Question about a rental request I received
Hi Everyone-
I recently had a strange (or maybe not so strange) request arise. This question is not related to my current real estate investments. I live in buncombe county and we are getting ready to put our current home we live in on the market. We are going to put it on the market and if we are not getting offers around our asking price we will rent it. We live in a highly desirable neighborhood, great schools ( walkable) and walkable restaurants/shopping. While we are getting the house ready, we received a phone call from someone who wants to rent our house for 36 months (at the rent we requested) and then buy it in 36 months. However, she wants to sublet it to someone else ( she does not currently have a renter willing to do this). While this is not what we would want to do, she sent us a contract. The contract is very vague and has no details around who covers the rent if she loses a renter. In addition, she can cancel the agreement at anytime but we as the owners cannot. It is not clear who would manage the property in the contract as well as multiple other details you would routinely see in a rental agreement.
Has anyone come across offers like this and if so, are they legitimate? Do these people follow through on their end of the deal?
I am happy to share the details ( or lack thereof) of the contract.
Thanks for your help!
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- Rock Star Extraordinaire
- Northeast, TN
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Don't do it. I know BC well - I've worked here for 20 years - and if you can't sell or rent at the rate you want on your own you are either grossly overpriced or there's something wrong with the house (what neighborhood are you in?).
What this person wants to do is known as "short term" or "air bnb" arbitrage. Basically it works like this: they become a "tenant" of your home, and then turn your house into a short term rental. You get the monthly rent you'd charge them, they pay the rent and whatever they can short-term rent your house for, they keep the overage. Essentially, it's a way of broke-*** people that don't have 5 cents to their name becoming "real estate investors" (I realize this last statement will rub some people the wrong way and I don't care).
If you are OK with renting your house short-term, hire a PM to run it and do it yourself. You'll get all the money and none of the risk of someone who has no skin in your game from wearing out the house. I guarantee in BC, if you want to short term rental your house, you will make more money hiring a PM and doing it yourself than anything you'll get from this person, who wants to pay you like it's a long-term rental.
The reason they want a 3 year lease is because some guru told them to lock up the property long-term to make their work worthwhile, or because they don't want to go through the trouble only for you to kick them out a year from now. A 3 year lease is more or less a bad idea anyway - you have no idea what happens in the next 3 years, and you are the only one really at risk since you can sue a broke joker for non-performance but you'll be unlikely to collect. They're never going to buy your house - that's just a ploy to get you to sign the contract. If they had any means whatsoever to buy it, they'd do it now instead of 3 years from now when prices are likely to be worse.
Don't do it.
- JD Martin
- Podcast Guest on Show #243
So if we were in a tighter market this could make more sense, but the rental market is not difficult for landlords. People do this, it sounds a lot like rental arbitrage, but there are not that many benefits for the actual property owner.
That being said, if you want to move forward with this for convenience sake, which is the primary benefit, you can always ask for modifications to the contract to clarify that rent comes from her regardless of her abilities to sublet it. I would also require notice if she wants to be able to walk away before the term is up, at a minimum, or have a set early termination fee, such as $200 per month of early termination.
You also want to protect yourself with regards to the purchase price. If it is a contractual dollar amount, this is in essence an option contract. If she is allowed to buy it at set price and the house goes down in value, she can just walk away from the deal, but if it goes up then you cannot. You should either be able to get compensated for this with a one time payment, or have an escalation of some kind in there where she has to pay 6% more per year or some other value that you guys determine is fair.
All that to say, it seems like you are doing a lot of work to get all of the downside and none of the upside in the deal.
- Rock Star Extraordinaire
- Northeast, TN
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Don't do it. I know BC well - I've worked here for 20 years - and if you can't sell or rent at the rate you want on your own you are either grossly overpriced or there's something wrong with the house (what neighborhood are you in?).
What this person wants to do is known as "short term" or "air bnb" arbitrage. Basically it works like this: they become a "tenant" of your home, and then turn your house into a short term rental. You get the monthly rent you'd charge them, they pay the rent and whatever they can short-term rent your house for, they keep the overage. Essentially, it's a way of broke-*** people that don't have 5 cents to their name becoming "real estate investors" (I realize this last statement will rub some people the wrong way and I don't care).
If you are OK with renting your house short-term, hire a PM to run it and do it yourself. You'll get all the money and none of the risk of someone who has no skin in your game from wearing out the house. I guarantee in BC, if you want to short term rental your house, you will make more money hiring a PM and doing it yourself than anything you'll get from this person, who wants to pay you like it's a long-term rental.
The reason they want a 3 year lease is because some guru told them to lock up the property long-term to make their work worthwhile, or because they don't want to go through the trouble only for you to kick them out a year from now. A 3 year lease is more or less a bad idea anyway - you have no idea what happens in the next 3 years, and you are the only one really at risk since you can sue a broke joker for non-performance but you'll be unlikely to collect. They're never going to buy your house - that's just a ploy to get you to sign the contract. If they had any means whatsoever to buy it, they'd do it now instead of 3 years from now when prices are likely to be worse.
Don't do it.
- JD Martin
- Podcast Guest on Show #243
Thanks so much for the response! This is very helpful. I feel if we don't sell at the price we want, we would be able to rent this on our own like you mention. I agree that right now in the current market, her deal did not provide much upside on our end.
Thanks again- I feel like we will get more calls like this so your points will provide me with a good base to work from.
Sounds like a shady wholesale arbitrage model .. walk away. You're still in the strongest seller market in history, leverage that opportunity now.
- Lien Vuong
- [email protected]
My rule is never sign anyone elses contract. They sign mine.
- Real Estate Broker
- Cody, WY
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Here's a very simple rule that will keep you out of trouble: if you don't understand an agreement and how it benefits you, don't agree to it.
I suspect they want to operate a short-term rental, using your property to run a business and produce a profit for them. You will lose control of the property. There's a very good chance this is an amateur looking to make a fast buck or take advantage of you. There's a very good chance they'll milk the property for all its worth, then disappear when the money dries up or they encounter hardship in their personal life. Even if they are honest and their business performs well for the next three years, there's no guarantee they'll be willing or able to purchase for market value.
I would not dig any deeper. Ignore the letter and stick with what you know.
- Nathan Gesner
What starts out crazy, ends crazier...
Don't do it, don't make eye contact, BOLT.
Are STRs allowed in your neighborhood? I'm assuming they are and echo what everyone else suspects - STR arbitrage.