Am I being unfair?

How to avoid signing your life over to a mortgage
Scott 2
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Re: Am I being unfair?

Post by Scott 2 » Sat Jun 03, 2017 9:27 am

Your are leasing a job. So the better question is, what does that job pay?

Let's assume you could rent a similar room for $700. So for a year, you are up $450 * 12 = 5400.

I think a best case scenario vacancy rate is 1 month a year. So you're on the hook for 1450 of open rooms during the year, bringing you down to 3950 ahead.

Now take in consideration risk of people not paying utility bills, lost earnings on your security deposit and damage to the unit. Conservatively, I'd guess you eat $950 over the course of a year. It also makes the math simple, bringing us to a gain of 3000 a year or 250 a month.

You'll probably have to hustle to hit that low vacancy rate, and as the in living landlord, you'll need to attend to people's BS. Call on a broken toilet, get electric setup, mow the lawn, etc. I bet that's 15 hours a month.

So 300/15 = 20/hr, tax free.

Is that worth it? Not to me. If I was going to commit to a twelve month contract at those hours, with that risk, I'd want my salary divided by $1000 per hour. Or if hourly, double my normal rate.

Honestly, dealing with stranger's BS in h home would probably make me want to double that rate again and again.

My guess is your landlord has a gut feel for the math, suspects the headaches your plan will bring, and is concerned problems will flow up to him.

If I was renting a unit at a great rate, it would be to get an easy, long term tenant. Not someone that is presenting as financially unstable, planning to run game out of my unit.

I'm surprised he's going with it.

thrifty++
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Re: Am I being unfair?

Post by thrifty++ » Sat Jun 03, 2017 5:15 pm

Actually I think this is a pretty good financial option.

If you would otherwise pay $700 for a room that means you are making/saving $8400 per year. That is also with no tax I would presume since they are just paying a contribution to an expense, not an actual income. I always think an expense reduction is better than more income because of tax.

If you do it right that large income/expense reduction could really be for not much effort on your part. That is provided you select the right room mates from the start. That is the main thing. Dont select people with shit credit. Select people who are intelligent and have their shit together. People with a plan and who are busy. Such as for example PhD students or young professionals. Provided you get that right it will be easy as. If you are in a good location in a city the size of Atlanta it shouldnt be too hard to get such people.

The only wrinkles I can see in your plan is the landlord's knowledge of the intimate details of what you are doing, and also that its a 3 bedroom place that you are looking at having four people in one house for. How does that work? Are you using the lounge? Doesnt sound like a pleasant living arrangement. I think if you set the place up that way you are unlikely to get smart people who have their shit together. They wont want to live somewhere like that.

I would just keep it to three people. And if that means you need to pay some rent so be it but probably sounds like it would be pretty low if the other two make up most of it.

classical_Liberal
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Re: Am I being unfair?

Post by classical_Liberal » Sat Jun 03, 2017 8:39 pm

I agree with the other comments in that you gave your landlord TMI. I believe, now that he has the information, it is very reasonable for him to be concerned. He just doesn't want headaches, ignorance would have been bliss. If your lease allows sub-lets, you shouldn't have given details, lesson learned for the future. I also think you are underestimating the time, hassle, and possibly cost that will be associated with "managing" the property. Do not be so quick to change your pricing arrangements if already below market, I certainly wouldn't do this for less than free rent and would actually try to make a profit. Remember pricing something below market will probably attract the wrong types of tenants. You may be better off pricing higher (market rent or just a hair under), then choosing to offer "discounts" later to good (hassle free) tenants to keep them around. I second the idea of a small portion of nonrefundable security deposit.

Regarding the risk, even if you rented and had a few "normal" roommates splitting costs, generally each party is on the hook for all of the rent anyway. Meaning, in a standard arrangement if one or more roommates flaked out, you''d still on the hook (unless the landlord has separate leases for each room) and he/she will likely go after anyone on the lease who is responsible enough to have the means to pay. This has happened to me before. In essence, the risk in this plan vs a standard roommate with shared lease situation doesn't really change that much. The difference is that filling the rooms and maintaining the household is solely your responsibility. You are taking on a time commitment.

Don't forget the benefit of learning skills. This is an opportunity to establish landlord-tenant relationships & understand the rental game without having to actually purchase real-estate. Yes you lose the asset appreciation, but ultimately get the skills with little up front risk in trade.

Edit: Screw fair! If you want fair, move to socialist Venezuela and see how it works out.

Solvent
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Re: Am I being unfair?

Post by Solvent » Sun Jun 04, 2017 3:02 pm

There's a well-known experiment in behavioral economics called the Ultimatum Game. A result from this is generally accepted to show that actor B may reject an outcome that is basically beneficial to him, if it comes about through a process whereby actor A has distributed gains in a manner that B perceives to be unfair.

So even if your roommates are getting a good deal, a perception of 'unfairness' in the distribution of the rent (that is, you're living rent free in their perception even if you're taking on risk and responsibility) may still cause them to call off any arrangement.

So if your roomates ever find out that you're distributing gains in a way they think is unfair, they may be inclined to rebel. I think your landlord is right to be worried.

EdithKeeler
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Re: Am I being unfair?

Post by EdithKeeler » Sun Jun 04, 2017 11:59 pm

I'm wondering if your landlord is just afraid to tell you: "I don't want you to sublet to anyone." Although his repeated discussion about how the rent would be divided suggests that's probably not the case. Are you and the landlord friends?

I am a landlord, and I have to say I'd be really pissed if my tenant did this. Not because of the money or anything, but because I've vetted out my tenant, I know his credit, work, and criminal history. I'd be very annoyed to think I was renting to a single, upstanding guy..... and three of his n'er do well weed smoking friends with a child molester background.... I'd be ticked if i thought I was renting to a quiet guy who now suddenly has three guys living with him who like to throw loud parties, and I''m getting call from the neighbors every Friday and Saturday night. Depending on where you live, the "new" tenants could potentially subject your landlord to some liability for their behavior, plus there's additional wear and tear on the property with more people living there.

If I were the landlord, I would be very wary of the situation.

Now, from the standpoint of your fiscal fitness, this seems like a GREAT plan--if you owned the house. If you own it you could do whatever you want, and I know a few people who've got paid-off houses because of roomies.

thrifty++
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Re: Am I being unfair?

Post by thrifty++ » Mon Jun 05, 2017 1:23 am

EdithKeeler wrote:
Sun Jun 04, 2017 11:59 pm
I'm wondering if your landlord is just afraid to tell you: "I don't want you to sublet to anyone." Although his repeated discussion about how the rent would be divided suggests that's probably not the case. Are you and the landlord friends?

I am a landlord, and I have to say I'd be really pissed if my tenant did this. Not because of the money or anything, but because I've vetted out my tenant, I know his credit, work, and criminal history. I'd be very annoyed to think I was renting to a single, upstanding guy..... and three of his n'er do well weed smoking friends with a child molester background.... I'd be ticked if i thought I was renting to a quiet guy who now suddenly has three guys living with him who like to throw loud parties, and I''m getting call from the neighbors every Friday and Saturday night. Depending on where you live, the "new" tenants could potentially subject your landlord to some liability for their behavior, plus there's additional wear and tear on the property with more people living there.

If I were the landlord, I would be very wary of the situation.
I am a little bit confused by this and some other comments referring to "subletting". Maybe its because I am not in the USA but I would not have though this is subletting. You are still occupying the place and are just having other people in it. Is this not just roommates? Where does room-mates end and subletting begin? To my mind sub-letting would be if you vacated the property and became a new landlord for people who have complete rights to unfettered and undisturbed possession the property without you in it which is not what you are doing.

EdithKeeler
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Re: Am I being unfair?

Post by EdithKeeler » Mon Jun 05, 2017 6:19 pm

I amm a little bit confused by this and some other comments referring to "subletting". Maybe its because I am not in the USA but I would not have though this is subletting. You are still occupying the place and are just having other people in it. Is this not just roommates? Where does room-mates end and subletting begin?


It may not technically be subletting (I'm not sure if there's a specific legal definition of that), but every place I ever rented, all the residents of the household had to be on the lease, otherwise it's a violation of the contract.

When I was in college, I shared an apartment with two other women. I shared the master bedroom with one, and the other one paid more rent for having a single. The landlord didn't know our financial arrangements, but he did know we were all on the lease.

Edited to add: i looked up a legal definition of subletting, and it can include part of a premises.
http://legal-dictionary.thefreedictiona ... Subletting

Frugalitifree
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Re: Am I being unfair?

Post by Frugalitifree » Fri Jun 23, 2017 1:47 pm

I have been in a similar situation some three/four years now. I view it thus:
1. The landlord gets his rent without hassle each month. Its lower than most places but it obviously covers his costs etc(my landlord is quite wealthy and just wants to know that the place is being looked after well - I do that and he knows it). Having a steady, reliably tenant is worth more to him than achieving the highest rent possible.
2. About 8 people have moved in and out over this period and not once has he had to worry about not getting paid. Expect people to move out. (they say in rental you can factor in a 5% vacancy rate- Perhaps keep 5% of annual rent in an easily accessible account for the eventuality). That is their gain - they are not tied into a lease situation. Paying the higher proportion is the price of such freedom. You pay the lower proportion (or none) as you take on the responsibility and guarantee to look after the place. Thats fair.
3. Your tenants need not know the finer details of the situation. My housemates understand I've been here a good few years and I have a steady relationship with the landlord. They are also paying a lower than market average rent. If they don't like it, they can leave. The lower price keeps them here.

So I would say work on maintaining a good healthy, professional relationship with your landlord. demonstrate you are caring for the place better than he would - I work on the gardens, I've painted the house, powerhosed the yard, keep the place spotless, making sure the work is visible to him when he's around. The hourly rate I earn on such work(the savings I make each year) by far outstrips what I get from my official source of income. That'll assuage his concerns about anything else and also make him less inclined to up the rent.

Set the rent at a rate you are most comfortable with. I would go for market fair - i.e. nothing for you if you can. You pay when there's a vacancy and in kind with the hours of work you put into the place. It's a rare situation. The goal should be to make it last as long as possible. Optimise and keep the eye on the prize

Frugalitifree
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Re: Am I being unfair?

Post by Frugalitifree » Fri Jun 23, 2017 1:52 pm

Solvent wrote:
Sun Jun 04, 2017 3:02 pm
There's a well-known experiment in behavioral economics called the Ultimatum Game. A result from this is generally accepted to show that actor B may reject an outcome that is basically beneficial to him, if it comes about through a process whereby actor A has distributed gains in a manner that B perceives to be unfair.

So even if your roommates are getting a good deal, a perception of 'unfairness' in the distribution of the rent (that is, you're living rent free in their perception even if you're taking on risk and responsibility) may still cause them to call off any arrangement.

So if your roomates ever find out that you're distributing gains in a way they think is unfair, they may be inclined to rebel. I think your landlord is right to be worried.
They will only see it as unfair if:
A.They find out.
B. They view the leaseholder as an equal tenant. if OP demonstrates he has a 'special' arrangement with the owner of the house, then OP is viewed as a sort of caretaker and thus isn't viewed in the same light. Thereby if they do find out, the OP can point to special arrangement as justification. Given the rent is low for them by market standards they may well stay. If not, OP finds someone new which should be easy given that rent is low.

Augustus
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Re: Am I being unfair?

Post by Augustus » Thu Aug 17, 2017 12:32 am

I am also shocked the landlord is dumb enough to allow this. All tenants need to sign HIS contract, not yours, and agree to abide by his terms with him. If you sublet to a child molester and known drug dealer he NEEDS to know and vet them to avoid penalties on his end. All my leases state by name who is allowed in the house for more than a day, anyone not on that list has no right to be there and is cause for immediate eviction of the lease signers.

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TheRedHare
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Re: Am I being unfair?

Post by TheRedHare » Thu Mar 01, 2018 2:47 pm

For anyone that was curious as to how this plan worked out here is a quick summary.

I started renting this place around July 2017. My up front cost was $3400 (security deposit and 1 month's rent).
I live in a very small room, what most people would think of as a closet. There are 3 bedrooms, one of which is a master bed and has it's own private bath. The other rooms all share one bath.
Bedroom 1: Rent $450 1 male
Bedroom 2: Rent $650 split. A young couple
Master: Rent $550. 1 male
My room: Rent $50

All utilities are split. My average cost for all utilities and rent comes to around $150

I haven't had any issues with any of my tenets. They are all respectful, quite, and pay their bills on time. I recently had the one couple express interest in one day moving out to get there own place...this doesn't bother me all that much as it's fairly easy to find roommates.

Overall I've had a very positive experience. As @RiggerJack expressed in one of his above posts, I pretty much as a "house Nazi". I make sure nothing goes wrong with the house, it's always clean and well kept, and I always pay rent on the 1st of the month in full. I make sure all the rooms are filled and in exchange I get to live very cheaply. My goal is to keep this going for as long as I can, pay off debts, and save up for my own place...an do the same thing with my own house instead of someone else's.

thrifty++
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Re: Am I being unfair?

Post by thrifty++ » Sat Mar 03, 2018 10:45 pm

Nice work. Totally nothing unfair about what you are doing. You deserve it.
I think though sometimes it can be tricky to find a place enough beneath market value so that ypuo actually end up sufficiently better off for all the hassle and work

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TheRedHare
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Re: Am I being unfair?

Post by TheRedHare » Sat Mar 03, 2018 11:45 pm

thrifty++ wrote:
Sat Mar 03, 2018 10:45 pm
Nice work. Totally nothing unfair about what you are doing. You deserve it.
I think though sometimes it can be tricky to find a place enough beneath market value so that ypuo actually end up sufficiently better off for all the hassle and work
Thanks man, It's actually been pretty easy in terms of maintenance; I hardly have to do anything. Our water heater crapped out a few months back, and the landlord had a plumber install a really fancy one that same week. I think he's had some pretty crap tenants in the past, so he's happy to have someone that takes care of the place and pays on time.

I'm hoping that within the next couple of years I'll be able to have my student loans payed off and about 30k in the bank ready for a down payment on my own house. The houses seem to be pretty expensive and overvalued right now, but I'm looking to buy and hold the place for a long time. Basically try to do the same thing I'm doing now, but I'll own the house.

slowtraveler
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Re: Am I being unfair?

Post by slowtraveler » Sun Mar 04, 2018 3:33 am

@redhare

I think you're taking the equivalent of a job with the extra responsibility. The discounted rate makes sense in light of the extra duties you have.

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Astra
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Re: Am I being unfair?

Post by Astra » Sun May 13, 2018 2:51 pm

Possible Workaround:
You open a separate account for all house-relanted expenses (if your haven't already, also helps you track the house's budget). You pay a rent silimar to your sub-lets, say 550, to the pay-in is exceeding the total monthly rent and utilities. This seems fair to your landlord and your tennants, as you're paying an equal share. The money can accululate on the account and secures the rent for any time there are vacancies, repairs or exceptional expenses. Especially the cover agains vacancies is important here, since you are carrying all the risk. If you end your lease and there is still leftover rent money in the account, congratulations, you just got an extra savings account.

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