First Rental Property - Sublease Tenants

[Samantha Otero]

Hi BP Family!

I just recently posted my very first rental property up for rent using Zillow Rental Manager. Within 24 hours I was messaged by three corporate leasing companies offering to pay full price as long as I allow them to sublease.

Being that this is my first property, I purchased as a primary home using 20% conventional while I live with my parents. Is renting to a LLC before the 1 year mark of a primary residence legally acceptable? I do not intend on claiming homestead on my taxes. Thanks in advance!

[Adam Martin]

Legally renting to anyone is not acceptable. You bought as a primary residence and got pricing that reflects that and need to honor your contract.  That’s not to say you can’t house hack and rent out a spare room but what you are describing is mortgage fraud.  

[Ray Hage]

Hi Samantha, technically speaking, you can't rent it out to anyone (legally speaking of course). If you're going to rent it out anyway, you definitely don't want to make it public here for the mortgagee to find out. Not claiming homestead won't help in this case and in fact, it looks a bit suspicious not to claim it.

[Nathan Gesner]

Quote from @Samantha Otero:

These "corporations" are likely wanting to use your home for short-term rentals. They will pay you $2,000 a month (or whatever price you asked), furnish it, and rent it out short-term for $6,000 a month and make a profit. I wouldn't allow this and most investors will advise you against it because you lose control of the property, the corporation may leave you high and dry when the money dries up, and you should be the one to make profit off of it instead of some strangers with no skin in the game.

If the home qualifies for short-term rentals, I recommend you look into it to see if you can increase earnings that way.

[Sarah Kensinger]

Quote from @Nathan Gesner:

Quote from @Samantha Otero:

These "corporations" are likely wanting to use your home for short-term rentals. They will pay you $2,000 a month (or whatever price you asked), furnish it, and rent it out short-term for $6,000 a month and make a profit. I wouldn't allow this and most investors will advise you against it because you lose control of the property, the corporation may leave you high and dry when the money dries up, and you should be the one to make profit off of it instead of some strangers with no skin in the game.

If the home qualifies for short-term rentals, I recommend you look into it to see if you can increase earnings that way.

How is the 2nd half of your first paragraph accurate when a lease is signed so the leasee is bound to pay the monthly rent or face eviction? If done correctly it shouldn't be any different then signing a lease with a person that is living there for a year.

[Nathan Gesner]

Quote from @Sarah Kensinger:

Because these rental arbitrage "corporations" are typically get-rich-quick, easy-money types that will leave as soon as the easy money disappears. They aren't scared by your threat of coming after them because they're smart enough to know it hardly ever happens.

You can always give it a shot and see if my suspicions are wrong.

[Sarah Kensinger]

Quote from @Nathan Gesner:

Quote from @Sarah Kensinger:

Because these rental arbitrage "corporations" are typically get-rich-quick, easy-money types that will leave as soon as the easy money disappears. They aren't scared by your threat of coming after them because they're smart enough to know it hardly ever happens.

You can always give it a shot and see if my suspicions are wrong.

Most are not that way and I see misconceptions of this strategy on BP frequently. Just like with everything else you need to vet the person/company out. It's not a strategy I would personally do, but I also see the benefits if someone is interested.