Tenant running daycare out of rental, is this ok?

[Clare Pitcher]

We have a potential owner who is interested in having us take over management for them. He believes his tenants are operating a daycare out of the rental property. Has anyone run into this before? Advice on how to navigate this would be great!

[Clayton Silva]

It can be fine from a legal perspective if the tenant has all the licensing/certifications and permits necessary to operate.  Outside of this, huge liability issue.  I would also talk to insurance agents and probably an attorney for any other potential liability issues that may arise.  Lastly, financing for that is going to be very difficult if the bank knows it is a day care facility.  Generally speaking, banks are concerned with optics and they worry about worst case.  No bank wants to foreclose on a church, rehab facility, day care, school, etc...so they generally avoid lending on such properties.  If you do not have experience with that, it might be wise to approach with extreme caution or avoid altogether.  Best of luck!