My Tenant Wants to Rent my Unit on Airbnb. Should I allow this?

59 Replies

Hi Everyone,

I have a potential tenant who wants to rent one of my units for over asking, but he wants to list it on Airbnb. He was up front with me when he came to look at the apartment -- completely honest, fully transparent, and answered all of my questions about the whole thing. He is a general contractor who has a company set up specifically for this purpose. He plans to have a full time maintenance person and a cleaning crew (he will be solely responsible for managing the entire Airbnb process), and he has plenty of income to cover the rent himself should it stay vacant. That said, I am still quite wary of the situation -- mainly because I have never done this so I don't know who will be coming in and out of the property (and frankly don't have much say over it either), and because there is much added liability. Additionally, I have a full time tenant in the other unit in the duplex, so I am concerned about keeping her happy (conversely, it's my property and I have a right to do what I want with it). On the other hand, this might be a great opportunity to have a steady stream of rental income above market value (I could start with a short term lease and see how it goes) and it could provide me the opportunity to work with this guy on other properties as well, resulting in more rental income. He also offered to split some of the profits with me, so I am really having a hard time deciding.

Has anyone else out there done this with a tenant? What are the potential pain points or pitfalls? Would you warn me against doing this? Again, I am quite torn here so any advice is welcomed and appreciated.


Thanks in advance!

No.  If you want to do short term rentals, why don't you do it?  

What if someone rents the house to throw a HS graduation party?  What if hookers rent it out to service johns?  That is your property.  If he wants to rent out a place on Airbnb, let him buy a place and take the risk on his own house with his own money.  

@Gerry Magrini this is a known business model. I don't do it but if I had a property in a suitable setting and if the partner had record of success, was reputable and had money-why not consider it? Pitfalls would be; city rules against STR, partner has no money and no track record etc. Do some searches here and on the web. All the best!

It makes no sense to rent to someone who is going to do short-term rentals. If short-term rentals can make more money in your area, do it yourself. You are offloading responsibility to a tenant to take owner care with your property and letting in multiple renters that you have no say over. It would be a terrible idea.

Seems like a mixed reaction so far. In my opinion, it is definitely a gamble but what isn't in the world of rental properties? There are some pros from letting a tenant rent your unit on Airbnb:

- You could charge him a higher monthly rent than a long term tenant. 

- The tenant will have incentive to take good care of your unit and regularly clean it.

- If the tenant is making good money off your property, good for him. He also will have more incentive to keep you happy by communicating regularly.

You can benefit from the short term rental market by charging higher monthly rents but you also dont have to deal with the headache of managing a short term rental. 

 

I would price is according to the Airbnb revenue rather than the long term rent price you have set. You can decide on your take on risk but it might not be a bad option for you if you're able to get more rent and not have to deal with it. 

Overall Airbnb is less wear and tear than a LT tenant and there's enough vacancy that you wouldnt pay as much for water and sewer actually. Talk how much experience that person has with Airbnb and how they plan on securing the rent. 

If your city decides to outlaw STR what would you say the odds are you would get any more rent?

If underage kids are drinking at this STR and get hurt what do you think the odds are you'll be sued?

Do you hate your rental’s neighbors and not care if you become a nuisance?

Does your landlord policy cover this kind of rental by a third party?

No thanks. 

We have STRs and LTRs. Our STRs use professional PM. My LTR lease explicit forbids subleasing. This is because if I wanted it to be a hands off STR, I would hire a professional PM who, in this state, must be a licensed RE agent unless an owner of the unit. With the professional PM, there would be training/experience, some liability protection, and the profit would be all mine (the PM gets their cut but all the upside is mine).

What you are in effect doing is using a unlicensed, likely inexperienced PM that basically places all the risk on the owner.  why?

I know a successful RE investor from here (his rentals are in Houston) who allows subleasing of some units for STR. I have asked him why not just hire a professional PM. He has indicated it is because he already has a team there that does not have the experience in STRs. To me this makes no sense as the person doing the STR likely does not have the experience of a professional PM and has no repercussions of any large issues and likely has zero assets. If this investor's team does not have the skills to manage a STR then he can use an outside PM or have his team learn.

In addition, STRs in many areas are in danger of having anti STR regulations in place. You would be also taking on this risk which is fine when you are getting the full financial benefits of the STR but that would not be the case in the scenario the OP described.

I see no advantage to the sublease scenario over hiring a PM to manage the unit for you. If you want to have an STR, hire a professional PM that knows what they are doing, has some responsibility and repercussions for issues (they typically have some assets), and you get all the benefits of the unit being an STR.

Good luck

I personally don't like the idea. You lose control of the property and who's living there. Would you have the proper insurnace? Would he? What if he puts the wrong people in and they trash it? What if it disturbs the neighbors? What if he sucks at managing the AirBnB and he has to shut the whole thing down?

If you want more money, try AirBnB yourself.

I'd be open to it.

Charge higher rent.

Upgrade your insurance.

Require the tenant to add you to theirs.

Use a month to month lease so you can boot them if it isn't working out.

I have no experience but I'm pretty sure air BNB has their own insurance to cover a lot of these what ifs.

The STR will be cleaned a lot more frequently and get less wear and tear than a normal rental.

@Gerry Magrini

Look up the company loftium. They do this across the country. I have one rental in Denver where loftium is the main tenant and pays us the rent, then they find a sub-tenant to live in one portion of the house and they rent out the other section as an airb&b. The lease needs to be Rock solid - especially with regard to maintenance and repairs - but I haven't had one issue with it in the 1.5 yrs we've rented to them. They've taken care of repairs that were related to the str side and we get $250 over market rent. 🤷

@Sean McDonnell

I have one property like this right now and it's been spectacular. It's always spotless, the yard is actually cared for and rent is never late. The tenant has an incentive to keep it nice.

Couldn't I do STR myself? Yes. But then I'd need to worry about managing the cleaners constantly and I don't want that hassle.

Make sure in the lease that airbnb damage/maintenance is covered.

@Gerry Magrini Hi - I'm the one who's renting apartments from landlords. If the guy is legit and has experience and good reviews - there's no huge downside. Ask him to see his existing listings and read the reviews. Things to ask about: 1) his tenant screening process and what does he do to ensure no parties: I request guest IDs, don't allow anyone below 25, don't allow locals and especially careful with 1 night weekend reservations. 2) regulations - are STR actually allowed in your area? Do you need to register? Get a license? If STR is illegal you will be fined 3) I would ask him to get commercial insurance from Proper and add you to it as a beneficiary 4) your LT tenant might indeed not be happy about it. But if everything is going well, you can just give that apartment to the contractor as well :)

@Gerry Magrini I think there are a lot of reasons why you should allow this. This is a very popular business model right now, companies like Locale (they are pretty well known here in TX) and Lyric (who just raised 100 million from airbnb and other investors) are doing this exact thing and making a ton of money. Everyone wins.

If the guy has a successful and professional business model he should have multiple units that he is operating and should be able to reassure you about any of your concerns. Ask him if he does any kind of verification/background checks on who stays in his STRs, (to keep the partiers away), also his price point should be high enough that its an automatic deterrent for those who want to throw a wild party. You can always do a month to month lease with him to see how it goes before making a long term commitment. Definitely make sure he has some kind of insurance that will cover anything that could possible go wrong. Other than that it seems like this is a win if you if you get above market rent without having to manage an STR yourself. I know others have said why not do it yourself, but its a lot of work and if this guy is going to pay you more than you would get with a long term tenant then why not let him do the work. Just make sure he is compliant with whatever regulations your city has for short term rentals.

You said he's a tenant so he's just wanting permission to sublease for a short term while he's gone? Or is there 2 bedrooms and he'll rent the 2nd one? Or is this a deal where he's planning to not live there at all and just rent it out? This last one is the model we are trying to implement. We have been running a STR using a property we own for a year now. It's been great. Now, we are working on getting a rental to add another STR property, but we are not in a position to purchase another property yet.

So if I were you, I'd be asking about the correct insurance. STR insurance is not a normal animal, we get ours from 'Proper Insurance' they provide coverage through Lloyd's of London and they were the only ones who understood our situation where our primary residence is in the same building as our apartment rental. It's not cheap, but it's great coverage, they understand STR's and be sure you are on it as a beneficiary. Additionally, I'd have a month to month lease, or at the very least request to look at other STR listings to see his reviews. Does he have experience? Can he show you he knows what he's doing? According to the reviews, are his units clean and are his guests happy?

If all the above checks out, then I'd think about asking for profit sharing vs just getting the rent amount, profit sharing might just be much more lucrative depending on the property, but look at the seasonality of your area could it drop significantly in the offseason? Then maybe regular rent is the way to go. 

Given the above information, and my last year of experience with Airbnb I'd do it. 

@Gerry Magrini , get answers from investors who have leased their properties, not from people with no experience. Post your question in the retirement plans, Solo 401k forum. Those real estate investors typically lease their properties as IRS regulations make it advantageous to do so.

Thousands of real estate investors lease their properties while requiring insurance in place.

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@Gerry Magrini , you can get 8-10%+ cap rates by leasing your property. I would not go into a profit sharing agreement with a PM company. If they are such good managers they should be able to give you a fixed % rate, with escalators, over the life of the lease. Make them have " skin in the game" by assuming business risk. STVRs are a business not like long term rentals.

Originally posted by @Peter Sanchez :

No.  If you want to do short term rentals, why don't you do it?  

What if someone rents the house to throw a HS graduation party?  What if hookers rent it out to service johns?  That is your property.  If he wants to rent out a place on Airbnb, let him buy a place and take the risk on his own house with his own money.  

Because of all of the pain in the *** things that come with short term rentals.  Such as cleaning, maintenance, listings, etc.  Which he is managing.

Honestly if you collect a security deposit, maybe higher to allow for any damages and he takes care of all these details it's a decent deal.

Just check with your municipality for the legalities of short term rentals in your area.

 

@Gerry Magrini you're basically taking your SFR and turning into a commercial use. Whereas you have 1 tenant now, you will have several. That's higher wear and tear on flooring and plumbing fixtures. Check your insurance and see if rates go up. Who pays utilities? Are STR allowed in your area, and is there licensing required?

Make your decision based on facts. Good luck.

@Gerry Magrini Why not! If he abides by all the rules of your contract with him and signs off on pertinent liability issues you desire, them why not? You have a renter that is steady who pays you regardless if he makes enough from the short-term rentals. I see no problem, especially as you've described him as being competent and keeps his own maintenance guy,etc. Seems like a win-win.

I'd be open to it.

Charge higher rent.

Upgrade your insurance.

Require the tenant to add you to theirs.

Use a month to month lease so you can boot them if it isn't working out.

I have no experience but I'm pretty sure air BNB has their own insurance to cover a lot of these what ifs.

The STR will be cleaned a lot more frequently and get less wear and tear than a normal rental.

+1 for this idea

This is what I would do

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