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I am thinking about a new business venture, my idea is to create a professional vetting service which helps landlord vet their potential tenants, if a tenant passes the vetting process, I will offer the landlord 80% of 12 month of rent payments up front, and the tenant will subsequently pay me 100% of the rent as agreed in the tenancy agreement over a period of 12 months. So if the lease states $1500 per month for 12 month ($18,000), my company will pay the landlord $18,000 x 80% = $14,400 dollars up front, and the tenant will pay me $1500 per month, in the end if the tenant fully pays 12 month rent, I will make 18,000 - 14,400 = $3600 in profit. If the tenant stops paying, then I lose out, so I take on the risk of non-payment.

However, the problem I am running into is how to structure the agreeement(s) between my company, the landlord, and the tenant.

How would the lease agreement work in this example?

Would my company sign an agreement with the landlord, stating that my company has the right to lease the property, to collect payment, and evict the tenant if there is non-payment?

And would my company then sign a lease agreement with the tenant? So that the tenant will pay me the monthly rent amount.

David Siegel
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Jim
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3 Answers3

23

The tenant wouldn't be involved in this at all. The tenant rents from the landlord, and the landlord gives them an account number where the tenant sends the money every month. How would the tenant be involved with you? Actually, if I was the tenant and I was told to pay the rent to some third party, that would be the reddest of all red flags to me.

As a landlord, you buy insurance that covers exactly that situation. It's called "rent guarantee insurance". It's cheaper, and the insurance company doesn't pay enormous sums up front.

gnasher729
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18

Debt factoring is common practice

Fees generally range about 1-2% higher than mortgage rates depending on how prevalent bad debts are in the industry. This means I can get what you’re selling for less than a quarter of your price.

Typical arrangements are that I get 80% when the debt falls due and the balance (less your fee of say 3%) when the debtor pays. You are responsible for debt collection. Of course, that’s in construction where payers are notoriously late and the risk of insolvency is high. I could probably get a better deal for residential rent.

Dale M
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It is not uncommon for a landlord to instruct tenants to make payments via a lockbox service to an address other than the landlord's business office address. It is also not uncommon for a landlord to hire a management company that collects all rent and also handles maintenance and other on-premises services. Such services, I understand, charge rather less than 20% of the rent. It seems that you are reinventing a cross between rent guarantee insurance and a management service.

Such a service would be legal, and the landlord could instruct tenants to pay to the provider of the service if the landlord chose to do so. The landlord would designate the service as the landlord's agent to collect the rent, with the power to engage in eviction poceedings on proper occasions.

Whether there would be a market for such a service, and at what price, is not on topic for Law.SE.

David Siegel
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