Subletting, also referred to as subleasing, is a very common practice in the real estate industry.
What Is Subletting?
Subletting is when a tenant whose name is on the lease rents out his/her house to another individual.
Every full-time or part-time property manager must understand how leasing and subleasing work for successful property management. So let’s get into the details.
How Does Subletting Work?
To start, let’s get familiar with the terms: The new renter is referred to as the sublessee, while the original renter is referred to as the sublessor. Sublets usually happen when a tenant leaves town to travel or for work, but still wants to live in the same rental property upon returning. They are also common with renters that want to permanently move out before the lease period is up.
However, the concept of a sublease should be distinguished from renting out to a roommate. When subletting, only the original renter’s name is on the lease. However, in a roommate situation, both renters have their names on the lease.
The Pros and Cons of Subletting
While this idea has some benefits for residential property management, it also comes with its own drawbacks.
Pros:
- Rental income continues flowing – If the renter breaks the lease, it could take a long time before the property manager finds a replacement. Subletting increases occupancy rates and minimizes vacancy rates.
- Tenants find the replacement – It is typically not your responsibility as a property manager to find a new renter. This saves you money and time.
- Legal protection – Having a well-written lease agreement is a great way to protect yourself from problems related to subletting. The agreement should clearly outline the responsibility of each party involved, thus ensuring that rent is paid without fail.
Cons:
- New tenant problems – Subletting is tricky, especially for short periods. If you don’t screen new tenants thoroughly, you might end up getting very frustrated.
- Tricks by original tenants – A crafty renter could add a surcharge on top of the rent required behind your back.
- Eviction – If the new tenant breaks the terms of the agreement, the property manager will have to evict them. This could also mean evicting the original tenant and ending up with a vacant, negative cash flow rental property.
Is Subletting Legal?
Subletting laws vary from one state to another. To avoid breaking the law, find out your municipality’s laws regarding subletting. While some jurisdictions leave it to the rental property manager to decide, others have specific guidelines that determine when subletting is allowed or prohibited.
Illegal subletting also happens when the original tenant makes the decision without informing the residential property manager. In such a case, the property manager has grounds to proceed with an eviction.
Related: 9 Things Every Tenancy Agreement Should Include
6 Steps to Subletting a Rental Property Successfully
1. Find out if subletting is allowed
Before doing anything else, find out your state’s or municipal’s laws regarding a sublease. If your jurisdiction has no laws allowing subletting, you could take the matter to court.
In addition, find out if the owner is comfortable with the whole concept of subleasing rental properties. Some residential property owners are not open to the idea of having anyone else besides the authorized tenant living in their house. If the landlord allows you to sublease, be sure to get this permission in writing. In addition, make sure the rental lease agreement contains a clause for subleasing. Here is an example:
‘Tenants are not allowed to transfer this lease, or sublease any section of the property, for any part of the term of this lease without written permission from the landlord or the rental property management company ’.
2. Check with your renter’s insurance company
The renter’s insurance protects your property in the event of a theft or fire. It could also extend to limiting your liability if anyone is injured in your house. Before subleasing, find out if the original tenant’s insurance extends coverage to subtenants. If it does not, subletting might not be a good idea after all.
3. Advertise the rental property
To find tenants quickly for a sublease, a property manager could consider advertising the rental property on sites such as Craigslist, Sublet, or Uloop. This might make things go more smoothly than simply allowing the original tenant to find just anyone on their own.
When posting such adverts, be sure to include as many photos as possible so potential renters can get an idea of the furniture, layout, and size of the space. Make sure the rental property is clean and well-arranged before taking the pictures. You should also mention any distinguishing features that your rental property has such as a gym, swimming pool or children’s play area. If the property is close to malls, parks, train stations, hospitals or schools, mention that as well. Finally, it would also help to mention what kind of tenant you are looking for. For instance, you could specify that your property management business wants to sublease to singles or students.
4. Screen potential subtenants
Screening is one of the most important property manager skills. Once you have found a suitable subtenant, ask them to fill out a form and carry out a thorough screening on them. This could include checking their credit score, employment details, criminal records, eviction reports, and references from previous landlords. You could also arrange an open house where potential subtenants can come and view the rental property. This will make them aware of the rental’s initial condition, and provide proof in the future in case anything gets damaged.
Related: How to Screen Tenants for a Rental Property: 7 Steps
5. Document the condition of the rental property
Having ‘before’ pictures of the rental property before the move-in is a great way of protecting yourself from any problems that might arise from subleasing. Before the subtenant moves in, take as many photos as possible that will show the general condition of the real estate property. Your subtenant should sign on the condition report before being allowed to move in.
6. Sign a sublease agreement
Once you have found the ideal subtenant, create a sublease agreement which will be signed by all the parties involved (including the landlord, original tenant, property manager, and the new subtenant). The sublease agreement should outline details such as who is responsible for paying rent, due dates and late fees, and that the subtenant accepts all the rules of living in your rental property. Make sure your agreement is compliant with the specific subleasing regulations of your state or city.
Related: What’s the Big Deal About a Sublet Agreement?