Should I rent out my house to a corporate housing company?

Question

Hi,

I am trying to rent out my 5 bedroom house in NJ and I was recently approached by a gentleman who says he represents a corporate housing company. He said his company provides accommodations for temporary workers (for example folks from India who work in the tech sector on a guest worker visa and remain in the US for a year or two at most).

Has anyone had any experience renting to these kind of tenants?

One concern I had is how can I run a credit check on a company and what are the possible consequences of having a company (an LLC) instead of an actual person on the lease?

What other pitfalls should I look out? Finally in your opinion does this sound like a viable tenant?

Thanks,

Jehan

Matthew Olszak · Answer

@Deanna McCormick I respectfully disagree. Because the lease is with the corp, I don't care if they pack 200 people in there, the corp has the liability for the rent and damages. If the corp checks out and are solid enough that I could sue them and expect to actually recover damages - JACKPOT!

@Jehan Jaleel This could be a HUGE opportunity. This is more like a commercial lease, so many residential folks won't understand the bonuses this opportunity presents. #1 - look up the corp on your secretary of state website. Were they recently registered? Can they provide a P&L? If its a small corp, will the president/owner sign a personal guarantee, and does his/her credit/background check out?

One of my first leases here was with a tiny corp doing a relocation contract with a massive corp (IE 100MM+ deals) and paying me more 50% over FMR for the ability to use my unit to house tenants in 2-3 month stints. Heck yea! I didn't care if they had a new tenant every month, if anything was messed up, I had a $100MM corp to fall back on, so it wasn't like they would close shop to avoid me. Remember, with almost any standard residential tenant, your chance of recovering any damages, even if you have a judgement, is slim. Its better to get someone (like a corp with $100MM+ backing it) to sign the lease instead.

Matthew Olszak · Answer

Anyone can register a corporation for a few hundred dollars, so don't put too much value in the name. You need to be sure this is a company that has a significant income/value so that it won't be worth it for them to just close up shop and open a new one if their debt load (like your lease) becomes too much. Request 2+ years taxes and a matching profit and loss (P&L) statement and bank records. Examine it and see what the income and profit looks like and if they are in line for the industry. It sounds like a lot but its really not much nor abnormal for a corporate lease.

Otherwise, if you just accept them as-is, its like selecting an individual and skipping employment, background, and credit checks. Also ask for a copy of the contract they are working under to ensure it isn't about to run out prior to lease end. You can also get a personal guarantee if its a small corp and run the principal's credit as if he/she were going to be the tenant.

Valerie VandeZilver · Answer

Renting your home as a corporate or interim rental can be a great source of income.  If you are uncertain, have a professional management company work with you.  You'll have the benefit of their experience and legal forms.  Don't hesitate to define your occupancy, parking, utility and maintenance rules in writing.

Renting your home to anyone is a risk.  In the case where they are connected with a business and there for a short time minimizes the risk somewhat.

Another suggestion is to insist on "mid-stay cleanings."  This gives you the chance to have your housekeepers check it for you during the stay, and make sure it is being cleaned and well-maintained.

Michele Fischer · Answer

My mother has used this strategy successfully for years.  Some advantages are that the rent will always come and that the company will take care of most repairs/upgrades.  She has also found that it is often empty but still earning income, which is less wear and tear (but could be a security concern).

As far as doing due diligence, I think the focus changes to verifying that they are truly a company and are a going concern rather than worrying about credit checks.  You could also ask for a $20/person fee ongoing and one page info sheet in order to keep tabs on who is there and run criminal checks.  Although, if they are from outside the country and this is their first housing, it will be very difficult to verify any information on occupants.

Jehan Jaleel · Answer

Hi @Deanna McCormick, thank you for your advice, this company person guaranteed that he would have no more than one person per room except the master suite where he might have two. He also said that I was free to come and inspect the property anytime I wanted. Do you still think it is a bad idea renting to his company?

Thanks.

Kevin Lefeuvre · Answer

This discussion came up when searching for "renting to corporations". As @Matthew Olszak said this is more an opportunity than anything else, IF THE CORPORATION IS SOLID ENOUGH. If not get an officer as a guarantor. It's still better than an individual.

Now, Matthew, you seem to have the experience. Do you know if the lease has to follow the same tenant-protecting rules as for an individual, or because it is by a corporation, the lease agreement itself becomes more open and less restrictive. Just an example: In California you can't receive rental payment of several months in advance. The law is to protect the tenant. But when dealing with a corporation, they are mature and smart and can have an interest in paying in advance (for instance to get  a better rate). Do you know if these deviations are possible when the tenant is a corporation?

Michele Fischer · Answer

going concern is a way of saying "will continue to be in business".

Jehan Jaleel · Answer

@Michele Fischer, thanks for your input. One part was not clear when you said "I think the focus changes to verifying that they are truly a company and are a going concern", not sure what you meant by "a going concern".

Is there anything else I can check as part of due diligence? If you could also ask your Mom what she did, that would be greatly appreciated.

Thanks.

Jehan Jaleel · Answer

@Matthew Olszak, thanks for your advice. In my case I don't think this company has a massive corp behind it. They did provide some references from other landlords and their certificate of incorporation (registered in DE in 2015). Is there anything else I can do to check their background? And in terms of their their financials, what can I ask for to see if that is on strong ground? Also what did you mean by "P&L"? Sorry, I am a total newbie so any advice you can offer would be much appreciated.