Interesting Tenant Proposal

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Interesting Tenant Proposal

Account Closed
Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes

I have a 4 bed 2.5 bath SFR listed for rent in a B+ to A neighborhood that is in great condition. I typically like renting to families as they tend to stay longer and a lot of times fix little things themselves because they enjoy their privacy and do not want a landlord going through their house.

I just got off the phone with a woman who has a construction/renovation job in the area and would like to rent the house on a 6 month lease for her employees. She also said that the company would pay all six months up front and take care of the utilities. One small positive to the 6 month lease is that I have another SFR and the lease runs up to February so this would space the two leases out.

However, she did say there would be 6-8 employees living there (so 8) and I am worried about how they would take care of the place. The woman told me the company would take responsibility for any damage but the company is out of Texas so I do not know how easy it would be to enforce. I do no like the idea of not know who is in my unit and not having a background check on them. I am working on getting references from previous landlords. 

Has anyone had experience with something like this? What concerns do you have? What would be your questions for the woman setting this up? 

I have my own initial thoughts on this to make it worth while but I wanted to see what came back on here. Thanks for your time!

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Jackson Carr
Investor · Napa, CA · Member since 2016 · 82 posts · 42 votes
9y

I would avoid. Never had experience with this like Diane does, but 8 tenants in a 4 bed 2.5 bath seems a bit overkill. That is 8 sets of muddy boots on your carpet, a TV in every room wall mounted, if you pay any utilities, 8 people showering, multiple work trucks in your driveway. Just seems like a high risk/wear for 6 months of rent when you could wait a month and get a family of 4 that will stay for 3 years. 

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  • Diane G.
    CA · Member since 2016 · 1k+ posts · 1k+ votes
    9y

    I rented one of my properties to a (small) company for its employees... I think it is 5 of them altogether.... I always got paid on time, never a repair/service call in the two years that they are there....So no complains....

    0Reply
  • Sarah Ziehr
    Real Estate Broker · Chicago, IL · Member since 2015 · 531 posts · 266 votes
    9y

    Usually when companies pay for housing, they give the money to the employees and then the employees find a suitable place to live, so this strikes me as very odd. 

    Is she messaging you from the companies website and have you contacted her by phone at the business? Look up the companies address on Google earth.  Is the business legit? 

    If you do proceed, I would get a hefty security deposit and also make sure all monies are paid via cashiers checks. Also, you will need to charge them extra for the utilities because I don't see they would be a position to put the utilities in one of the employees names.  

    Lastly, while you do your due diligence, make sure you are accepting other applications in case a better applicant comes around. 

    3Reply
  • Jackson Carr
    Investor · Napa, CA · Member since 2016 · 82 posts · 42 votes
    9y

    I would avoid. Never had experience with this like Diane does, but 8 tenants in a 4 bed 2.5 bath seems a bit overkill. That is 8 sets of muddy boots on your carpet, a TV in every room wall mounted, if you pay any utilities, 8 people showering, multiple work trucks in your driveway. Just seems like a high risk/wear for 6 months of rent when you could wait a month and get a family of 4 that will stay for 3 years. 

    6Reply
  • Matt Schelberg
    Rental Property Investor · Baltimore, MD · Member since 2013 · 281 posts · 257 votes
    9y

    The biggest enemies of cash flow are vacancy and turnover.  This arrangement gives you more of both.  Eight unrelated people under one roof means no one feels responsible and you will get more wear and tear.  Plus, the last home insurance application I filled out asked me if there would be more than 3 unrelated persons living together in the house...you would have 8.  

    Besides being paid upfront, what are the positives here?  If it's a nice neighborhood, why not wait until a family comes along and stays for 3+ years?

    2Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Sarah Ziehr

    I am definitely still taking applications and showing the house. 

    Spoke with her on the phone and have found her on a few different sights confirming her positions but will continue to dig in. 

    0Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Matt Schelberg

    Excellent point on the insurance, thanks!

    0Reply
  • Joe Taylor
    Bellevue, WA · Member since 2016 · 14 posts · 1 vote
    9y
    Charge a much higher rent and deposit, one for the increased wear and tear, and two for the short term lease.
    1Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Jackson Carr

    That was my knee jerk reaction to the idea, just trying to play devils advocate and get some different perspectives. Thanks for the input!

    1Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    9y

    Guys coming from out of town to work will be doing just that , working . They will bring minimal furniture . They will spend little time there .  Get a very large deposit , raise the rent and give it a shot 

    3Reply
  • Jason Mak
    Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
    9y

    i've had mixed experiences renting to "companies".  Most of the times it has worked out nicely but I once ran into a scam.  Since the company I rented to dissolved there was no one liable for damages and non-payment of rent.  Not saying it's a bad thing, but I would just take extra precaution, security deposit, and common sense.

    I agree with @Matthew Paul it could be a good scenario where guys just come in town for work and leave on the weekend.  You might be able to get significantly more rent by furnishing the rooms too.

    Lastly, I'd also be considerate of your neighbors too.  Is this a small street or neighborhood that would not take well to transients?

    2Reply
  • Devin Deswert
    Investor · Salt Lake City, UT · Member since 2016 · 78 posts · 38 votes
    9y
    The company I work for does this a lot. I think we prefer it to hotels, just feels more like home when away from home. I can't speak for everyone. But we have always treated a place like home assign chores and alternate cooking duties. You can get more by charging per head then just a flat rate fee and more along the lines of hotel pricing.
    1Reply
  • Matthew Paul
    Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
    9y

    Another thing to consider , guys are nt going to decorate , they will bring just what they need .  Eight guys that work together wont live like pigs . They will work , eat , watch some tv and sleep .   The only concern would be is parking.  If they all bring their own trucks . 

    0Reply
  • Shaun M.
    Rental Property Investor · Gunnison, CO · Member since 2014 · 59 posts · 99 votes
    9y

    Funny, I close on a place in two days where this was the exact scenario.

    Large, out of state construction company rented the home from the current owner to house it's workers for long term projects in the area.

    By the end the house was trashed.  Almost every doorjamb had been kicked in, tiles cracked and broken from chopping wood inside, water damage, shoddy repairs, etc.

    I am not saying that you cannot structure this in a way that works for you, but the owner of this house did not and felt overwhelmed by the end condition.

    The story I got from neighbors is that there where always new folks coming in as workers were fired for drug use, quit, moved away etc.  There was no accountability, no info about who was living there, and in the end not nearly enough security deposit. 

    I would proceed with extreme caution. 

    0Reply
  • Robert Fiorillo
    Smithfield, NC · Member since 2016 · 30 posts · 22 votes
    9y

    I've seen this twice, once as the person living in the apt and the other when my Dad rented his duplex out to construction workers. 

    GM often will rent blocks of homes/multi's out for workers or interns, often using small/unknown companies so LL or PM don't jack up the prince knowing it is GM. We were college students and took care of the place. 

    The duplex took a bit of a beating but the workers fixed almost everything when the lease was up without prompting. What they didn't was covered by the security deposit. Overall it was a good experience, even got the pavilion out back turned into a barn for free.

    0Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    9y

    Construction renovation crew........when they move out you will need to renovate and there is no way you will get a dime from the woman you are speaking to. She has done this many times before and knows the full cash up front is the enticement she need to convince greedy stupid landlords to open up their doors.

    8 drunk construction workers partying every night......priceless, repairs after they move out.......expensive

    4Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    9y

    In some places where I have rentals, there are zoning restrictions on the number of unrelated people who are allowed to legally occupy a unit; a maximum of two or three unrelated people is not unheard of. So this arrangement might not comply with zoning (no way for me to say with certainty). I did go through some neighbor harassment at one time by the neighbor reporting "too many occupants" to the code enforcement department when the three occupants of one of my rentals had their three girlfriends coming to visit regularly - so neighbors might snitch ...

    But this does remind me of the anecdote I related in the "tenant applicants say the dumbest things" thread regarding Asian restaurant owners ;) My vote is "No way".

    4Reply
  • David S.
    Investor · Prairieville, LA · Member since 2015 · 311 posts · 424 votes
    9y
    Originally posted by @Jackson Carr:

    I would avoid. Never had experience with this like Diane does, but 8 tenants in a 4 bed 2.5 bath seems a bit overkill. That is 8 sets of muddy boots on your carpet, a TV in every room wall mounted, if you pay any utilities, 8 people showering, multiple work trucks in your driveway. Just seems like a high risk/wear for 6 months of rent when you could wait a month and get a family of 4 that will stay for 3 years. 

    I do agree with your points. That place will likely be torn up at the end of the lease term. However, one cannot refuse this tenant based on 8 people because it would be HUD violation, which has been established at 2 people/bedroom + 1 if there is a living room. As pointed out earlier by Steve, there are local zoning ordinances that may kick in prohibiting this type of arrangement keeping you out of trouble for this type of rejection. If there are none or if they are within local ordinance guidelines, you can't use it. They may fail another part of your qualification process...as long as that particular qualification is enforced consistently.

    I charge extra for leases less than one year.  That has been the way I do things from the start, so you may consider that as part of your policies. I am not running a hotel business so I think less than 1 year should cost more.

    1Reply
  • Jonathan Johnson
    Rental Property Investor · Charleston, WV · Member since 2013 · 262 posts · 109 votes
    9y

    Worry #1: damage to the house.

    What fixes that worry: the initial deposit, make it double the rent since there are double the amount of people per room. If they muddy up the carpet, fix it with the deposit.

    Worry #2: Paying the whole lease upfront is weird.

    What fixes that worry: getting paid and not worry about missed rent or vacancy during that 6 months.

    Worry #3: Will it be worth the hassle?

    What fixes that worry: Add to your rental an extra $50 or $100 per extra head past what you would normally expect to rent to this house (If you'd normally expect 5, charge for the 3 extra).

    Everything is negotiable to be a win win win for all involved.

    1Reply
  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    9y

    We lived next to a place like This.Partying every night was not the issue for a company rental, parking and traffic was.  We had a shared driveway and why they all had to drive the jobsite at the same time I don't know.

    My brother lived in one for the power company and it wasn't a party zone but you are right it is always full to eight people. The company did pay a premium for the  rental and the timing was good for re-renting which is why the landlord did it.  The lease was directly with the power company and they paid all rent and utilities so that part is not unusual for this type of rental.  It it would be illegal in some of the places I rent due to an unrelated people ordinance targeted at the college population.

    1Reply
  • Account Closed
    Rental Property Investor · Orlando, FL · Member since 2016 · 463 posts · 220 votes
    9y

    I know a company right here in Cleveland that does several of these short-term rentals for utility company workers, executive contractors, and even a film crew from California.

    It always charges a high deposit and much higher rents than what the rent would be to more usual, long-term tenants.

    The owner did not mention any issues with extensive damage, etc, but then he was trying to convince me to turn my property into a short-term rental, so he obviously wouldn't.

    I think if you structure the agreement so as to cover any repairs when they leave, you should be okay. The main thing I personally would be concerned about is having adequate parking for all the trucks that are sure to be there if these are construction workers.

    2Reply
  • Tyler Ansell
    Investor · Tampa, FL · Member since 2015 · 293 posts · 175 votes
    9y

    Check state regs on Unrelated Occupants living in the same dwelling. For me it's max 3.

    2Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Jason Mak The only thing keeping me interested is that all six months and the deposit will be paid up front. Good point on the neighbors, it is a big street and tucked back in a little neighborhood. Not sure how they would like trucks coming and going and parked out front. Thanks

    0Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Shaun M.

    Sounds like a complete nightmare! Sounds like you might have ended up on the good end of that though, what are your plans? Flip, BRRR?

    0Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Account Closed

    What was the name of the company? 

    0Reply
  • Account Closed
    OP
    Investor · Cleveland, OH · Member since 2015 · 150 posts · 58 votes
    9y

    @Steve Babiak

    Thanks for the input! I didn't think about zoning requirements coming into play. 

    1Reply
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