course the easy answer is "no parties" but Im looking to protect myself from the unknown unknowns, The ridiculous things you dont see coming. 

I appreciate all advice, thanks in advance!

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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
9y

@Michael Johnson , someone mentioned having a corporation. If you live in the property, a good attorney will easily be able to "pierce the corporate veil" giving you essentially zero corporate protections. Get excellent insurance, require insurance policies with YOU as a beneficiary, and make sure you don't exceed any unrelated adults living together limits. Those are usually imposed by the city in which the property is located.

Allowing any sort of party at your house is a HUGE risk. I'd make 'No Parties' a term of the lease. You want boring people living in your house, not exciting ones. The exciting ones are the ones who do extensive damage and have no money to pay for it.

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  • Glenn D.
    Investor · East Grand Forks, MN · Member since 2015 · 105 posts · 64 votes
    9y

    @Michael Johnson

    I understand the allure of house hacking and renting to college kids.  The big deal is you have to have whatever you want in writing and make sure that everyone reads it, understands it, and abides by it and SIGNS it.  And make sure that you enforce it.  They are after all kids away from home.  Additionally have the consequences in the same document, i.e. If you break these rules you will be evicted in the quickest manner the law allows.

    Good luck

    1Reply
  • Sam Guarnieri
    Windermere, FL · Member since 2016 · 63 posts · 16 votes
    9y

    Being incorporated in some way may help to limit your liability. That said... I am not an attorney. Also if possible, have a parent signature on the lease and they may shoulder some of the responsibility... hopefully 

    0Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    As property owner you get the responsibility and the bill if someone is injured on your property, it doesn't matter if they are tenant or guest of tenant, they could sue you the owner.

    Make sure your insurance coverage is sufficient and have renters have renters insurance also.

    House rules help, basically keeping the place quiet and limiting guests overnight. 

    Crime free / Drug free addendum for all renters.

    1Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    @Glenn D. do you have anythings off the top of your head that you would have in writing?

    0Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    @Deanna McCormick Can you think of any ways to pass liabilities on to tenants? Do you have any experience with renters insurance?

    0Reply
  • Glenn D.
    Investor · East Grand Forks, MN · Member since 2015 · 105 posts · 64 votes
    9y

    @Deanna McCormick excellent points.

    @Michael Johnson here is what I would do.  Everything under the sun has already been invented so there is no need to reinvent the wheel.  AND especially since I have no experience in Florida real estate law, contact another landlord or 3 or 4 who rents to college kids and see what they have.  Then run that buy a real estate attorney to make sure you are covered.  Because like Deanna said, as the property owner you can be held liable for anything that happens on your property.  

    I would also make each tenant get a renters policy.  They are pretty cheap and it will help cover your assets (pun intended).

    1Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    @Michael Johnson

    Ask your agent best way to deal with it, they may provide renters insurance policy's so maybe he would be a great contact for your renters. 

     I rely on my agent, and I have workers comp also.

    0Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    excellent tip thanks! @Glenn D.

    @Deanna McCormick workers compensation? Do you mean like The agent handles your workmans comp also?

    0Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    9y

    Im a young dude and I only rent to college kids. they sign a contract that I'm not liable for them or their guests if they get injured. Anything that gets broken comes out of their deposit.

    if they want to throw a rager, as long as I'm invited. go for it

    1Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    lol @David Zheng I'm not ready yet but, one day we'll work together.

    0Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    can you touch on any of the issues you've had so far? Just so i can get better bearings.

    0Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    9y

    one of them flushed a shampoo bottle down the toilet but they paid for that.

    honestly besides girlfriends/boyfriends sleeping over more than my contract allows, no other big issues. I operate around a top 15 university though so everyone is pretty academically inclined/respectful

    0Reply
  • Danny Grey
    Investor · La Jolla, CA · Member since 2016 · 66 posts · 169 votes
    9y
    Originally posted by @Sam Guarnieri:

    Being incorporated in some way may help to limit your liability. 

    Lol the OP says he's planning on living in the garage, making it a pretty good bet he won't spend the money to incorporate.

    0Reply
  • Suhan Junaid
    Rental Property Investor · Lake Worth, FL · Member since 2016 · 29 posts · 16 votes
    9y

    Hey @David Zheng, some other ideas to keep your tenants from doing things you don't want - get parents to co-sign leases if possible and include (small) monetary damages for hosting parties over X amount

    0Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    @Michael Johnson

    I have workers comp insurance to cover anyone working on my property, I also hire mostly contractors and get a copy of their liability insurance before they start work for me.

    Someone above mention he has a "contract " the renter signs so he's not held liable.. bet if he got sued,, it wouldn't help a bit.. "no one can sign for the fact, that they agree you aren't liable for their guests,, How crazy funny stupid could someone be to think that would ever be binding..

    0Reply
  • David Zheng
    Investor · Saint Louis, MO · Member since 2016 · 970 posts · 1k+ votes
    9y

    @Suhan Junaid their deposits are 2.5x rent and I have parents co-sign :)

    0Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    @Danny Grey have you seen the movie Tron? the new one? In the beginning he jumps of a skyscraper and parachutes gets on his motorcycle, gets away from the cops. Then goes to this awesome Man-cave. I bet my garage will be better than most peoples houses. I want to stay in the garage not to save money, but to be able to rent more rooms so that I can expand further. What would you do?

    @Deanna McCormick you seem like a thorough person, I like it. Have you ever had someone get hurt on your property? or other liability issues. 

    0Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    @David Zheng did you choose your area because of that school, or did it just work out?.. I guess a better question is, what information did you pull for your market and strategy (colleges), and why is it important?

    0Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    @Michael Johnson

    I was involved in a claim for a property I managed, 125 units,, was a ice, fall claim she fell knocked a tooth out.. and she got a bunch of bucks. another guy same thing busted his elbow fractured and claim. he got big bucks,, and we had salt log, snow removal log. had others saying the walks were clear.. they still got bucks..

    Another manager at a sister property had a tenant drown in the pool,, insurance was involved.  Settlement.

    As far as employee work related claims I've seen a few for injuries and workers comp is why you have insurance.

    0Reply
  • Michael Johnson
    OP
    Specialist · Marco Island, FL · Member since 2016 · 225 posts · 56 votes
    9y

    wow it really pays off to do things right. I am a risk taker at heart. 

    So I'm really trying to figure it out first. Last question and ill let you go,, Roughly how much does renters ins. etc. cost in your market? @Deanna McCormick

    0Reply
  • Evan Nelson
    Eugene, OR · Member since 2016 · 2 posts · 2 votes
    9y

    I have NO idea about insurance but, logistically, I can tell you around here in University of Oregon landlords will typically only rent to kids when they have a parent cosign with all due diligence then generally they have a large deposit as well as "fees" per incident inside the property at the end, i.e. holes in the wall, burns in the carpet.. Then they have a strike system for noise complaints and what not. If you get three strikes its like a $2k early termination and they kick you out and try and lease to someone else.

    0Reply
  • Deanna McCormick
    Minneapolis, MN · Member since 2013 · 2k+ posts · 1k+ votes
    9y

    cost...no idea but it not expensive

    0Reply
  • Martin Czerwonka
    Phoenix, AZ · Member since 2016 · 11 posts · 6 votes
    9y

    @Michael Johnson The comments seem are talking about 2 separate risks. 1. Risk of someone damaging your property 2. Someone being injured on your property. Deanna is talking about the greater financial risk of someone being injured on your property and suing you.  There are 4 ways to mitigate risk (risk avoidance, risk transfer, risk reduction and risk retention).

    0Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Michael Johnson there is very little you can do to protect yourself from liability being an owner-occupied landlord. If there is a party and underage drinkers, the police will ask who owns the house and you will be held liable. If you don't live there, you have plausible deniability. If someone gets hurt, they will easily be able to locate you and sue you. I would definitely have a "no parties" policy, because alcohol and lots of people is a recipe for disaster. You don't seem to want to ban parties, leaving me to believe you want to be party and be friends instead of running a business. That works great until it doesn't and then you will be in big trouble.

    I know others suggest having them sign liability waivers, but that is only an illusion of protection. As far as getting "incorporated", as an owner occupied there is no way to legally separate yourself from the property in this manner.

    1Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    9y

    @Michael Johnson one other thing to consider is you cannot legally sleep in a garage in most cities and most cities have maximum occupancy standards for non-related adults. Violating these standards will increase your liability.

    Insurance can deny claims for a variety of reasons, especially if you are not following the law. Claiming you "didn't know" becomes very difficult when you are living at the property. Your tenants may be your best friends, but watch them turn on you when the crap hits the fan.

    1Reply
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