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> [Shatford] said a low-risk approach to investing in the industry is to build a portfolio by signing yearlong leases instead of buying the properties. The wors

> [Shatford] said a low-risk approach to investing in the industry is to build a portfolio by signing yearlong leases instead of buying the properties. The worst that can happen is a landlord who isn’t told about the operation can terminate a lease and keep the security deposit. Wow, that's slimy. I assume the leases he's signing, like pretty much all rental agreements, explicitly forbid unapproved sublets or guests staying more than a few days a month. So his get-rich-quick scheme (or "business plan") is to sign contracts he knows he will break, and hope he doesn't get caught until after he has come out ahead.

gphil 11y ago
It's troubling that this is where the entrepreneurial ethos is heading. But it's hardly surprising with the leaders of the "sharing economy" almost ubiquitously operating illegally, enticing their customers and contractors to be complicit in illegal behavior, and flouting existing regulations. To make matters worse, governments are even letting them get away with it in many cases.
- TeMPOraL 11y ago
  It's actually destabilizing on societal level. Those companies usually offer very good service for the customer, dumping the risk on third parties. The government tries to step in, and then faces loud opposition from general population who likes the service and cannot for the world understand why the administration thinks there's a problem.
  - Thriptic 11y ago
    What's the solution then?
    - TeMPOraL 11y ago
      I don't know. I just wish local government would have more balls, acted more decisively. AFAIK Germany is the only one who successfuly managed to (mostly) get rid of Uber.
matwood 11y ago
I know some local landlords and they have started putting in their lease agreements that if the tenant rents out on something like AirBnb they now owe the landlord the full amount of the rental income. So, in the above case it would not just be getting kicked out, but also owing a ton of money with a fairly easy case to have a judgement against. I fully expect this to be standard in all lease agreements going forward.
- hellofunk 11y ago
  I hope you are right. It really lowers the quality of life for all neighbors when a house or apartment is instead used as a hotel-like business. Especially in high-tourist areas, most residents don't want to live right next to a revolving door of temporary guests.
- bduerst 11y ago
  I'm surprised there haven't been more requirements on AirBnB's part to do due diligence with the rental properties - e.g. user has to upload a copy of their lease to prove they have the right to rent it out.
napo 11y ago
> So his get-rich-quick scheme (or "business plan") is to sign contracts he knows he will break, and hope he doesn't get caught until after he has come out ahead. Sadly, it's often a good strategy to just breaking the law or an agreement, even with the risk of being caught.
- harryf 11y ago
  ...and the real nasty here is if you're doing this to small / independent landlords, once you're making enough income you could make yourself very difficult to remove by "out-lawyering" them
JonFish85 11y ago
"hope he doesn't get caught until after he has come out ahead." You've just described Airbnb & Uber's entire business plan.
- TeMPOraL 11y ago
  I usually describe it as "taking trust that keeps the society together and burning it to generate dollars".
  - jessriedel 11y ago
    How does Uber hurt trust?
    - TeMPOraL 11y ago
      Uber's business model is based on throwing VC money at lawyers that can keep local administration at bay and let them freely ignore the law. Meanwhile, they try to paint themselves as a white knight going against the Evil Taxi Mafia. It erodes trust people have in the rule of law. I agree my comment above doesn't fit Uber in such obvious way as it fits AirBnB, but Uber is actually sociopathic in its DNA, starting from top-level management[0]. A lot of things they did and do were based on abuse of trust and civility. [0] - Source: scroll down to the bottom of this page, enter "Uber" in the search bar, and browse through relevant submissions from the last two years; we've covered all the antisocial behaviour of Uber and its management here, on HN.
      - Balgair 11y ago
        Come on, you got to give a better source than that. If you tell us to basically google it, that's not a source, that's an assignment. Nor is telling us that a comment is a source. You have to give us at least an article or link to even pretend you are sourcing something.
        TeMPOraL 11y ago
jhulla 11y ago
Part of the vetting process of tenants is simply this: will this person be thoughtful in my property. E.g. this person will not through negligence or malice destroy my walls, my plumbing, abuse the appliances, burn things in my oven. And often the most annoying: will not smoke inside the property. You can do your due diligence with one tenant. When that tenant airbnb's the property and brings in say 50 other occupants over the course of a year, you are now in a completely different zone.
imgabe 11y ago
The contract outlines the penalty (or cost) for unapproved guests or sublets. If the lessee is willing to pay the penalty, what's the problem? If the penalty isn't sufficient to deter the unwanted behavior, increase it until it is. If we have an agreement that I give you $5000 or you can punch me in the face, and I choose to take the punch in the face, that's not breaking the agreement. You didn't get "cheated" out of $5000. I chose an option that was specifically outlined in the agreement.
- JonFish85 11y ago
  So clearly you don't have a problem with a company intentionally breaking rules because they stand to profit, regardless of any fine they may have to pay?
  - imgabe 11y ago
    A contract is not a rule, it is an agreement between two parties. A good contract spells out the penalties for what happens when one party doesn't adhere to the terms. It's up to both parties to make sure those penalties are sufficient to make themselves whole in the case that happens. If at any time the penalties are less than the cost of adhering to the terms of the contract, it's only rational to break the contract and pay the penalty. Let's say you had an employment contract where you get paid $100k/year, but if you leave before 5 years, you have to pay a $50k penalty. 3 years in, you get a job offer for $500k/year. Are you going to stick to the contract because you need to obey "the rules", or are you going to pay $50k and take the much higher paying job?
    - TeMPOraL 11y ago
      > If at any time the penalties are less than the cost of adhering to the terms of the contract, it's only rational to break the contract and pay the penalty. The rules that are broken here aren't in the contract, they're about the contract. So if it's rational (in economical sense) for me to break a contract, then I should break it[0] and then pay the penalty. The problem with people subletting on AirBnB is that they don't show up at their landlord's doors immediately after the guest leaves, ready to pay the price. They just keep cheating the other side until they get caught. In your employment example, it would be as if I worked remotely at the first job, then joined the second company and didn't tell my former employer - just logged hours for doing nothing, hoping he doesn't notice (maybe it's a big company). [0] - that how it may work in Serious Business, but contracts between regular people are usually entered with an assumption that both sides want to follow them through; to break them on purpose based on cost-benefit calculation means one is an asshole.
JohnTHaller 11y ago
Slimy. And illegal in most large cities where Airbnb is popular. Renting out a whole unit in NYC when you're not present is illegal whether you own the place or not if you're not a properly licensed hotel or bed and breakfast. But, guess where Airbnb gets the majority of their revenue from in NYC? I'll give you a hint, it's not from nice families renting out a single room in their apartment and making dinner for their guests like Airbnb shows in their commercials.
bdcravens 11y ago
Were I a landlord, I'd start putting in an AirBnB clause, entitling me a penalty of 125% of AirBnB revenue.
- JonFish85 11y ago
  And if it ever went to court, Airbnb would pour so many lawyers into getting that case thrown out that you'd never see a dime of it. It is imperative that a lawsuit like this never get publicity, or else they'd lose billions of dollars in valuation instantly, which would make investors very cranky.
  - ceejayoz 11y ago
    I'm not a lawyer - are you allowed to do that? Can a third-party inject itself into a contract dispute between two parties?
    - thesnider 11y ago
      They would just fund the renter's legal team.
      - ceejayoz 11y ago
        Would a judge for a local municipality look kindly upon that sort of interference?
    - JonFish85 11y ago
      If they couldn't do it directly, I don't know that there's a problem with providing legal counsel for someone? Or paying for their lawyer, at the very least? I am NOT any sort of lawyer and have no experience with this at all, so this is all just my imaginative thinking.
  - bdcravens 11y ago
    Most landlord claims end up in small claims court.
  - 11y ago
pasbesoin 11y ago
At what point would such activity rise to the level of fraud? I hope it does, and that people like this end up with criminal records and hopefully time served. I doubt that other tenants wish to live in a hotel/motel. Or that many landlords want to be reduced to being property managers for ersatz hotels -- at rental-level incomes.
- dragonwriter 11y ago
  > At what point would such activity rise to the level of fraud? As soon as anything of value (including possession of the property) transfers based on the misrepresentation, AFAICT.
southphillyman 11y ago
My friend is currently doing this. I view it as subletting without the additional paperwork. Ultimately my friend will be reasonable for any damage or disturbances. The thing we're trying to figure out is if this approach can scale. Currently his second apartment is leased by his fiancee, who is out of the country for school. Beyond 2 or 3 apartments I'd imagine this approach would get a bit dicey.

gphil 11y ago

It's troubling that this is where the entrepreneurial ethos is heading. But it's hardly surprising with the leaders of the "sharing economy" almost ubiquitously operating illegally, enticing their customers and contractors to be complicit in illegal behavior, and flouting existing regulations. To make matters worse, governments are even letting them get away with it in many cases.

TeMPOraL 11y ago
It's actually destabilizing on societal level. Those companies usually offer very good service for the customer, dumping the risk on third parties. The government tries to step in, and then faces loud opposition from general population who likes the service and cannot for the world understand why the administration thinks there's a problem.
- Thriptic 11y ago
  What's the solution then?
  - TeMPOraL 11y ago
    I don't know. I just wish local government would have more balls, acted more decisively. AFAIK Germany is the only one who successfuly managed to (mostly) get rid of Uber.

matwood 11y ago

I know some local landlords and they have started putting in their lease agreements that if the tenant rents out on something like AirBnb they now owe the landlord the full amount of the rental income. So, in the above case it would not just be getting kicked out, but also owing a ton of money with a fairly easy case to have a judgement against. I fully expect this to be standard in all lease agreements going forward.

hellofunk 11y ago
I hope you are right. It really lowers the quality of life for all neighbors when a house or apartment is instead used as a hotel-like business. Especially in high-tourist areas, most residents don't want to live right next to a revolving door of temporary guests.
bduerst 11y ago
I'm surprised there haven't been more requirements on AirBnB's part to do due diligence with the rental properties - e.g. user has to upload a copy of their lease to prove they have the right to rent it out.

napo 11y ago

> So his get-rich-quick scheme (or "business plan") is to sign contracts he knows he will break, and hope he doesn't get caught until after he has come out ahead. Sadly, it's often a good strategy to just breaking the law or an agreement, even with the risk of being caught.

harryf 11y ago
...and the real nasty here is if you're doing this to small / independent landlords, once you're making enough income you could make yourself very difficult to remove by "out-lawyering" them

JonFish85 11y ago

"hope he doesn't get caught until after he has come out ahead." You've just described Airbnb & Uber's entire business plan.

TeMPOraL 11y ago
I usually describe it as "taking trust that keeps the society together and burning it to generate dollars".
- jessriedel 11y ago
  How does Uber hurt trust?
  - TeMPOraL 11y ago
    Uber's business model is based on throwing VC money at lawyers that can keep local administration at bay and let them freely ignore the law. Meanwhile, they try to paint themselves as a white knight going against the Evil Taxi Mafia. It erodes trust people have in the rule of law. I agree my comment above doesn't fit Uber in such obvious way as it fits AirBnB, but Uber is actually sociopathic in its DNA, starting from top-level management[0]. A lot of things they did and do were based on abuse of trust and civility. [0] - Source: scroll down to the bottom of this page, enter "Uber" in the search bar, and browse through relevant submissions from the last two years; we've covered all the antisocial behaviour of Uber and its management here, on HN.
    - Balgair 11y ago
      Come on, you got to give a better source than that. If you tell us to basically google it, that's not a source, that's an assignment. Nor is telling us that a comment is a source. You have to give us at least an article or link to even pretend you are sourcing something.
      - TeMPOraL 11y ago

jhulla 11y ago

Part of the vetting process of tenants is simply this: will this person be thoughtful in my property. E.g. this person will not through negligence or malice destroy my walls, my plumbing, abuse the appliances, burn things in my oven. And often the most annoying: will not smoke inside the property. You can do your due diligence with one tenant. When that tenant airbnb's the property and brings in say 50 other occupants over the course of a year, you are now in a completely different zone.

imgabe 11y ago

The contract outlines the penalty (or cost) for unapproved guests or sublets. If the lessee is willing to pay the penalty, what's the problem? If the penalty isn't sufficient to deter the unwanted behavior, increase it until it is. If we have an agreement that I give you $5000 or you can punch me in the face, and I choose to take the punch in the face, that's not breaking the agreement. You didn't get "cheated" out of $5000. I chose an option that was specifically outlined in the agreement.

JonFish85 11y ago
So clearly you don't have a problem with a company intentionally breaking rules because they stand to profit, regardless of any fine they may have to pay?
- imgabe 11y ago
  A contract is not a rule, it is an agreement between two parties. A good contract spells out the penalties for what happens when one party doesn't adhere to the terms. It's up to both parties to make sure those penalties are sufficient to make themselves whole in the case that happens. If at any time the penalties are less than the cost of adhering to the terms of the contract, it's only rational to break the contract and pay the penalty. Let's say you had an employment contract where you get paid $100k/year, but if you leave before 5 years, you have to pay a $50k penalty. 3 years in, you get a job offer for $500k/year. Are you going to stick to the contract because you need to obey "the rules", or are you going to pay $50k and take the much higher paying job?
  - TeMPOraL 11y ago
    > If at any time the penalties are less than the cost of adhering to the terms of the contract, it's only rational to break the contract and pay the penalty. The rules that are broken here aren't in the contract, they're about the contract. So if it's rational (in economical sense) for me to break a contract, then I should break it[0] and then pay the penalty. The problem with people subletting on AirBnB is that they don't show up at their landlord's doors immediately after the guest leaves, ready to pay the price. They just keep cheating the other side until they get caught. In your employment example, it would be as if I worked remotely at the first job, then joined the second company and didn't tell my former employer - just logged hours for doing nothing, hoping he doesn't notice (maybe it's a big company). [0] - that how it may work in Serious Business, but contracts between regular people are usually entered with an assumption that both sides want to follow them through; to break them on purpose based on cost-benefit calculation means one is an asshole.

JohnTHaller 11y ago

Slimy. And illegal in most large cities where Airbnb is popular. Renting out a whole unit in NYC when you're not present is illegal whether you own the place or not if you're not a properly licensed hotel or bed and breakfast. But, guess where Airbnb gets the majority of their revenue from in NYC? I'll give you a hint, it's not from nice families renting out a single room in their apartment and making dinner for their guests like Airbnb shows in their commercials.

bdcravens 11y ago

Were I a landlord, I'd start putting in an AirBnB clause, entitling me a penalty of 125% of AirBnB revenue.

JonFish85 11y ago
And if it ever went to court, Airbnb would pour so many lawyers into getting that case thrown out that you'd never see a dime of it. It is imperative that a lawsuit like this never get publicity, or else they'd lose billions of dollars in valuation instantly, which would make investors very cranky.
- ceejayoz 11y ago
  I'm not a lawyer - are you allowed to do that? Can a third-party inject itself into a contract dispute between two parties?
  - thesnider 11y ago
    They would just fund the renter's legal team.
    - ceejayoz 11y ago
      Would a judge for a local municipality look kindly upon that sort of interference?
  - JonFish85 11y ago
    If they couldn't do it directly, I don't know that there's a problem with providing legal counsel for someone? Or paying for their lawyer, at the very least? I am NOT any sort of lawyer and have no experience with this at all, so this is all just my imaginative thinking.
- bdcravens 11y ago
  Most landlord claims end up in small claims court.
- 11y ago

pasbesoin 11y ago

At what point would such activity rise to the level of fraud? I hope it does, and that people like this end up with criminal records and hopefully time served. I doubt that other tenants wish to live in a hotel/motel. Or that many landlords want to be reduced to being property managers for ersatz hotels -- at rental-level incomes.

dragonwriter 11y ago
> At what point would such activity rise to the level of fraud? As soon as anything of value (including possession of the property) transfers based on the misrepresentation, AFAICT.

southphillyman 11y ago

My friend is currently doing this. I view it as subletting without the additional paperwork. Ultimately my friend will be reasonable for any damage or disturbances. The thing we're trying to figure out is if this approach can scale. Currently his second apartment is leased by his fiancee, who is out of the country for school. Beyond 2 or 3 apartments I'd imagine this approach would get a bit dicey.