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Tenant is subletting on AirBnb, what should I do?
@Account Closed, thank you for the links on AIR B&B stories. There is always liability as a landlord. After reading the stories you linked in your other article it appears none of them would have made the owner of a home liable if his tenant had been using the rental as an AIR B&B. You can always sue anyone for anything, but winning is a different thing. It seems to me that temporary rentals are a pretty big thing now. I understand there are over 1 million places doing this. That is a huge number. I have never done a temporary rental so I am not really qualified to say what the liability truly is, but the little research I have done has shown no great amount. there is insurance available for these rentals, just like for regular rentals.
I do not know what @Victoria C. has for goals on renting her properties. She will have to make the decision that is right for her and her philosophy on her rentals and life in general. Since I have a full time job my goal in renting is to find a quality renter who pays their rent, respects my property, makes my life easier as a landlord. I do not try to maximize the rents I can get, so much as minimize the amounts of headaches I get. My goal after I began getting into real estate was not to make extra money, but to provide retirement income. While my goals have changed over the years, in the beginning it was buy a million dollars of real estate and have other people pay it off for me for when I retire.
If I found out that a renter of mine was running an AIR B&B rental, especially with a 5 star rating, the first thing I would do would be to learn all I could from them. This might be an area that could accelerate my path into retiring from the day job. This might not be the path Victoria wants, and if not fine, but I am always looking for ways to innovate. if I can find a tenant that will pay on time every month, pay me a top dollar for my rental, take great care of the property, I would jump at it. In fact I would probably suggest a joint venture. I am much better at acquiring property than managing them. I would insist that all laws be followed, and that normal precautions are taken. If temporary rentals woek, then great, if not oh well. I just learning new things. best wishes in your investing.
@Jerry W. Of course there always is the chance you may incur a liability when renting property. But think, if a landlord feels it necessary to obtain insurance policy for protection on tenants he did all sorts of screens and background check on, it doesn't seem airbnb makes any such attempt. This could be a fugitive, terrorist or serial who knows what and no way to decipher.
Also, operating a hotel (short term rentals) without a license or enabling such can be an issue in many jurisdictions.
By the way, the concern also is on what airbnb's insurance doesn't cover. According to its site:
The Host Protection Insurance program does not apply to liability arising from (1) Intentional Acts including: (i) Assault and Battery or (ii) Sexual Abuse or Molestation - (by the host or any other insured party), (2) Loss of Earnings, (3) Personal and Advertising Injury, (4) Fungi or Bacteria, (5) Chinese Drywall, (6) Communicable Diseases (7) Acts of Terrorism, (8) Product Liability, (9) Pollution and (10) Asbestos, Lead or Silica.
This is a disturbing list of issues and yes, you can legitimately be sued. Most certainly when you start suggesting or discussing partnering with tenant to benefit from the airbnb venture.
Their policy however does seem to allow landlord to file a claim against host if their tenant were to damage property but there are a ton of issues airbnb just flakes out of and someone will always be stuck footing the bill.
@Account Closed, none of the things you mentioned are covered by any insurance policy I have seen. You are not liable if you unknowingly rent to a criminal. Tort law is basically based on the a few simple principals; duty , breach, damages, and a causal connection between the breach and damages. You could hire a plumber or electrician who turns out to be serial killer or rapist, it doesn't mean you are liable unless you knew and ignored the danger. That is true for rentals as well as temp rentals. I have practiced law for 29 years now and do not see much of an increase in liability from having a temp rental as compared to regular rental. Every criminal out there has rented a property, it doesn't mean the landlord is liable for their criminal acts. The justice department is actually going after landlords who are discriminating against renters who have criminal convictions. I strongly disagree with this but I saw the articles on it. temp rentals are legal in most places, in fact Arizona just signed a law into effect that prohibits towns and counties from prohibiting short term rentals. The real question is whether or not it is your thing. Our local economy has been hit really hard by the drop in oil prices. Any way to get in outside dollars would be a great benefit. To me the biggest downside would be more work, that is where a partner who runs things well would be helpful. I had a partner in my real estate investing for nearly 20 years, yes he could have been a problem, but it was a beneficial relationship for both of us. You cannot just assume the worst or you will never chose to do anything. By all means do your due diligence and make sure you comply with the local laws, but always looks for the ways to make more with less.
@Jerry W. Its like car insurance, there are those that try to get only the absolute minimum insurance required; that doesn't mean you are off the hook if insufficient to cover some types of liabilities that may result. You are running a business... regardless of what insurance company covers, it has nothing to do with your actual liabilities... thats a jury decision. The insurance company also doesn't decide what's actionable or not. Just what they will or won't cover.
Some landlord policies offer loss of income coverage which airbnb doesn't. And by the way, if a tenant gets sick or suffers injury due to a property condition mold, toxic issues etc or worse,
they can still drag you to court. Here is an example: http://www.allpropertymanagement.com/blog/2013/01/...
Just because insurance doesn't cover an issue doesn't mean you can't be sued for it or that jury will side with insurance co.
The law does require proving negligence in most cases but if someone is claiming emotional distress for instance, your liability is not always hinged on whether or not you were negligent. With the airbnb model, I see all sorts of loop holes in establishing how the landlords negligence resulted in a preventable outcome. In fact, it is almost reckless in some ways. The landlords duty of care is gradually encompassing not just tenant but the public at large. Especially with sex offenders, and habitual offenders in certain types of crimes.
There is a reason why the entire community usually gets notice in the mail when a sex offender is moving into where you live. If someone has a habit of catching a robbery case or raping just about
about every other year, is there a pattern? Is there a probability they could commit a similar crime either on your business partner/tenant or others living next door?
The airbnb model exposes the landlord considerably. I am not talking about cases where someone gets assaulted or robbed and then tries to sue landlord because property wasn't well lit or
because they didn't have security staff. There are some real dangers with the model.
Also hiring a plumber or whoever to do work at the property is a very different matter. In all likelihood they are they for a few hours and probably with some sort of supervision and probably during business hours. Totally different with renting to an unknown person who may be
living/sleeping in the same house as the tenant and tenant's kids/family for days, weeks or months and throughout the night in some cases when they are asleep. Hello!
I'm a landlord and an AirBnB host.
My long term tenant pays on time doesn't break any rules but doesn't keep the place in tip top condition. I know because I have to go in to fix things...
My short term rental has great reviews and always kept in tip top condition. The only damage from the turnarounds were to my high quality towels...
I wouldn't mind JV-ing with a hardworking tenant so my place is kept in great condition, I'll have no headaches and I get better yield. That's a win-win-win.
Originally posted by @Victoria C.:
Thanks all for the input! I notified my property manager and they sent in a warning notice right away, and the tenant agreed to stop and take down the posting and continue to finish out their lease as their primary residence. I saw on their listing that they have several other AirBnbs and have gotten great reviews, so this isn't their first rodeo. And to be honest, I've never seen my house look so good! They had 18 reviews just in the month of June alone, all 5 star ratings and majority of the reviews mentioned how clean it was. The house is not in a vacation area, but probably used for work conferences or to visit family... it was tempting to do an addendum to the contract for 25% of the profit and have the tenant take all the risk, but at the same time, I work 10+ hour days, and really don't have the bandwidth to keep track. But looking at the numbers, it would have been nice. This is the first property I bought and house hacked, and its kind of nice to see all the great input from the people that stayed there. They made it really nice, so I was a bit torn. If they were upfront and honest the first go round, it probably would have been a different story.
Thanks again for everyone's input! I'm quoting my previous response since it looks like some have missed it. I tend to agree with @Jerry W. and his point of view on being able to profit and learn from them. However, I do work a lot of hours and have no time to really get into it. I never thought I would do AirBnB; however, I did listen to one of the BP podcasts and heard about the positive aspects of it, and so when this tenant's side business came about, it got my wheels turning.
Also, another factor is that this is the first property I ever bought (Pre-BP) without the intention of getting much positive cashflow, but just to buy and become a homeowner with the possibility of renting it out. It turns out that the rent just clears the mortgage, water/utilities and property management costs, so it's paying for itself, but no positive cashflow. I'm holding onto it for equity and possibly moving back to it. The idea of making profit is very tempting to me when I see it being AirBnB'd; however, after a few days of thinking about it, I'm happy with a stable long term renter, with the least amount of headaches. Also, I do care about the neighborhood and would not like it being an AirBnB. After this tenant's lease is up, I plan to raise the rent and possibly be my own property manager. Right now, I have no contact with the tenant; it is all through the pm, and they handled it pretty well as far as notifying them that it's against the contract and would require a certified letter stating they will no longer sublet. The tentant was very compliant and took the listing off that same morning. As far as my fears of having a horrible tenant as a first time landlord, I would say this isn't a bad situation to be in. Thanks all! I appreciate all the info.
@Victoria C. This is what you and/or your tenant would have to comply with, in order to legally get into short term rentals in Sacramento. The requirements vary per city.
What usually happens in most cases is that the tenant doesn't bother to comply with any of these nor does airBNB try to ensure the tenant is in compliance with city.
Regardless, the landlord is who gets fined for the violations, despite the fact that the tenant and airBNB were the profiting entities.
This is what is also causing landlords to sue tenants in some cases and city suing some landlord using airBNB themselves without getting compliant with the city.
These are other articles on the matter
@Account Closed Great points and thank you for those articles! A $5,000 permit fee to operate an AirBnb makes a huge difference. I'm glad to see the city has taken that stance.
@Victoria C., the main thing I would bring attention to as well would be what
@Patrick Senas pointed out about liability. A co-venture is cool and you need to make sure that the legislative environment in your city/state has a friendly attitude toward short-term rentals. If the city is cool, state is cool and the building allows it, neighbors dont have much say unless for reason of being loud etc.
good luck
@Victoria C. I just thought I would update you. I started a vacation rental of my own. It is far too early to say if it will profit or not, but I really like it. While it has only been a few months I have never received a single complaint from any neighbors, I have never had anyone trash the place, in fact some clean it very well before leaving. I have visited personally with several short term renters, most are fishermen, but not all. Getting special short term renter insurance was less than $100 per month more than my regular landlord policy. My area is not a destination area like a town on the coast or say Jackson WY, but I have high hopes. I see much less wear than in my regular rental units. I have kept my prices extremely low in order to build up regular customers. All of my furnishings are very nice, but second hand. My total cost of outfitting the place so far is under $1,000. The worst problem I have had so far was a group of fishermen who stayed several days decided to help me out by washing all the towels they used. I use two very distinct colors of towels, but now have three colors. The two original colors and the third color created by washing two colors of towels together in warm water. All in all I really enjoy it, but I am very much a people person. Good luck in your endeavors.
The amount of vitriol against a tenant AirBnB'ing a property that appears at the beginning of this thread is frankly shocking! I'm chalking it up to fear and ignorance of the subject.
AirBnB has built-in Host and Landlord protection insurance up to $1M:
https://www.airbnb.com/host-protection-insurance
A tenant who is listing on AirBnB is going to take "pride-of-ownership" level care (or better) of the property. It is in their own best interest to do so. Improving the property is good for their business. Surely, we can all understand the power of motivation behind improving one's business?
For those highly concerned with the safety (and potential liability) of short-term renters on the property, it is fairly cheap and easy to add a basic security system. Keypad locks, a camera doorbell, and a "panic button" ought to be enough to protect against some of the more horrifying things that someone suggested could happen.
As long as they aren't violating any local codes, and they are willing to be honest with you about it in the future, I don't see any reason to "drop the hammer" on the young entrepreneur. For example, if they partitioned off rooms in a way that violates the fire code, that would need to be addressed. If the neighborhood has rules about short-term rentals, it would be good to know them and discuss them with the tenant to be certain that they know and abide by them as well.
AirBnB has accountability and protection systems in place for renters, hosts, and landlords. It is a very well thought out, and brilliantly executed, business platform.
I am not in favor of nickel-and-dime'ing the tenant as punitive action. As a 5 star host, they can easily move their successful business to a new location. In which case, you have just driven out an excellent tenant who keeps the properties they rent in tip-top shape, pays on time, and isn't dependent on a W-2 job to pay your rent. Who could ask for a better tenant than that? From reading the thread, I take it the only real problem was the lack of forthright communication about what they were doing with the property. Yes? The tenant probably kept it under their hat, precisely because they have seen the kind of toxic reactions which appeared in a flood at the beginning of this discussion. Now that the cat is out of the bag, there is an opportunity for growth on both sides.
Good luck in all your endeavors. Embrace the learning experience.
Liz
@Victoria C. Interesting! It sound like you are interested in the business aspects of airbnb. . Does the tenant still live there? You mentioned you don't have the time to manage but somewhat are interested and it made you feel good about all the reviews the tenant received. We rent out properties for airbnb WITH the homeowners consent. Sacramento allow short term rentals, but you need to have proper license from the city, which we have. Most of out clients are business professionals, traveling nurses, tech companies, ets. We are also branching out to other areas. Pm if you have questions.
Hey @Victoria C. & All -
Wow - I'm a bit surprised at how polar the responses have been in opposition to the AirBnB. I tend to think that the AirBnb exposes you to certain liabilities as mentioned in previous comments but this could be resolved with an addendum to the existing lease agreements.
Ultimately, being that they had already (successfully) operated their AirBnb business without harm to your home (AirBnb's obviously must be kept in much better condition than a personal residence). The ABnb income indirectly benefits you in providing a long-term tenant with a consistent source of income to pay you rent.
My opinion would be:
- Mention to the residents that they broke the lease but you understand. Agree to sign an addendum to prevent exposure to liability
- Continue to allow them to do this under the belief that the home is kept in good shape (only you could determine this)
- Continue you increase rents in accordance with the market (these increases don't have a significant impact of a business' bottom line whereas a traditional, long-term tenant would freak).
This ultimately becomes a partnership between yourself and the tenant without the direct compensation. In all honesty, I wish my tenants were savvy and found ways to hack their rents like this.
Curious to hear everyone's thoughts?
Be aware and be cautious. That is the straight answer to your question.
Reading through some of the posts, there is a remarkable amount of information (some from lawyers) that is misleading. Last night, at 12:30am the police called my tenant (I am a 20 year real estate veteran, my wife is an attorney), and the police were unable to get a response from my tenant so the called the condominium manager.
My "tenant" has been renting our unit in a large condominium since last spring. The police and property manager tell me that the "tenant" has been using AirBnB to lease out my unit.
Any lawyer or real estate investor who suggests a profit sharing, or JV is not thinking clearly. To AirBnB in my city (granted, Miami probably gets more tourist and transient traffic than Thermopolis, Wyoming...probably), Landlords are required to have fire safety systems, those little maps on the back of the door directing people to fire exits, etc. And IMPORTANTLY, they require an 11% bed tax.
If the "tenant" is sub-leasing as an AirB&B, are they collecting that tax? If not, the Gov't puts a lien on the property. So the 1-yr lease is up, and the "tenant" has made a killing. Now I get my apartment back...the Gov't has just caught up on their paperwork and discovers that there are Occupational Licenses, Resort Taxes, etc that are due. The "tenant" is long gone,and I still own the property and the obligation to deal with all these liens and all this hassle.
Bottom line. If your shady tenant didn't disclose what they are doing upfront, chances are that they are too sloppy to have proper insurance, proper compliance with local regulations, and proper tax reporting systems. Wear and tear are the very least of your worries.
@Patrick Senas
I recommend to ask the insurance agent to add STR (short term rentel ) insurance, and also to add an ambrela policy anyway to the coverage.
I pay now $500 a year for $1,000,000 in coverage.
Hey, so I have a prospective tenant who wants to do airbnb out of a property of mine. Overall after analyzing pros and cons I'm open to the idea of it. They would keep the property cleaned etc. But what I'm concerned about is liability. If there is a claim involving someone in the airbnb I'd assume the airbnb insurance would kick in and the tenant would be responsible. But if there is just a normal problem with the property that requires an insurance claim would I be in jeopardy of not being able to make it due to the fact my tenants were doing airbnb?
Anyone still looking at this? Check out https://www.airbnb.com/e/realestate where Airbnb automatically sends you a cut of your tenant's Airbnb earnings. Easy peasy? Maybe!