Awesome RE opportunity?

[akula]

Here's an interesting little earner that any of you guys can put to work right away and earn a tax free $1000 a week with very minimal initial investment. Of course I'm talking about subleasing....an opportunity with anything up to 1,000% or more per annum ROI.

I'm finding it to be quite the standout. Here's how it works (for example):
1. Go to realtor.com or some other RE listing site and find a luxury three bedroom appartment or house in your local area for roughly $800 a week.
2. Go to ikea or a second hand furniture shop, buy six sets of cheap bunk beds, a couple of cheap tv's, a couple of couches and some other furniture to deck the place out. That'll cost another $1k.
3. Put up listings on craigslist, or somewhere else and find 10 or so back packers or students to live in the appartment, with about 3-4 people to a room, paying $180 or so a week.

Initial outlay on bond, advance rent and furniture is about $5k, and you are clearing $1k a week. If things don't work out, cancel the lease, get your bond back.

I tell you..in Sydney for example, the whole CBD rental market works like this...with people subleasing appartments and making extremely high rates of return. It's pretty crazy actually...customers are falling over them selves to live like this...demand is through the roof.

[pacificfame]

I like the idea, however what kind of contract is written up when subleasing?

Little risk on your end, when at the end of the day, it is still you who is responsible for everything since you signed the initial lease agreement.

Never knew about this, good post.

[akula]

I like the idea, however what kind of contract is written up when subleasing?

Little risk on your end, when at the end of the day, it is still you who is responsible for everything since you signed the initial lease agreement.

Never knew about this, good post.

yeah, it's a good one. Umm..there is no contract. Strictly speaking, the opportunity above is illegal...not that there is anything wrong with that, it's simply a contractual breach between you (the tennant) and the landlord...which is nothing to frett about.

as such, because it's not a criminal breach, the worst that can happen is your landlord calls you and says "hey you've got too many people living there, move out"...which of course he won't because he's got a huge mortgage to pay and you are giving him this money every week. without you he's bust. it's hard for a landlord to find a tennant who can afford $800-$1k in rent a week, and when they find one, they don't tend to let go easily.

if you're a young guy who wants to save up some money for your own place in the future, I think you may want to investigate this opportunity

[Fanatik]

Well, there seems to be more to it than this. With the transiency of the subletters, I (the actual tenant) would be responsible for anything these yahoos screw up. If they trash the place, piss on the floor, holes in walls - you get the idea. It seems like you're referring more to a hostel than anything.

When I was in Japan, I loved the hostel I stayed in for a ski trip in the Jap Alps... but the actual owners lived there too, so they had some oversight.

I see a lot of problems that could arise from this, and it's not quite as simple as "build it and they will come". Sure - you may get those backpackers -- but you also get the baggage they come with, along with the repair bills for stuff they screw up.

[akula]

Well, there seems to be more to it than this. With the transiency of the subletters, I (the actual tenant) would be responsible for anything these yahoos screw up. If they trash the place, piss on the floor, holes in walls - you get the idea. It seems like you're referring more to a hostel than anything.

When I was in Japan, I loved the hostel I stayed in for a ski trip in the Jap Alps... but the actual owners lived there too, so they had some oversight.

I see a lot of problems that could arise from this, and it's not quite as simple as "build it and they will come". Sure - you may get those backpackers -- but you also get the baggage they come with, along with the repair bills for stuff they screw up.

that's so true. the whole opportunity is basically an illegal hostel, which works very well because the competition is so poor. in tourist areas, backpackers have a choice of either paying $200wk to stay in some 20 bed shithole dorm, or pay the same price and live in their own luxury appartment in the same central location. it's a no brainer who is gonna choose what. i know where i'm staying when i go overseas!

so for this reason, the arithmatics are pretty much off the charts. some people i know rent 5 bedroom, $1500wk bondi beach villas and fill them in less than two weeks with 15-20 people at $280wk a pop (ie $40 per day...which is very cheap). the result? $4k a week tax free profit...or more than they would ever earn working 9-5.

i think its hard to find a business that generates that kind of return for the amount of initial investment or overall risk.

[DerekS]

I would think that the logistics of monitoring the comings/goings of the "tenants" would offset the profit margin (especially considering the risk involved.)

In the US, most states have laws concerning the number of occupants per dwelling unit. If a city inspector doesn't catch wind of it, you can be rest assured that a pissed off neighbor will make an "anonymous" phone call. This is especially true in higher end housing.

If you are found to be in violation of the lease (for illegally subletting, or simply having occupants not listed on the lease), 99.9% of the time you'll forfeit your deposit. When I did full time property management, we'd also file lawsuits for damages not covered by the security deposit and hire aggressive collection agencies to collect on the judgments we'd get in court. If we were feeling particularly vindictive, we'd go out of our way to call their current landlords, employers, families, or whoever to give them a play-by-play of their indiscretions.

Not all landlords are this aggressive, of course, and some will plain let you steamroll them. It's pretty much a given that your deposit would be forfeited though, as any judge will go by the language of the contract.

I like the scalability of your idea, however. We used to do something along the same lines, albeit on the opposite end of the economic spectrum. We'd buy big old houses, cheap. Chop them up into 5-8 apartments with MINIMAL amenities, and put program (Section 8/Voucher) tenants in them. We'd collect 25-40% more than market rate rent thanks to the vouchers and the tenants were so strung out that they didn't know what the hell was going on. We had fires, breakins, lots of damage, police kicking in doors, etc. We actually kept our properties in better shape compared to most (I'd say 2 clicks above "slumlord"), but there was always work to be done/problems to deal with.

It could be a case study in government waste, but it lined our pockets (or rather, my employer's pockets.)