Sublet lease question, for medium term rental arbitrage

[Brent Langlinais]

HI gang, thanks in advance for your insights. 

I'm a veteran ER travel nurse of 9 years having worked dozens of contracts throughout the country.  But the industry has progressively tightened it's belt over the past 12-18 month with fewer and fewer travel nurse contract offerings, and pay packages continuing to  plummet.  We are now seeing average pay packages at, or below, pre-pandemic levels.  With increased housing costs and reduced income, travel nursing no longer makes sense for me financially, so I have switched from travel nursing to a full-time staff nurse position in San Fransisco where nurses are paid more that what is currently available as a travel nurse.  I'm happy to share my insights if investors are curious how this might effect supply and demand for MTR rentals, but for the time being I have some questions about MTR rental arbitrage.

I am looking at renting a 1bed/1ba apt in Daly City, CA. The property owner is also renting a 3bd, 1ba apartment on site and we are discussing the possibility of me leasing the entire property, and then subletting the 3bd apartment to travel nurses via MTR leases. The property is well suited for the purpose, no HOA, with potential cash flow that will provide me free housing in the 1bed 1 bath, maybe more... making for a great house hack. I have experience house hacking during college where I furnished a house and rented rooms to cover all my costs and free rent for me. I have also run a lucrative air b&b on my sailboat in Seattle way back when the Port or Seattle allowed it, and designed and set up an AirB&B via ADU at my mom's place which now nets her $15K annually. So I don't think managing this purposed rental arbitrage is beyond my capacity, but property owner and I have some details to work through.

Our dilemma is how do we vet potential renters, who conducts the background checks, who holds the deposits, etc. Of course I would furnish the property, advertise the property, show the property, provide weekly cleaning service, collect rent from tenants, and pay full rent to the landlord regardless of occupancy.  I also purpose that I pay the full deposit ($5000) to the property owner, and I pay for minor repairs myself, collect deposits from tenants, and I would be responsible for responsible for vetting the tenants by standard rental application, verifying employment, credit checks, references, and background checks.   However, the property owner is requesting that he hold deposits, applicants submit applications to him, and he takes on the responsibility for vetting tenants.    In my mind, this presents a conflict of interest if property owner is paid full rent by me, he has no risk associated with vacancy, no incentive to conduct timely rental applicant screenings, and no incentive to approve tenants.  And if he holds deposits, I have no means of recourse for potential damage to furnishings, or minor repairs which I would rather handle immediately as an onsite property manager.  Property owner and I are researching local sublet laws as they apply to MTRs and rental arbitrage, but I'm seeking any insight BP community has regarding how best to arrange the lease and potential subleases to best protect the property owner and myself.  

Thank  you all in advance for your thoughts and insights.  

~Sincerely

[Mason Weiss]

Hey Brent, good questions. If the property owner is set on handling all of the potential tenant screening and applications, I would not move forward with the arbitrage. It doesn't make sense for the owner to have this control. They could decline every potential applicant and then you are stuck paying for both units.

Protect yourself by having full control of the tenant sublease process, or I would not move forward with the other unit.