Excellent tenant, but now wants to run a daycare

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Excellent tenant, but now wants to run a daycare

Edmund Mcginn
Aurora, OH · Member since 2018 · 2 posts · 1 vote

I am a new investor of a single family home. After some rehab, we began renting it in August of 2018. So far, so good. We’ve been fortunate as our first tenant experience has been excellent. Young family saving for new home. Rent always on time. Cares for home. Responsible. Nice people.

However, the tenant just asked me if it was okay that they begin operating a daycare of less than 5 kids. His wife cannot work as their youngest is still a few years from kindergarten. So they thought this would be a good way to earn money in the interim.

While I know it will be run safely and professionally by the wife, clearly there are concerns over liability, wear and tear, potential neighbor issues, etc...

Only because I know their character, I would like to make this work somehow. They have been very transparent with me and are offering to do what is necessary to make this happen.

But I also need to protect myself and my investment.

Any advice would be greatly appreciated.

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Nathan GesnerBusiness Member
Moderator
Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
7y

No.

You claim to know their character but you honestly don't. You know her as a renter but you don't know her as a daycare provider or business owner. Her character can completely change when attempting to run a business. You also have to consider the liability it opens you up to and the additional wear-and-tear it would place on your home.

Stick with what you know and what you have.

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  • Nathan GesnerBusiness Member
    Moderator
    Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes
    7y

    No.

    You claim to know their character but you honestly don't. You know her as a renter but you don't know her as a daycare provider or business owner. Her character can completely change when attempting to run a business. You also have to consider the liability it opens you up to and the additional wear-and-tear it would place on your home.

    Stick with what you know and what you have.

    The DIY Landlord Book4.7243 Reviews
    WebsiteView Page
    5Reply
  • Theresa HarrisPro Member
    Member since 2019 · 15k+ posts · 11k+ votes
    7y

    I doubt your insurance would let your tenants run a business out of the house.

    3Reply
  • Thomas S.
    Member since 2016 · 13k+ posts · 12k+ votes
    7y

    Surprise, your excellent tenants are about to turn the corner and turn into bad tenants and no you do not ever know the "character" of tenants. They are like dogs, they all have the potential to bite.

    You do not ever want a business run out of your rental property, you do not want the liability and you definatly do not want the wear and tear a day care creates. You absolutely do not want to "make this work". I have been asked many time if a "day care" can be set up and have always said no. Way less risk than saying yes.

    Tell them no and if they want out of the lease let them go.

    1Reply
  • Marcia Maynard
    Investor · Vancouver, WA · Member since 2013 · 3k+ posts · 4k+ votes
    7y

    We had a tenant ask for a 6 foot high fence for the backyard. We asked them why and they replied, "So we can get our daycare licensed." We didn't know they had already started up a daycare. We told them we would not be building a fence and they would need to immediately stop the daycare business. They weren't licensed and insured for daycare. Then they backtracked and said they were only "babysitting" some of their friends kids. Either way, extra liability and extra wear and tear.

    If you want to help your tenant set up a business out of your rental property, then you better go in with eyes wide open.

    • Find out what licensing is required in your jurisdiction for this type of business. The health and human services department may have a say, as well as the local city/county planning department, and the fire marshal.
    • Find out what property modifications would be required. How much square footage of play/care area per child. Indoor and outdoor safety considerations.
    • Talk with your insurance broker about proper coverage for you and for their business, especially liability.
    • Consider the impact on the neighbors.... noise, traffic, parking.
    • Consider the extra wear and tear and how you would be compensated.

    You say these tenants are just renting until they have enough in savings to purchase a house of their own. How far away are they from that?  I see you bending over backwards to help them make this happen and then they leave shortly thereafter. Not a win-win.

    2Reply
  • Greg M.
    Rental Property Investor · Los Angeles, CA · Member since 2017 · 2k+ posts · 5k+ votes
    7y

    Them running a Daycare is only slightly more appealing than them running a Meth Lab. Say NO. A very firm "I'll evict your *** in a split second if you try it, no".

    1Reply
  • Account Closed
    Specialist · Durham, NC · Member since 2018 · 34 posts · 3 votes
    7y

    @Edmund Mcginn to avoid telling them no and damaging the relationship, you could give them an option. Tell them for the additional expenses and liability it will cost X amount per month to run the daycare. And let them decide not to do it.

    1Reply
  • Mike McCarthy
    Investor · Philadelphia, PA · Member since 2016 · 2k+ posts · 1k+ votes
    7y

    Your liability insurance probably doesn’t cover a business/daycare. Theirs probably doesn’t either. Plus, what would your locale say about running a business in a residentially zones property?

    Having 5/10 kids running around your property sounds like a lot of extra wear and tear.

    What happens if a kid gets hurt? Do you want to be involved?

    I wouldn’t allow it. Businesses aren’t allowed in my lease.

    0Reply
  • Edmund Mcginn
    OP
    Aurora, OH · Member since 2018 · 2 posts · 1 vote
    7y

    Thank you for the responses everyone!

    I appreciate the thoughtful insights. 

    Spoke to my insurance agent. From what I understand, they will not need a license (as it will be under 5 kids) and my insurance company believes the umbrella would be sufficient. 

    Nevertheless....I agree with many of your assessments and do not want to take on the additional risks. It’s too bad, but the wear and tear, plus liability, are not something I can accept. 

    Thank you again for your responses. appreciared!

    1Reply
  • Brandon Ingegneri
    Rental Property Investor · Providence, RI · Member since 2015 · 1k+ posts · 594 votes
    7y

    Do not do it. Plain and simple. 

    2Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    The way I see it if there’s anybody that’s going to be making the money in that property it’s going to be me . I’m the one who has the taxes insurance liability and mortgage not the tenant . Tell her get an extra job at the local 7-11 if she is that hard up for extra money 

    1Reply
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