Renting from people who wont sell. We RENT ugly houses?

Question

Hey,

So the Florida market is hot and there are way more renters being left without a place, at least in Brevard county where I work.

Heres what Id like to do. I want to lease homes at a deep discount with the intent to sub-lease for market rent. My broker is a lawyer as well and he's all for backing me on this. I figured a long term lease depending on how much the slight repairs and paint would be (to get to rental standards) and what we figured market rent would be. Possibly going the first few months rent free and/or discounted to pay back costs.

My payments to the owner would cover their taxes and some extra cash, of course all depending on how the numbers work. Essentially it seems like Id be a property manager but hopefully making larger margins. As I consider myself an amateur investor at best, I was hoping to get others thoughts and also poke as many holes in my plan as you see. I appreciate criticism.

JD Martin · Answer

I don't see this going anywhere because:

1. Few if any landlords are going to agree to subletting;

2. Even if they did there's little value in renting to you at a deep discount when there are renters looking everywhere;

3. What special skills do you have that warrant several months of free rent and a long term deep discount in exchange for some paint?

Nathan Gesner · Answer

People do this quite often with short-term rentals. It's referred to as "arbitrage" and you may find success with it, but I don't think it's as simple as some make it sound.

You rent a place for $1,000 a month. You then sublet it to someone else for $1,500 a month and keep the extra $500.

Simple concept. Hard to find Landlords willing to allow it.

Account Closed · Answer

The most immediate hurdle is finding landlords who will allow subletting. I don't and I dont think most do.

Then it's finding owners who are willing to rent out at a discount. Rental rates are high and I haven't seen many deeply discounted rentals listed. Who would be willing to do this and why?

Third, because we don't have a homestead exemption our property taxes jump every year. In a continually appreciating market, I think someone master leasing long-term at a discount would quickly find themselves underwater from taxes and also insurance alone.

The most common way I've seen this attempted is having a long-term master lease and then doing a short-term rental, because there's a premium in the STR revenue above market long-term rates. But that also requires you to find a master lessor who allows STR.

The challenge here is going to be finding a willing counterparty.

Shanna Vataj · Answer

Why wouldn’t they just rent it themselves. Take a finders fee or even a normal agents fee and forget the headache with managing the rentals

Eric James · Answer

Sounds like a form of property management. But where you are taking on the financial responsibility for vacancies.

Jay Hinrichs · Answer

Just do asset management for banks and lenders if thats what yo want to do.  what you describe is a great way to go broke.

you sign a lease to the landlord your renting from U are on the hook.

next thing you know the tenant you rented to does not pay and squats  you still are paying your landlord and having to pay for evictions .. One default could wipe out 10 performing sandwich leases..

the whole sub too sandwich lease thing while sounding great is fraught with peril on the financial side.

Drew Sygit · Answer

We actually think you coud find owners willing to allow you to sublease - for a price.

Which will be in opposition to your goal of getting an owner to lease to you below market.

So, we believe finding DECENT below market rentals will be your biggest challege. If you spend enough resources looking for a needle in a haystack, you'll always find a few clients - but can you scale it? Also, many of the ones you find will most likely be properties in terrible condition. So, you'll either have to spend thousands fixing them up - eating up your profits, or you'll have to rent them to substandard tenants - which as @Jay Hinrichs points out above means they're highly likely to default on rent, but you still have to pay the owner.

The only version of this that works is the LTR vs STR arbitrage @Nathan G. mentions above. Many have done this successfully in the past, but it's getting harder due to many municipalities passing statutes or enforcing zoning to crack down on STRs.

John Thedford · Answer

Interesting idea but I don't think it would work.

Renting from people who wont sell. We RENT ugly houses?

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