Being a Miami condo owner or property manager could be a lucrative real estate investment. After all, the vibrant city attracts people worldwide looking for sun, beaches and high-end living. However, when a tenant comes to you about subletting a unit, you must decide whether to allow them.
On the one hand, much can go wrong when you give up control as the primary landlord. Yet, there is always the chance to boost your income.
What Is Subletting?
Suppose a tenant needs to vacate the condo temporarily but wants to uphold the lease — this could be due to travel, short-term job relocation or financial struggles. They might also want to avoid fees from having to move out early. Your tenant may decide to rent a room or the entire space to a third party — a subtenant or sublessee.
Subletting allows your original tenant to uphold their lease while becoming the landlord to the subtenant. Essentially, the sublessee takes over the remaining lease agreement, paying the sublettor — the original tenant — for rent and utilities per a written contract. The first tenant is still financially responsible for the original lease, in which they would collect payments from the subtenant toward rent.
Pros and Cons of Subletting
Some condo owners don't allow tenants to sublet their units due to a loss of authority, screening concerns and various violations. However, allowing tenants to sublet units could benefit your bottom line when executed correctly. Here are the pros and cons to consider.
Lower Vacancy Rates
According to a 2023 LendingTree study, Miami has the second-highest vacancy rate nationwide at 12.65%, meaning there are over 600,000 vacant housing units. For landlords, subletting closes the gap and prevents you from having to find a new tenant to rent the condo.
Tenant Financial Responsibility
The original tenant is responsible for collecting rent from the subtenant and passing payments on to you. If they'd prefer not to be the sublandlord, the subtenant can pay you directly. It is crucial to note the payment policy in the sublet contract to avoid legal implications, confrontations and confusion.
Regardless, the sublandlord must still raise the money to pay you if the subtenant doesn't fulfill their obligations per the agreement. To ensure at least part of the rent is guaranteed, the landlord and sublandlord can require a security deposit — most jurisdictions state no more than two months' worth of rent may be collected ahead of time.
Rent Increase
In some situations, you might approve a higher rent during sublease negotiations. For instance, if one tenant lived in a three-bedroom condo and they sublet it to a family of four, you might raise the rent to account for additional wear and tear or potential property damage.
Screening Challenges
During a sublet agreement, the original tenant is responsible for screening sublessees. The lack of control over screening subtenant candidates is often worrisome for many landlords, as they risk having someone unreliable.
Increased Risk of Violations
Because the original tenant becomes the new landlord over the subtenant, they can choose who to enter a contractual agreement with. This circumvents your right to have a final say regarding your property. As a result, you put yourself and your unit at risk of violations and heightened financial problems.
How Can Subletting Maximize Your Income?
Allowing tenants to sublet isn't a decision landlords should take lightly, but it could enable you to maximize your income significantly. Still, you must follow your condo association's rules and regulations for the number of tenants and subleases allowed.
For condo owners, subletting could be invaluable amid rising homeowners association (HOA) fees. Inflation spiked materials and labor costs, meaning HOA fees have increased to cover maintenance.
These fees have negatively affected condo owners' finances as insurance companies pull out of Florida due to intensifying storms. Likewise, a new bill — S.B. 4-D — requires condominium buildings over three stores to undergo structural inspections while associations reserve funds for future maintenance. Consistent occupancy and rental payments will help you cover your unit's or complex's essential HOA fees and unexpected expenses.
Subletting Offers Dynamic Real Estate Opportunities
Subletting could be a smart financial move if you do it correctly. This starts with clear communication to ensure a smooth contractual agreement between the tenant and the subtenant. Of course, proper planning and execution will allow landlords to reap a higher income.
Evelyn Long is a writer that specializes in housing market trends. She is also the founder of Renovated Magazine, where she writes essential resources for renters and homeowners. She has contributed to several other sites like the National Association of Realtors and Realty Executives.
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