Can I Sub-Lease a Rental Property?
Hey Team,
I've started looking into real estate investing Oct. 2017 and have done 1 wholesale deal and am in the middle of a sandwich lease option deal, no pun intended. Since the lease option deal I've totally been passionate about any concept of holding property and getting rent monthly. My dream is to one day have enough money to buy rental properties.
However, in the meantime, I'm wondering if it's possible to have a seller rent to me with the permission to Sub-Lease their property if the numbers make sense. Has anyone had experience with this? Since my lease agreement has a clause saying I may either assign or sub lease their property disclosed to the seller, I'm assuming it's legal without speaking with my attorney which, obviously I would not try to do until I had approval. But, just since 2 weeks ago when I got my first sandwich lease option check, I have been completely sold on the concept of renting a property and am wondering if I could do this.
Any help or experience based suggestions would be greatly appreciate.
Thanks B-Pocks
-Corey Woodman
4
- Rental Property Investor
- Durham / Raleigh (Triangle), NC
- 675
- Votes |
- 707
- Posts
I've done 3 Lease-Option Deals so far that allowed me to take complete control of the properties and legally (with full knowledge and signed permission of the owner) sub-Lease each to a third-party Tenant of my choosing. In one case that Tenant was Section 8, which required that I prove myself "Owner" of the property, for which my Lease / Purchase Option Agreement with the Seller / Owner was accepted for this purpose by the Housing Authority.
My Tenants then lived in the properties while I directly paid the Mortgage (PITI) and HOA, and I managed all aspects of the property (the actual owner didn't have to do anything but keep insurance in place, add me / my LLC as a loss-payee, and set me up with direct access to speak with the Mortgage provider and HOA as needed). I then collected rent and pocketed the difference, which in one case was over $500/mo AFTER reserves.
Since this was a distressed property, that $500/mo went to cover the ~$6,000 I put on a 12-month ZERO Interest Credit Card to rehab the property to Tenant quality. So after 1 year, I had no money in the deal but still controlled the property for another 6 months before I completed the purchase. The end result was a FREE property for me that I'll own for years to come. Monthly Cash-flow is now just below $300, but I was also able to pull out cash (PML funded the purchase at 75% of ARV) that was created out of thin air.
Just note, this all works best when the property is both physically and financially distressed and there is little equity or even owner is upside down. In that case, they cannot just sell it on the MLS without bringing cash to closing (that they may not have) or making repairs (that they can't or don't want to do). It also helps if they are getting married and the spouse already has a home or for some other reason they are not likely to need to buy another home within the next 1 to 3 years. In that scenario they are more likely to be willing to leave the Mortgage in their name just to relieve themselves of the headache of the property and payments.
You then solve a major problem for them by handling the rehab out of your pocket to fix-up their property and maybe give them some cash as an Option-Fee. So if you are credible, they have nothing to lose and everything to gain by working with you. I've taken two sellers via Lease-Option (still working on the 3rd) from being potentially upside down on a house they could not easily sell and was un-rentable in current condition to getting as much as $3,000 in their hand at the closing table when I completed the sale in the second year.
Above all, MAKE SURE you do EVERYTHING you say you are going to do EXACTLY as you said you were going to do it... as overcoming doubt of it all being too good to be true is the major hurdle and they are just waiting for something to go wrong, even as they are being handed a check at the closing table a year, two or three later. Because they are basically GIVING YOU A FREE HOUSE and who does that without some serious doubts?
J.T.
Hey Jonathan,
Thanks for taking the time to respond. Actually I'm doing a lease option now, but the house is in great condition. I'm only asking if I can Sub-Lease rentals on a renting only basis.
So, can an owner just rent to me and give me permission to sub lease it?
"Sub-Lease" would have a very different connotation, if it wasn't allowed happen. As with any agreement (so as to avoid any later dispute), get it specifically allowed, on the Lease Agreement!
(Similar to how a Purchase Contract might say: "Buyer or Assignee").
[However, Owners can choose to not allow both Sub-Letting and/or Assigning]. Welcome to BP...
Originally posted by @Account Closed:
Why not rent a place, then sublease it for an extra $50/month? Do that for a few dozen places and you’re looking fantastic. Why? No maintenance!
I'm guessing this is Corey's whole reason for asking in the first place...
I have done hundreds of sandwich lease options - just make sure you have the right contracts and PA does have some unique things to put in option agreements. Check with an attorney in your state on details.
