Author Topic: Hassle-Free Landlording Startup Idea  (Read 3496 times)

bakeplowsow

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Hassle-Free Landlording Startup Idea
« on: April 27, 2016, 05:41:20 PM »
Hi MMM community,

I have a startup idea that I wanted to run by this community of landlords. It seems to me that there are two main pain points that landlords deal with every day:

1. Turnover. Landlords are really concerned about consistent income streams. Having a tenant move out and having the hassle of replacing them and not knowing how long it will take to find a new tenant is a source of anxiety. You can lose a lot of income trying to fill a property, and property management companies charge extra every time they have to find a new tenant.

2. Maintenance. Being a part-time landlord involves a lot of maintenance hassles. You either hire a handyman or become one yourself but maybe you aren't excited about spending your weekends plunging toilets.

The startup idea is to rent apartments or houses from landlords and offer an upfront monthly rent. Then, this company would go out and find a tenant, take care of maintenance going forward, etc. The landlords get a consistent income stream, and the company takes on the risk of bad tenants or maintenance issues. Instead of charging a % of rent fee, like most property management companies, this company would earn the difference between what they pay the landlord and what they charge the tenant.

What do you guys think? Do you think this idea could work? Am I right about what landlords care about, or are there other pain points that are more important?

Thanks!

bop

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Re: Hassle-Free Landlording Startup Idea
« Reply #1 on: April 27, 2016, 07:05:14 PM »
I have heard of a site called Flatbook that pays folks an upfront fee when they are going to be away from their apartment (say for two or three months, e.g., in the summer), and then rents out the apartment for a markup on AirBnB or other sites.  That's not what you were proposing (since Flatbook is for short-term rentals and I believe you were thinking of long-term rentals), but there is a similarity. 

J Boogie

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Re: Hassle-Free Landlording Startup Idea
« Reply #2 on: April 28, 2016, 09:34:06 AM »
I think Renter's Warehouse used to offer guaranteed monthly income, but it seems like they've transitioned to more traditional property management services.  I think they offer some insurance premiums that protect landlords from things like big repairs or bad tenants though.  But it looks like they don't offer insurance against vacancy like they did when they started out.


Your approach definitely has an appeal - especially to those who have retired and are wary of the stock market and have a distaste for the lame returns of bonds and t notes.

I think you'll find it challenging to make owner-style decisions when you're not the owner.  You'll have to sign your customers up for some long contracts to ensure you don't buy a new furnace for some landlord that decides he's gonna cancel your services the next day.

You could say landlord must pay for any repair above $500, but that kind of ruins your Unique Value Proposition.  And if you do that, you might have cheap landlords who decide to DIY that repair in a very crappy way that leads to more ongoing tenant complaints and/or maintenance at your expense.

Just some things to consider.  It's a compelling value proposition, and if you can figure out how you offer that service profitably, I think you've got yourself a business idea.  Just make sure it's profitable.

fishnfool

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Re: Hassle-Free Landlording Startup Idea
« Reply #3 on: April 29, 2016, 09:51:16 PM »
Novel idea, but the maintenance could eat up your profits. Also I can't see a owner wanting much less than the market rate the rental would bring in. Which doesn't leave you with much of a margin to rent for a worthwhile profit.

If a landlord wants guaranteed rent we already have the option to rent to section 8 tenants. I did that for close to 9 years and it worked out well through the downturn. But I'm now getting full market rent and don't feel anxious cause if need be there are plenty of people on section 8 needing housing.

But I'm sure your idea has potential and some property owners/managers would use it to avoid all of the work it takes keeping units rented. I could see it being more desirable in LCOL areas where it's hard to get good tenants. But then again...section 8 rules!

Jim2001

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Re: Hassle-Free Landlording Startup Idea
« Reply #4 on: May 01, 2016, 04:16:01 PM »
J,

  I'm with you, I hate the late night calls, which are usually for plumbing.  So, I recently turned over my local rental to a property management company for about 10% of gross rents.  I don't think I'd be willing to give up much more than that for "guaranteed" income.  One of the many reasons is I don't know how you are going to guarantee it.  Your word is nice, but if you don't have a large enough base to cover all the vacancies and repairs, and stuff happens, it would still be my risk.

So, I'm skeptical on a small scale. 

But, the arrangement you've described exists and is known as a Master Lease. An entity takes on the property management and financial responsibility in return for "guaranteed" payments to the owner(s).  The agreements stipulate an escrow account for shortfalls and repairs, and can often include a profit share with the property owner if the Master Lease company is able to drive rents above specific thresholds.  But, I've only seen these on large properties with several hundred units. Finally, the Master Lessee is usually a subsidiary of the property developer.  The developer cashes out and moves to the next project leaving management in place for the new owner.  So, I'm not sure how you'd break into that cycle.
Cheers!

Jim

bakeplowsow

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Re: Hassle-Free Landlording Startup Idea
« Reply #5 on: May 04, 2016, 03:40:19 PM »
Thanks for the feedback, guys. Much appreciated. A few followups:

Appreciate the tips on Flatbook and Renter's Warehouse. It sounds like the most valuable part of my business proposition is being freed from financial liability and hassle on repairs, especially big repairs. Is that correct? Sounds like guaranteed rent and general tenant reliability is secondary.

What kinds of owners do you think would be most receptive to this sort of service? (e.g. accidental landlords, high-end SFH investors, class C housing landlords, etc.) What are some good ways to find these people?

Would offering something like 80% of fair market value price out the vast majority of owners? (I'm not sure we would necessarily even make money at 80%, but it's worth benchmarking.)

Thanks again for the input!

Jim2001

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Re: Hassle-Free Landlording Startup Idea
« Reply #6 on: May 04, 2016, 08:50:12 PM »
Thanks for the feedback, guys. Much appreciated. A few followups:

Appreciate the tips on Flatbook and Renter's Warehouse. It sounds like the most valuable part of my business proposition is being freed from financial liability and hassle on repairs, especially big repairs. Is that correct? Sounds like guaranteed rent and general tenant reliability is secondary.

What kinds of owners do you think would be most receptive to this sort of service? (e.g. accidental landlords, high-end SFH investors, class C housing landlords, etc.) What are some good ways to find these people?

Would offering something like 80% of fair market value price out the vast majority of owners? (I'm not sure we would necessarily even make money at 80%, but it's worth benchmarking.)

Thanks again for the input!

I used to paying ~8%-10% for management services plus repairs.  I would have to look back at my taxes to identify repair costs (I lump ALL expenses into a single number on my spreadsheet).  I've heard of folks planning to hold back 10% of gross rents for repairs, so it sound like you're in the ball park.  For you to pull any margin out of it, you'd want to do as many of the repairs yourself or get some sort of volume discount.

It's interesting to walk through the concept, thanks for the exercise. 
Cheers!

Jim

tonysemail

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Re: Hassle-Free Landlording Startup Idea
« Reply #7 on: June 23, 2016, 01:25:22 PM »
My memory is foggy, but I feel like I read about a startup doing something similar.
Does this sound similar?

"Founded in 2012, RentMethod billed itself as making it easier for apartment owners to rent out their residences. The platform offered tour scheduling, apartment showings, facilitated rental applications, and more through its website and even had a team of real estate agents on-demand."

http://venturebeat.com/2015/08/12/airbnb-buys-apartment-rental-startup-rentmethod-will-shut-it-down-august-31/

Doubleh

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Re: Hassle-Free Landlording Startup Idea
« Reply #8 on: June 23, 2016, 02:30:17 PM »
Its not a crazy idea, in fact it is actually fairly common here in London. Usually referred to as guaranteed rent schemes, rent to rent or let to let - try googling those terms and seeing what comes up. Of course the regulatory regime may be very different in your location and there are bound to be other differences too, but this should give you some insight into the possibilities and pitfalls. Note that these terms are sometimes used to refer to the seedier side of the London rental market, e.g. renting a 2 bed flat from an unsuspecting landlord, filling it with bunkbeds and renting it out as a hovel to a dozen minimum wage workers without their permission - but legitimate versions do exist also.

As you say you need to be able to ensure you can rent the property for less than you rent it out for; letting to multiple tenants is one way of achieving this, or securing a below market rental as you suggested, perhaps in exchange for a longer lease period. Agreed that 80% of market rent for a hands off solution and guaranteed long term rent could be pretty attractive particularly to long distance or accidental landlords. I definitely think you would need to charge back any large repair items to the landlord or else you could get very stung. Probably taking care of anything under a deminimis limit would make sense.

Bottom line is that it is done elsewhere, so yes demand exists for it. You'd need to find out whether it is legally feasible in your location and will need to educate clients on an approach that is unfamiliar to them. 

Villanelle

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Re: Hassle-Free Landlording Startup Idea
« Reply #9 on: June 23, 2016, 03:00:16 PM »
Thanks for the feedback, guys. Much appreciated. A few followups:

Appreciate the tips on Flatbook and Renter's Warehouse. It sounds like the most valuable part of my business proposition is being freed from financial liability and hassle on repairs, especially big repairs. Is that correct? Sounds like guaranteed rent and general tenant reliability is secondary.

What kinds of owners do you think would be most receptive to this sort of service? (e.g. accidental landlords, high-end SFH investors, class C housing landlords, etc.) What are some good ways to find these people?

Would offering something like 80% of fair market value price out the vast majority of owners? (I'm not sure we would necessarily even make money at 80%, but it's worth benchmarking.)

Thanks again for the input!

I suspect accidental landlords would likely be most receptive to this.  If you happen to be near a military base, you might try to find ways to advertise to that community as many, many military families become accidental landlords, or face difficult decisions about selling wen they leave or renting their places. 

spidersilver

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Re: Hassle-Free Landlording Startup Idea
« Reply #10 on: March 17, 2017, 05:58:00 AM »
This is not a new concept and I'll be your first customer because this is EXACTLY the type of offering I want to go with. I think your assumptions are dead on (plus there are some more benefits to renting out this way).
I know this post is months old, which begs the question - have you already managed to build this startup? Because if you haven't yet, contact me and let's get this thing out there

YttriumNitrate

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Re: Hassle-Free Landlording Startup Idea
« Reply #11 on: March 17, 2017, 06:47:22 AM »
If you had the company go out and find the properties for the landlords as well, then you have basically described a REIT.

mishek01

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Re: Hassle-Free Landlording Startup Idea
« Reply #12 on: March 17, 2017, 10:19:38 AM »
This is not a new concept and I'll be your first customer because this is EXACTLY the type of offering I want to go with. I think your assumptions are dead on (plus there are some more benefits to renting out this way).
I know this post is months old, which begs the question - have you already managed to build this startup? Because if you haven't yet, contact me and let's get this thing out there

You two should do it, and I would be your first customer! I would love to find a property manager that I would trust and would guarantee me income. I feel like a lot of MMM readers who are landlords would want something like this, so they can hand off the properties to someone else, and not worry about income stream at all. Trust would be the number 1 issue here. Also, if someone gets injured on the property who would be responsible for it, the landlord or the management company?

Bobberth

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Re: Hassle-Free Landlording Startup Idea
« Reply #13 on: March 17, 2017, 01:24:05 PM »
Kinda thinking out loud here, but if I average 1 month of vacancy per 13 months (12 month lease and then 1 month lost rent looking for a new tenant), that is 7.69% vacancy. Using round numbers, on rent of $1000/month, it averages out that I'm actually receiving $923.10 per month to use (rest should be going to used for vacancy reserves and is important for your business proposition). If I am using a property manager that charges 10% of rent, that costs $100 bringing what I'm receiving each month to $823.10. If the normal fee for placing a tenant is 1/2 month's rent, that is $500 every 13 months or $38.46/month. Now my monthly amount is down to $784.64. So as a rational landlord, $784.64 is what I should be using for considering your business proposition. In practice, how many landlords will agree to be guaranteed $784.64/month on a rental that rents on the open market for $1000/month? I'm guessing most would not take you up on this.

From your perspective, could you even make money at $784.64/month? That is the actual costs based on these assumptions. The only way to make money is to do better than the assumptions. Tenants stay longer than 12 months before moving out or renting it faster than 1 month without rent. Or you have to guarantee the landlord less than $784.64/month. Maybe $700/month so you make in the neighborhood of 10% each month? I think that would be even harder to get a landlord to agree to accept.

Switching back to the landlord's perspective, let's say you did find someone willing to agree to $700/month in this scenario. Looking at the 50% rule, we have 17.69% (10% management and 7.69% vacancy) of those expenses covered in the $300/month we are giving up to you for vacancy and management. That leaves 32.31% of the monthly rent in expenses left, or $323.10. $700 - $323.10 = $376.90. That is what is left over for principle and interest payments and cash flow for the landlord. On a property that rents for $1k/month, unless the house is mortgage free, it's hard to imagine the landlord making much money in this situation if they have to make P&I payments out of that.

So I would say your target market is landlords with free and clear properties or newbie landlords who think rent received - mortgage payment = pure profit.

Back to a landlord's perspective, why would I need you to guarantee my Class A rental where families stay through the school years and there is a waiting list of people willing to move in at 12:01pm when the previous tenant is out at 12:00? There is no reason to insure those rents. But I would LOVE for you to guarantee my monthly rents from the Class D shack that is in the hood I bought for $20k and rents for $1k. Where tenants occasionally pay more than just what it costs to move in. Adverse selection would seem to be a pitfall you would need to have to watch out for in guaranteeing rents.

I don't see this working out for both parties for any extended period of time.

Ocinfo

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Re: Hassle-Free Landlording Startup Idea
« Reply #14 on: March 17, 2017, 01:36:24 PM »
I see this a lot but in a bit different manner. Basically, Marriott and other hotel operators will lease a high end apartment, furnish it, and then rent it as an executive rental. Property owner gets guaranteed rent and the company rents the unit for double the actual rent, usually for 1-3 months at a time.


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ChpBstrd

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Re: Hassle-Free Landlording Startup Idea
« Reply #15 on: March 27, 2017, 01:58:16 PM »
Why not just buy an REIT? Basically the same concept, but with cheaper leverage, fewer hassles/worries, more diversification, and tax benefits.

NoNonsenseLandlord

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Re: Hassle-Free Landlording Startup Idea
« Reply #16 on: March 28, 2017, 07:06:35 AM »
I would not go for it.  Traditional property management would be a better business model.