Subletting an apartment is an excellent way to avoid paying rent for your place while you are away for a long time.
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A sublet offers more flexibility to both tenant and landlord. Before signing a sublease, the landlord needs to do some due diligence, but as for the legal arrangement itself, things are very straightforward.
In this article, we are going to discuss subletting (an arrangement that allows a person to rent a property from someone who is already renting it) and all the main aspects of the process. What it is, how it’s different from subleasing, and its pros and cons. Let’s dive into it!
What Is a Sublet?
The sublet definition goes like this: subletting is when a tenant rents out an apartment or a room to another person for the length of the original tenant’s lease agreement.
The ability to rent out a property that you are currently renting can be a lifesaving arrangement. It’s a good solution for people who must vacate their apartment before their lease is up or for tenants looking for short-term stays. Subletting (also referred to as subleasing) is an excellent solution for such situations.
For example, imagine that you have a one-year lease but you find out you must leave for three months (e.g., due to a job opportunity) a few months into your lease. You could either break your lease (if your landlord agrees) or find a person to rent your flat from you. Technically, that person will become the subtenant while you become the sublandlord.
Even though it’s also called “subleasing” and the terms are used interchangeably, the differences between the two exist (but they are subtle).
Related: What Is Arbitrage in Real Estate Investing?
Difference Between Sublet and Sublease
Sublet vs sublease – do these terms refer to the same thing? Subletting and subleasing are both viable options when it comes to rental properties. However, when it comes to handling when you actually need to move out before the lease expires, they are based on different rules.
Subletting allows a new tenant to take over the lease in direct agreement with the landlord. The new renter and the landlord can create a new rental agreement, and the landlord will collect rent directly from them.
Subleasing, on the other hand, involves renting a part of or the entire space to another tenant through the original renter. The original renter stays responsible for the property and technically leases it to another person.
In a sublet situation, the landlord and the original renter can terminate the original agreement, and the sublet agreement will remain. In subleasing, there is no such thing, because if the original lease is about to expire, the sublease will expire as well. This difference is the main reason why original renters should screen their applicants to make sure they choose someone who understands the rules. Otherwise, the original tenant will be responsible for any significant damage that happens on the property.
Why Sublet Your Place?
As a sublessor, you can make money by renting out the place at a higher rate than what you pay for. For instance, you lease a house for $600 for one year and invest $500 into it to make it look better. Then, you find a renter willing to pay $850 monthly for the house. That way, you will earn $250 each month. Take away the $500 you’ve invested, and it leaves you with a $2,500 annual profit on a single investment property.
Of course, if you want to sublet only as a means of earning a profit, you should focus on finding properties with low rental fees and then add a markup. Do your due diligence by investigating the market and finding important metrics, such as:
- Monthly income of traditional and Airbnb long term rentals
- Traditional and Airbnb cash on cash return
- Traditional and Airbnb cap rate
- Airbnb occupancy rate
These metrics vary from neighborhood to neighborhood, so do your calculations and be sure that you can earn a profit. You can make more money on short-term rentals, but Airbnb monthly rentals are a safer bet because they reduce the risk of missing monthly rent payments and potential penalties.
Besides profit, there are a variety of reasons why you might need to leave your apartment for a while. For example, you could have family problems back home, get a new job offer in a new city, or lose a roommate. In those cases, having someone new to stay in your place and continue paying can save you money or even bring you a small profit (if you decide to charge them more than you pay).
Pros and Cons of Subletting
Every coin has two sides, so we must name all the advantages and disadvantages of subletting. It’s good to explore both the benefits and potential risks, so you know what to expect and be ready to face any common problems that may come up.
- Avoiding a bad renter’s reputation. If you break a lease, your reputation as a renter can be impaired. By subletting, you will manage to maintain your good reputation, which makes it easier to find an apartment to rent in the future.
- Avoiding penalties. Besides damaged reputation, breaking a lease early pulls some penalties along the way. Such penalties involve the costs that the landlord is expected to accrue, such as utility bills, missed rent, and advertising the place to find a new tenant.
- Saving money by not having to pay rent for an empty place. When you sublet, the subtenant will pay the entire rent or only a part of your monthly rent.
- Keeping the place occupied. Occupied properties are less likely to suffer damage from maintenance problems. Also, they’re less likely to be burgled.
- The ability to return to your place. If you are only leaving for a short period of time, you can sublet the place to someone only while you’re away.
Whether you’re a tenant, subtenant, landlord, or sublandlord, you can benefit from the sublet situation.
- Having your things stolen or damaged. You’re leaving your apartment and all your life in it for a few months. With the new tenant in there, your things will be at risk of getting damaged or stolen by the subtenant or any of their guests.
- Having your subtenant break their lease. Just like you had to move out due to life-imposed circumstances, it also may happen to your replacement. In that case, you’ll have to find a new subtenant. If you’re out of town or country, this could be difficult.
- Ruined reputation. If you don’t screen your applicants and you end up letting a bad tenant in your place, it can ruin your renter’s reputation. You are most likely to be liable for any property-related problems they cause.
- It can be hard to find a good tenant. Since you’re responsible for finding a subtenant, it can turn into a lengthy process because you’ll have to screen all the applicants. The person you want to let into your apartment is the one whom you can rely on to respect the rules and make timely rent payments.
- It can take time to find any tenant. If you were hoping that subletting is a quick solution to your problems, we must tell you that you may be wrong. Unless you have a replacement lined up (e.g., a close friend or family member) or want to sublet for at least three months, the subletting will do the trick. Otherwise, you should find a different way to make money or keep your apartment.
Legalities and Risks
You will take on a lot of responsibilities when you sublet, and many of them may not be included in your rental agreement with your landlord. For example, your insurance probably doesn’t cover damage that a subtenant incurs. Also, if your subtenant likes to party at night or is in any other way disruptive, you bear a social responsibility to your neighbors, other subtenants, and landlord.
Be sure to research the local laws to be able to create the best rental strategy for your sublet apartments.
Related: 10 Florida Landlord Tenant Laws You Should Know
How to Sublet Your Apartment
At first, subletting an apartment or other type of property may seem stressful, especially if you have a lot of questions unanswered. How to choose a subtenant? What should you look for in a leasing agreement? How to approach your landlord about your proposed arrangement? Is it legal in your city and state?
We’re about to give some basic guidelines that will help you make your sublet successful. However, you should take into account that laws vary from state to state.
If you are the original tenant and decide to sublet, it means that your name will be on the sublet agreement for your property. You are responsible for keeping the place in good condition, handling utilities, and paying rent.
You (the original tenant) and the subletter will make a sublease agreement that’s independent of the lease between the landlord and you. If you’re thinking about renting to a subletter, be sure to follow some of these tips:
1. Be Sure That Subletting Is Your Best Bet
Subleasing is an active agreement, so you must be comfortable dealing with any problems that may occur with your subtenant. For example, if your tenant behaves inappropriately or doesn’t pay rent, you should be ready to evict them. Also, you’ll have to cover their rent from your pocket or your original lease will be affected.
2. Examine Your Original Lease Agreement
Before making the decision to sublet, be sure to check your original lease. The lease is an agreement between you, your landlord, and other residents of the sublet apartment. It contains information about keeping pets, house maintenance, vehicles, and noise ordinances. Your subletters are obligated to follow the same rules. Also, whether you’re allowed to sublet the place or not should also be specified in the original lease agreement.
3. Talk to Your Landlord
Let your landlord know that you’ve decided to sublet the apartment. Get permission in writing before you proceed with it because a simple verbal agreement won’t protect you in case any issues arise in the future.
4. Find a Tenant
You want to find someone who is responsible, has a good renter’s reputation, and who will follow the house rules.
- Put out an ad where you will describe the home’s features.
- List availability dates.
- Provide your contact info.
- Share your ads on advertising and rental sites, social media, and any other websites that will let you list your sublet.
- Reach out to family, friends, and colleagues, asking them to help spread the word.
- Screen potential applicants and verify their identities, such as references, employment, income, and criminal record.
5. Sign the Sublease Agreement
The agreement must be signed by the original tenant (you) and the subletter. Both parties must agree on the following:
- Total rent due each month
- Length of the sublease term
- Forms of payment accepted
- Total amount to be paid for the term of the sublease
- Utility payments
- Late fees
- Whether furniture, parking, and/or storage are included
- Smoking rules, pet restrictions, and other important lease provisions
This is a great way to make money on Airbnb without actually owning an Airbnb property.
When you rent a property and list it on the Airbnb platform, then you operate an Airbnb sublet. In the Airbnb market, some people have recognized the profitability of mid- to long-term sublets, including business travelers and longer-term travelers on shorter term contracts. Also, sublet is a popular option with renters in-between long term agreements and new arrivals to a city. Some companies who have nomadic employees even go as far as to sublet long term Airbnb houses for them.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.
Before you proceed with renting out your apartment, it is crucial to know your local laws and get your landlord’s permission to avoid any trouble. You cannot sublet if it’s specified in your lease contract that you’re not allowed to sublet or if your local zoning laws prohibit or restrict short term rental hosting.
As for landlords, some of them don’t want to have their apartments sublet to others, but you may be able to convince them by offering incentives.
How to Convince Your Landlord to Let Your Sublet
- Profit-sharing. You don’t have to share the profit 50/50, because you are the one doing the cleaning, promotion, and taking bookings. Offering a cut of up to 20% may get your landlord to agree to your proposal.
- Rent only one room. Some neighbors may be worried that subletting an entire place would cause disturbances in the apartment building. In that case, you can rent out only a room, with you being there as the responsible person able to take care of any issues.
- Set clear house rules. The landlord may be stricter when it comes to setting house rules with short-term tenants. However, you should be reasonable with setting the rules. For example, they may wish to prohibit short-term tenants from bringing in pets, even though you’re allowed to keep a pet. Other usual conditions include restrictions on group rental sizes and partying.
- Subletting on Airbnb occasionally. Landlords are typically more open to the idea of an occasional Airbnb sublet because it’s easier to agree to sublet than lose a good tenant. This typically involves times when you’re traveling for work for a couple of months or going on an extended holiday.
- Don’t miss out on insurance. Having good renters’ insurance with enough liability coverage is always welcome.
If both you and your subtenant want more flexibility in your agreement, you can make a month to month lease agreement. The contract legally allows you to give only a 30-day notice to terminate it. Since month to month lease has more risk, you can charge more expensive rent. If you’re not satisfied with the subtenant, you can give them a 30-day notice to move out and offer the room to someone more responsible.
Lastly, apartments are not the only properties you can sublet. This arrangement may also apply to other property types such as single-family homes, multifamily homes, and condos.
Sublease Agreement Template
When deciding to sublet your apartment, you also become something like a property manager. Since you’re entering a new agreement, you should have a template that follows your local or state guidelines. Be sure to include items such as:
- Name/s of the subtenant and sublessor
- Address of the property
- Security deposit (and terms for deposit return), rent amount, and to whom it should be paid
- What part of the property will the subtenant occupy (entire place, private/shared room, common spaces, etc.)
- Rules regarding overnight guests, smoking and drinking, noise, quiet time periods, etc.
- Utility costs
- Use of parking space
- Acknowledgment that the property is in good condition and that the subtenant is responsible for any necessary repairs that may occur during the sublease period
- Acknowledgment that you (the sublessor) are bound to the master lease rules
- Signature of both subtenant and sublessor, and the date when the agreement was signed
How to Find Quality Tenants to Sublet
Once you’ve got the approval from your landlord to sublet your place, done your research, and determined its true profit potential, it’s time to find the perfect tenant. Take some high-quality photos of your apartment, write a detailed description, and create a listing. You can also take things to social media, like Facebook groups for those who need a long term or short term rental.
Another logical step for finding tenants is tapping into your own network. Tell your family members, friends, colleagues, and acquaintances that you are subletting a nice place.
Go to platforms specialized in subletting properties. Nowadays, when people recognize a need and unite around the same problem, they create a platform or app to help them. There are many websites out there that cater to sublandlords looking for people to sublet their properties.
You could attract potential tenants by offering a discount. Giving a slight discount on rent for the first few months can make your place more desirable for subletters. Also, partially furnished apartments earn major points in a subletter’s eye, so be sure to advertise it as pre-furnished.
Organize an open house so people can come to check it out. It’s a great way to spark some interest and meet potential subtenants in person. Use this opportunity to get to know them and answer any questions they may have about the place. In case anyone is interested, bring the application sheets so they can provide the info you need for background and credit checks.
Related: 8 Things That Make a Good Tenant
Once you get a hold of local and state laws and ways to reach an agreement with the original landlord, subletting won’t be as confusing as it may be now. When doing your due diligence, research, and rental calculations, be sure to use accurate and up-to-date information.
Mashvisor provides tools like the investment property calculator that help you determine metrics important for making the right ROI projections. Once you get the landlord’s approval, determine the details of the sublease agreement, calculate your ROI, and start advertising and screening potential tenants.
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