Tenant runs a daycare from rental property.

Sioux City, IA · Member since 2015 · 6 posts · 1 vote

I have a potential tenant, single mother who plans to run her daycare business at our rental property. She has up to 5 children on any given day all under the age of 4yrs old. What are the pros vs. cons?

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Pavel Shemyakin

Rental Property Investor · CA · Member since 2018 · 135 posts · 174 votes

A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or non-profit organizations that operate to fulfill a charitable mission or further a social cause.

The term business also refers to the organized efforts and activities of individuals to produce and sell goods and services for profit. Businesses range in scale from a sole proprietorship to an international corporation. Several lines of theory are engaged with understanding business administration including organizational behavior, organization theory, and strategic management.

@Paulette Na Claiming that a daycare with 8-14 kids is not a business in NONSENSE! Pure, fu****g NONSENSE! Maybe its not a successful business, but a business non the less.

What a pile of garbage.

Dont you know..... every business school, every guru, every mentor always teaches: "The best way to succeed in life is to LIE and be UNETHICAL by misrepresenting yourself to clients/partners/landlords."

If you want to run a day care, by all means. Go rent a commercial property and do your thing. To echo @Janice G., i would not want my kids in the hands of liars.

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Cara Lonsdale
Realtor and Investor · Scottsdale, AZ · Member since 2017 · 1k+ posts · 1k+ votes
8y
You will have to repaint all the interior walls, and probably replace all the flooring, unless it's tile or something hardy.
And probably the blinds will need to be replaced.
And it will probably smell like a romper room in there. lol
Check with your CC&Rs to make sure that she will be allowed to run a business in a residence. There are some restrictions that prohibit a business that would require extra cars (parking issues) and noise (screaming children).
Also, you may want to check with your homeowner's insurance to make sure that you will still be covered for any issues resulting in her running a business out of your house. THe liability you are adding to your plate by doing this is a little more than I would want to take on.
Please tell me the property doesn't have a pool....at least that.
1 Reply
Daniel F. Harb
ARRT, RT(R) / Rental Property Investor · Newport Beach, CA · Member since 2017 · 360 posts · 242 votes
8y
The good news, @Brenda Budzinski, is you have this information before you make a tenancy decision.
That sounds like some pretty heavy liability to me.
Best! $$$
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Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
Most bylaws do not allow the operation of a business out of a residence. My lease does not allow tenants to operate a business from my rental property.
It will add far too much wear and tear and likely cause issues with neighbours. There is no reason to accept applicants that require any special considerations. If someone wants to operate a day care they should buy their own home.
No reason to take on the additional liability unless they are your last option on earth. A vacant unit would be less costly and lower risk.
1 Reply
Joe Ventresco
Real Estate Agent · Mantua, OH · Member since 2016 · 13 posts · 1 vote
8y
My lease also has a provision that you can’t run a business out of the home. I agree with Thomas and the others wear and tear plus issues with neighbors makes this tenant no go unless they are a last option out there. Good luck.
0 Reply
Paul Bowers
Real Estate Investor · Macedon, NY · Member since 2016 · 251 posts · 290 votes
8y
@Brenda Budzinski, you asked for the pros and cons. I would ask you the same exact question, what do you see as the pro to you renting to her versus someone that doesn't intend to run a daycare in your property?
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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
8y
@Brenda Budzinski , I see ZERO Pros for you, the property owner. I see only Cons, mainly stemming from liability issues.
I had someone who wanted to run a daycare out of my rental, too. I said no, and never regretted my decision. Too many potential issues.
[email protected]Podcast Guest on Show #261
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Account Closed
Investor · Princeton, TX · Member since 2014 · 1k+ posts · 1k+ votes
8y
@Brenda Budzinski I will try to be a little more positive than some of the others but I am sure it will have the same result.
Normally when someone plans to run a business out of a home for example... transitional housing... sober living... assisted living... habilitation... they pay rents that are at least twice as high as other tenants. They also have business insurance that would cover most issues.
I have family members in the daycare business. The standard is an insurance policy with a $2,000,000 per child per incident max. That policy is just if the owner or employees did something that was a problem. There is often a separate policy to cover personal injury claims where kids simply get hurt, which if you have kids you know happens.
Renting the house out for this purpose would certainly violate the terms of any mortgage you have.
If all those issues can be dealt with then the pro would be your rent would be at least twice the standard rent for a rent house.
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Peter MacKercherBusiness Member
Residential Real Estate Broker · Saint Louis, MO · Member since 2014 · 1k+ posts · 567 votes
8y
Like the others have said, this is a large amount of liability to take on given that the tenant's use of the property is likely to be pretty extreme. You'd have to Considerably raise rents to offset that, if you're even in a legal position to do so (insurance as a start, and do you have a lease that's legal for this sort of tenant?). This is probably a non-starter and you'd have an easier time with a standard tenancy.
[email protected]
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John Mocker
Insurance Agent · Norwalk, CT · Member since 2016 · 2k+ posts · 1k+ votes
8y
Brenda,
I would suggest contacting your Insurance agent and assessing the impact of a daycare business on your coverage and rates. We represent over 2 dozen Insurance companies and none will allow for a daycare business. Even though this is a rental property I would guess that you will run into the same issue. You could seek out a commercial Insurance policy for the building. The number of companies that would write it are limited and the premium will be higher than your current policy and possibly much higher. If you do allow this, I would strongly advise that you review the lease with an attorney and make sure that it includes the necessary clauses to require them to have proper coverage for the business. Also, be sure to get copies of the policy. Some possible things to require are:
- Have tenant name you as an additional insured
- require 30 day notice of cancellation
- include the wording that if they lapse coverage you can secure coverage at their expense
Other possible clauses that the Attorney may suggest are:
- waiver of subrogation (their company can not come back after you to recover a claim they paid out)
- primary and non-contributory (the tenants policy is primary in a loss)
Things you should check out include:
- fire code requirements for that type of business
(ie. fire doors, hardwired smoke detectors, extinguishers, etc.)
- disabled access requirements
- fencing requirments
I went through this with someone contemplating allowing a full day care on the first floor of a two family and they determined that the cost to make the building compliant outweighed the additional rent. Hope this helps
1 Reply
Thomas S.
Member since 2016 · 13k+ posts · 12k+ votes
8y
The purpose of screening applicants is to find reasons to reject their application. A day care is more than adequate reason to reject.
0 Reply
Paulette Na
Member since 2019 · 1 post · 2 votes
7y
OMGGGGGGGGGG
All of you people are wrong.
First of all a license of 8 children is not considered a “ BUSINESS “ at a home.
A daycare for 8 - 14 kids is not considered a business!!!
A business would be a daycare center that means the whole entire house would be a daycare center without any people living there. For 20+ kids
And if you as a landlord don’t approve the license to a person. Legally they can run their daycare with 6 kids. Because the licensing department will approve.
Your insurance doesn’t cover anything, you will not get in trouble or won’t go to jail if the person running the daycare has any trouble with anything BECAUSE THE LICENSE IS UNDER THEIR NAME not yours!
The house will not smell like nothing and the floors won’t need to be replaced or the paint and blindfolds. They are kids not animals.
I am 25 years old and I run 2 preschools.
And for this type of information other landlords won’t rent houses because you don’t read and find out first.
4 Reply
Jane H.
Member since 2018 · 32 posts · 1 vote
7y
Paulette Na. (and others). For Landlords who live in CA, the shocker is Tenants can move into your home, claim to be employed outside the home, then just apply for and receive a daycare License and turn YOUR rental property into THEIR daycare. All they are required to do is give the LL a 30-day NOTICE (not a request for permission - literally, just TELL you what they are going to do in the home). Isn't that nice? I am assuming Ms. Na 1) If you are running daycares in rental units, you LET THE LANDLORDS KNOW first? I hope so. 2) You do not own your own properties at this time. How would you feel if you did, and someone took them over, doing what they wanted (whether or not it is a needed service), and you had no power to say no? If people are determined to be daycare operators, how about pooling your resources with others and find a location to open your daycare? Like others do if they want to run a business and need a location. This is truly in the same vein as Donald Trump deciding to steal people's land from them so he can build his insane Wall. Eminent Domain from Tenants who do not even have to ask your permission. And when a LL rents out their home to people who claim to work outside the home, this means you expect 8 hrs/day of LESS wear and tear. If these same people suddenly bring in 6-8 kids, you now have 8 hours/day of MORE wear and tear than bargained for. Is that a moral thing to do? Most LL's try to get a feel for how much expense they are going to incur. And more people in the home than presented IS an issue. Now we may have to give up OUR family business because of what has been brought down on us. I hope you will see why (at least in CA) Landlords are tearing their hair out.
0 Reply
Ryan Floor
Member since 2019 · 1 post · 0 votes
7y
This is all fear mongering, you just need to make sure you are dealing with a experienced & good person. All you need to do is up the deposit, make sure they have ((((DAY CARE INSURANCE)))) & you are FINE!! & can charge WAY more, because given you know they will be having up to 10-16(tops) kids @ $20-$60 a day, you know they can afford the rent. It’s a premium renter, not a liability so long as they get Day Care insurance ($30/mo)....
I get people want to be conservative & stay in the claims position, but the advice here seems myopic & short sighted in this issue. Home day cares are better than centers & positive childhoods shape the future. My Girlfriends last landlord exclusivly looked for day care providers to rent to, charges like $5000/mo in the Bay Area for a 3br bungalow from the 70s.
Child Day Cares are Great Renters on multiple lvls.
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Janice G.
Southern CA · Member since 2018 · 1 post · 1 vote
7y
Ryan Floor....Am curious if you reside in California. The Tenants we are dealing with snuck this in on us, knowing full well what they were planning on doing. In CA, Landlords have to just accept this. And the Tenants have an option where they can get each parent to sign off re: the providers having any kind of insurance! There is a reason people try to be sneaky about what they are doing. If this was a win-win, why weren't these people upfront in the 1st place? We are doing what we can now, but are very concerned. Hope anyone in California who is a Landlord looks very closely at this possibility before accepting potential Tenants. The Lease may say "no business allowed", but CA views Daycares as a "service'. So local zoning rules and the lease you worked hard to make airtight are useless. And if Tenants accuse you of discriminating against their Daycare in your property, you, the Landlord are the bad guy, per State regulations. The dishonesty in this case is what really alarms me. As a parent, I would not want my child being in the care of someone who was a known liar.
1 Reply
Greg M.
Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
7y
I feel like I'm in the Twilight Zone reading these last 4 posts. I feel like this is another Vice set-up so they can run a story about the worst advice ever given on the forums.

0 Reply
Evan Brookman
Nashville · Member since 2019 · 110 posts · 23 votes
7y
Not sure about pros but I feel like it will only bring you cons.
0 Reply
Theresa HarrisPro Member
Member since 2019 · 15k+ posts · 11k+ votes
7y
Originally posted by @Janice G.:
Ryan Floor....Am curious if you reside in California. The Tenants we are dealing with snuck this in on us, knowing full well what they were planning on doing. In CA, Landlords have to just accept this. And the Tenants have an option where they can get each parent to sign off re: the providers having any kind of insurance! There is a reason people try to be sneaky about what they are doing. If this was a win-win, why weren't these people upfront in the 1st place? We are doing what we can now, but are very concerned. Hope anyone in California who is a Landlord looks very closely at this possibility before accepting potential Tenants. The Lease may say "no business allowed", but CA views Daycares as a "service'. So local zoning rules and the lease you worked hard to make airtight are useless. And if Tenants accuse you of discriminating against their Daycare in your property, you, the Landlord are the bad guy, per State regulations. The dishonesty in this case is what really alarms me. As a parent, I would not want my child being in the care of someone who was a known liar.

Talk to your insurance provider. If they won't insure your place because the tenants are running a day care, there is no way they can operate the business there.
0 Reply
Brent Paul
Rental Property Investor · Shakopee, MN · Member since 2015 · 985 posts · 374 votes
7y
Definitely check with your insurance company. Having had kids of my own I can say you will definitely have more wear and tear on the walls, floors, doors, etc
0 Reply
Pavel Shemyakin
Rental Property Investor · CA · Member since 2018 · 135 posts · 174 votes
7y
A business is defined as an organization or enterprising entity engaged in commercial, industrial, or professional activities. Businesses can be for-profit entities or non-profit organizations that operate to fulfill a charitable mission or further a social cause.

The term business also refers to the organized efforts and activities of individuals to produce and sell goods and services for profit. Businesses range in scale from a sole proprietorship to an international corporation. Several lines of theory are engaged with understanding business administration including organizational behavior, organization theory, and strategic management.

@Paulette Na Claiming that a daycare with 8-14 kids is not a business in NONSENSE! Pure, fu****g NONSENSE! Maybe its not a successful business, but a business non the less.

What a pile of garbage.

Dont you know..... every business school, every guru, every mentor always teaches: "The best way to succeed in life is to LIE and be UNETHICAL by misrepresenting yourself to clients/partners/landlords."

If you want to run a day care, by all means. Go rent a commercial property and do your thing. To echo @Janice G., i would not want my kids in the hands of liars.

2 Reply
Amit M.
Rental Property Investor · San Francisco, CA · Member since 2013 · 1k+ posts · 1k+ votes
7y
pass
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1word
0 Reply
Wendy Llanos
Member since 2022 · 1 post · 0 votes
4y
Quote from @Paulette Na:

OMGGGGGGGGGG
All of you people are wrong.
First of all a license of 8 children is not considered a “ BUSINESS “ at a home.
A daycare for 8 - 14 kids is not considered a business!!!
A business would be a daycare center that means the whole entire house would be a daycare center without any people living there. For 20+ kids
And if you as a landlord don’t approve the license to a person. Legally they can run their daycare with 6 kids. Because the licensing department will approve.
Your insurance doesn’t cover anything, you will not get in trouble or won’t go to jail if the person running the daycare has any trouble with anything BECAUSE THE LICENSE IS UNDER THEIR NAME not yours!
The house will not smell like nothing and the floors won’t need to be replaced or the paint and blindfolds. They are kids not animals.
I am 25 years old and I run 2 preschools.
And for this type of information other landlords won’t rent houses because you don’t read and find out first.
I love your answer, they all forget they were children, these people talk about children as if they would be animals.
I want to start my daycare, I would appreciate any information since I am a tenant.
0 Reply
Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
4y
Quote from @Wendy Llanos:
I love your answer, they all forget they were children, these people talk about children as if they would be animals.
I want to start my daycare, I would appreciate any information since I am a tenant.

I manage 400 rentals and can confirm children will generally cause more damage in rentals than animals.

The question was asked from the perspective of a Landlord, not a 24-year-old running a daycare. Additional children will result in additional wear-and-tear. It does expose the Landlord to liability. It may be in violation of the zoning or HOA rules. There is no potential upside for the Landlord.

When an individual offers a service in exchange for money, that is the very definition of "business."

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Andy WebbPro Member
Rental Property Investor · Carrollton, TX · Member since 2013 · 750 posts · 538 votes
4y
Sounds like a HUGE liability to me. We do not allow business operations at our rental properties.
0 Reply
Katrina Walker
Member since 2022 · 1 post · 0 votes
4y
I am living in a nightmare. My landlord let the tenant downstairs open a daycare facility. And she has taken over the whole property. Ans has put up wooden gates that are latched. One is at the end of my stairs . She get upset if I don't shut it when I leave for work. The yard is totally a mess. And I have no rights at all. She also has a big dog in the back yard that tries to attract anyone that comes through the gate including me. I don't no what to do.
0 Reply
Nitin Jaiman
Member since 2023 · 1 post · 0 votes
3y
Quote from @Paulette Na:

OMGGGGGGGGGG
All of you people are wrong.
First of all a license of 8 children is not considered a “ BUSINESS “ at a home.
A daycare for 8 - 14 kids is not considered a business!!!
A business would be a daycare center that means the whole entire house would be a daycare center without any people living there. For 20+ kids
And if you as a landlord don’t approve the license to a person. Legally they can run their daycare with 6 kids. Because the licensing department will approve.
Your insurance doesn’t cover anything, you will not get in trouble or won’t go to jail if the person running the daycare has any trouble with anything BECAUSE THE LICENSE IS UNDER THEIR NAME not yours!
The house will not smell like nothing and the floors won’t need to be replaced or the paint and blindfolds. They are kids not animals.
I am 25 years old and I run 2 preschools.
And for this type of information other landlords won’t rent houses because you don’t read and find out first.

This is the correct answer. I can't believe so many people are wrong here. Onto the insurance. AFAIK, daycare licensee needs to get an insurance and the house owner has nothing to do with it.
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