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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.

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  • 7
    It seems like you could most easily just set yourself up as a contractor to process the payments. Tenant pays you, you shave off your fee, the fee goes to the landlord.
    – bdb484
    May 3 at 21:51
  • 16
    You might want to look at lease guarantor companies. Insurent is a notable one in the New York City market. They don't charge 20%, though the landlord doesn't get the year's rent up front (if the landlord wants a loan, they likely have more affordable ways to obtain one thanks to the equity in their real estate). May 4 at 4:34
  • 5
    In the UK, this is called rent-to-rent. May 4 at 10:32
  • 7
    What if a tenant needs to withhold rent in order to get repairs made? The landlord has been paid, and would have even less incentive to care than usual. What recourse would you have to get your rent? May 4 at 16:27
  • 3
    This sounds similar to rental management companies that already exist. Owner pays a fee or gives a cut of the rent to a company, and the company does the work of finding tenants, collecting rent, and dealing with maintenance on the property. This isn't a new idea, nor uncommon.
    – Seth R
    May 5 at 15:02
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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.

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    Thanks, let me take a look into how "rent guarantee insurance" works, because it is similar to my idea. Except that the benefit of my venture, is that the landlord can get future payments immediately for a higher fee, meaning they can use that money for other purposes like for a downpayment for another property etc.
    – Jim
    May 3 at 20:09
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    The reason why I want to be involved with the Tenant, is I want to receive the payment directly from the Tenant, and not from the landlord, since there is risk that the Landlord could withold rent payment (fraud). Also, I want to have the power to evict the tenant, if they stop paying. Because I cannot rely on the landlord to evict the tenant, since they already received their money upfront from me.
    – Jim
    May 3 at 20:16
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    "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" - isn't this exactly what happens when theres an agent involved? All the OP is trying to do is introduce an agent it seems - in my real life case, I have an agent who the tenant pays rent to, and the agent deducts a fee and sends me the remainder, but I am still the landlord on the property lease and responsible for the tenants welfare and repairs etc. I am the one who legal documents would be issued to for example, not the agent.
    – Moo
    May 3 at 20:20
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    There are already many companies that offer debt factoring which is what your scheme is called and they don’t charge 20% -more like 2-3%
    – Dale M
    May 3 at 21:02
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    "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" - this could be jurisdiction dependent. In the UK, where there is a managing agent involved (i.e. where the tenant calls an agent for repairs etc. instead of the landlord) it is very much normal and expected that the tenant pays their rent to the agent, who then deducts their monthly fees before paying the balance to the landlord.
    – JBentley
    May 6 at 12:58
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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.

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  • Agreed, this is essentially debt factoring. But there is different complexity between debt factoring for accounts receivable vs debt factoring for rental income. Since its a different set of laws which apply to commercial debt and rent.
    – Jim
    May 3 at 21:26
  • A relative in a different industry used to do that a lot. He had to submit the details of the company he did work for and the amount. And there was the possibility that the insurance company said "no". In that case he could have done the job without insurance, but always assumed that the insurance company had a good reason to refuse.
    – gnasher729
    May 4 at 10:11
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    @gnasher729 there is a difference between factoring - where the company buys the debt and debtor insurance- where an insurer takes the risk of insolvency/non-payment.
    – Dale M
    May 4 at 10:24
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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.

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