Subleasing Cheap Rentals for Cash Flow
About three years ago while searching through Craigslist, I found a 3 BR/1BA rambler for rent in Bellevue, WA for way below market value. The owners of the home live in Hawaii and did not even have a lease or ask for a security deposit. We wrote up a simple lease to sign and made sure we would be able to sub-lease it in the future, as we knew we would likely be finding a home for ourselves within a year. Sure enough, we found ourselves a fixer in nearby Kirkland and have been subleasing the rental the last 18 months. Rent is $1,900/month and we are subleasing it for $2,600 ($700 cash flow/month). We did make a few upgrades like painting all walls and cabinets, cleaning up all the trash outside (there was quite a bit), de-mossing the roof, and some landscaping improvements like putting in a path and adding planters. The owners paid for materials and we did the work ourselves. We think we can get close to $3,000/month, but decided not to increase rent on the current tenants this past year. My question is: Is this wrong? We feel a bit of guilt like we are potentially taking advantage of the situation. Or is this a savvy way to generate cash flow?
@Jon Olson I do not think what you are doing it is wrong if the current landlord knows which it sounds like they do. You can decide to raise rents or not if you want to keep the tenants or if you're ok if they leave.
- Conner Olsen with The Moorhead Team
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@Jon Olson Based on what you said, nothing you are doing is wrong as long as the landlord is aware of the situation. I had a family member who did a similar thing with no issues at all. She was signed to a lease with a sub-lease option and her job moved her from Maine to Utah. She was able to find a sub-leaser to take care of the lease payments.
Rental arbitrage is extremely popular for people using places on AirBNB and VRBO for short-term rentals, while I have never heard of someone doing it long-term personally, this model is used around the country to generate cash flow. So overall, as long as the relevant parties know what is going on, looks like a savvy way for cash-flow to me! Good luck in your investment journey!
@Jon Olson, if owner is aware that you are subleasing, nothing wrong in that!
@Conner Olsen @Kaiden Swainamer @Sherief Elbassuoni
Okay, so it sounds like consensus is that it's perfectly acceptable as long as they're aware...but what if they're not?
I'm not proud of how we got to this point, because I consider myself to be a good/honest person mostly, but I guess we were fearing that they would say no, and got greedy with the $700/month cash flow opportunity. As I mentioned, they didn't have a lease for us to sign, and when we wrote it ourselves we didn't include anything stating that we needed to notify them about subletting. I think perhaps we felt better about doing it this way because of the lease and maybe the fact that they're in Hawaii too (unlikely to find out).
I know it's not right, and if I was the owner I wouldn't be happy, so we're feeling that guilt, and now we're kind of caught up in this thing not sure what to do. Either come clean and deal with the consequences or ride it out until the sublease expires and then end things at that point. What do you guys think?
One persons loss is another ones gain anyway while generating money, thats legal and is way of life. They wouldn't be able to do all this and you are doing it for them. delving into morality of the situation, if they knew and agreed without any bit of feeling that they are helpless at this situation, you are not wrong. but if they feel that they are letting you do this because they are helpless and basically you r their only dependable guy to do this, even if you were to give them options and they have no option but to choose what ever you offer, thats not 100% right.
create a win win situation, call them, explain them that you were legally binding, but at this point, you would want them to know that we did something in the term, and you would want to make some decisions with them, which can help both of you. you can become their (unlicensed )property manager & realtor ( for this property and take some commissions while managing the property, if they like it. or do profit sharing.
this post is confusing. You state you made sure you COULD sublease the place, then get hung up on whether the owners know. Listen, if they agreed to let you sublease, or the lease allows subleasing, it doesn't matter if they know. They granted you that right when they signed the lease.
Don't overthink this