Tenant wants to open a daycare in my rental

Investor · Mc Kinney, TX · Member since 2016 · 26 posts · 1 vote

Hey everyone,

A tenant in one of my properties wants to open a daycare in a rental i own in Garland, TX. Has anyone ever done this? What do I need to protect myself from liability? I assume I should make her incorporate and take out insurance but also think I should have some sort of hold harmless agreement in place, just in case. Anything else I should be considering?

Thank you,
Matt

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Nathan GesnerBusiness Member

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Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes

Allow my good friend, Bishop Bullwinkle, answer that question for you: Should I let my Section 8 Tenant open a daycare?

The DIY Landlord Book4.7247 Reviews

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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
7y
The good thing is that residential day cares are generally legal. And if successful, they may stay for awhile. Analyze this tenant just like you would a business. Is this their first entry into this business? If not, why the move to your location?
Liability is an issue for sure. I'd consult an insurance broker as well as an attorney. Make the tenant sign a multiple year lease. Take a pass if this is only for one year.
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Matt Buchalski
OP
Investor · Mc Kinney, TX · Member since 2016 · 26 posts · 1 vote
7y
Thanks @Brian Ploszay! She's actually on section 8 and has been with me for over 2 years already. Agreed on consulting lawyer & attorney. Anything else you think I should consider?
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Brian Ploszay
Investor · Chicago, IL · Member since 2009 · 1k+ posts · 1k+ votes
7y
Section 8 tenants have to report their income to the housing authority. And their tenant portion would go up...
I suspect she wants to start a casual, non-proper business. I most likely would discourage such a business operating in my property. No upside for you. She's section 8 so you can't raise the rent to compensate you for the changed usage of your property.
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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y
Allow my good friend, Bishop Bullwinkle, answer that question for you: Should I let my Section 8 Tenant open a daycare?
The DIY Landlord Book4.7247 Reviews
Website View Page
13 Reply
Dick Stevens
Rental Property Investor · Haverhill, MA · Member since 2017 · 290 posts · 185 votes
7y
Lol. Pass!
0 Reply
Alex S.
Specialist · Cleveland, OH · Member since 2018 · 270 posts · 187 votes
7y
I would not let her do that.
0 Reply
Michael Noto
Real Estate Agent · Southington, CT · Member since 2008 · 5k+ posts · 3k+ votes
7y
@Matt Buchalski I would not even go down the road of entertaining this thought for a multitude of reasons. Just politely tell her that she cannot use the space as a daycare.
1 Reply
Matt Nusbaum
Rental Property Investor · Annapolis, MD · Member since 2011 · 232 posts · 170 votes
7y
I'd have to agree with most here and say no. I don't see the benefit for you. More work/hassle with not enough upside if any.
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Andrew Flora
Rental Property Investor · North Vernon, IN · Member since 2018 · 136 posts · 192 votes
7y
Dont do it.
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Asury Johnson
Rental Property Investor · Clarksville, TN · Member since 2017 · 73 posts · 99 votes
7y
@Nathan G. LMAO..good one! Totally agree. That's a hard pass for liability purposes.
2 Reply
Joe SplitrockPro Member
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Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
7y
@Matt Buchalski I have to laugh when I hear people suggest they will just have the tenant sign something relieving the owner of liability. Have them sign whatever you want, but litigation always chases the deepest pockets. An agreement doesn't prevent a parent from suing the property owner when their child is hurt in the property.
Section 8 means the tenant isn't very responsible in the first place or they would not need government assistance. I would not trust this individual to run a day care, either from a financial or safety standpoint.
Beyond liability, wear and tear is a major concern. If you have ever been in a day care, it is shocking how dirty and destructive an army of children can be. Plan on everything in your property wearing out sooner, so there is hard expenses associated with allowing this.
As others mentioned, she would likely lose some Section 8 benefit if she claims the income. If she doesn't claim the income, she would lose Section 8 all together.
One other concern is check with your insurance provider. My landlord policy prohibits day cares.
Whenever people ask about day care, my answer is no, even when they offer me offer extra money.
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Tyler Bushey
Investor · Biddeford, ME · Member since 2017 · 282 posts · 180 votes
7y
My lease states that no business can be conducted on my property. I would never allow it, ignoring the legal questions, think of the amount of abuse the apartment will take with the extra kids running around. If it's a multi the other tenants would be inconvenienced.
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Tyler Bushey
Investor · Biddeford, ME · Member since 2017 · 282 posts · 180 votes
7y
Originally posted by @Joe Splitrock:

@Matt Buchalski I have to laugh when I hear people suggest they will just have the tenant sign something relieving the owner of liability. Have them sign whatever you want, but litigation always chases the deepest pockets. An agreement doesn't prevent a parent from suing the property owner when their child is hurt in the property.
Section 8 means the tenant isn't very responsible in the first place or they would not need government assistance. I would not trust this individual to run a day care, either from a financial or safety standpoint.
Beyond liability, wear and tear is a major concern. If you have ever been in a day care, it is shocking how dirty and destructive an army of children can be. Plan on everything in your property wearing out sooner, so there is hard expenses associated with allowing this.
As others mentioned, she would likely lose some Section 8 benefit if she claims the income. If she doesn't claim the income, she would lose Section 8 all together.
One other concern is check with your insurance provider. My landlord policy prohibits day cares.
Whenever people ask about day care, my answer is no, even when they offer me offer extra money.
I find it mind blowing the things some landlords will actually consider letting their tenants do!
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Brian Garlington
Realtor · Oakland, CA and a Real Estate Investor with Multi-Family Units and a Self Storage Facility · Member since 2016 · 2k+ posts · 2k+ votes
7y
@Matt Buchalski DO NOT allow them to do this. Period
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Wendy S.
Ellenwood, GA · Member since 2016 · 267 posts · 70 votes
7y
@Nathan G. Lol. That's a good one
1 Reply
Kristi Gray
Rental Property Investor · Milford, DE · Member since 2018 · 16 posts · 14 votes
7y
No cashflow upsides to you because of section 8, just looks like more of a hassle and more people in the unit with increasing risk of damages at no benefit to you at all. I’m sure the “business” probably won’t be legit either, which is a whole other problem.
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Amy Beth
Rental Property Investor · Edison, NJ · Member since 2016 · 753 posts · 565 votes
7y
@Matt Buchalski. I would give the tenant a firm no. Let her know that your insurance company said it is too much of a liability and that they can’t cover you in the event of any problems that could occur. I would also make frequent inspections of your property now because she may try to do an illegal daycare out of your property. Do the inspections at different times of the day.
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L Mason Shih
Member since 2018 · 3 posts · 1 vote
7y
If your rental agreement does not prohibit running a business out of your property, consider updating your rental agreement.
0 Reply
Anthony Wick
Rental Property Investor · Ankeny, IA · Member since 2017 · 2k+ posts · 3k+ votes
7y
@Matt Buchalski
Even if people posted 100 success stories on letting a tenant run a daycare I would say no. But, I’d like to hear a few stories about people that allowed this. It could be entertaining.
I have to ask; do you have kids? I have three. No way would I want to make that 10 or 12 in my house. Save yourself time and energy and just go trash all the flooring, walls, and yard yourself.
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Connie Chan
Investor · Member since 2017 · 239 posts · 149 votes
7y
@Matt Buchalski I would try to get more information first. How many students is she expecting, is she going to hire more teachers and expand her business? If you cap the number of students that might be an option if you are very concerned about many students in the home. But yes, check with legal counsel to make sure what you are deciding is compliant.
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