Sublet Math: Acquisition Rent, Re-Rent, Vacancy and Paying the Owner

Sublet profit = rent collected − rent paid to the owner − vacancy loss. Simple on paper, but mix the two money lines and a couple of empty months and the books are gone. Here's the correct structure for a sublet ledger.

Rental arbitrage — leasing a property long-term, then re-renting it — can be explained in one sentence: buy low, rent high, keep the spread. In practice, the first thing to break is rarely the acquisition price; it's the books. Plenty of subletters can't say by month three how much actually came in, how much is owed upstream, or whether they made money at all. This is the correct structure for a sublet ledger.

Two Money Lines — Never Mix Them

A subletter runs two ledgers at once:

Receivable, from tenants. Monthly rent, plus deposits; utilities either bundled or metered separately.

Payable, to the upstream owner. Paid per your head-lease, typically first-and-last-month or quarterly.

Different frequencies, different amounts, different dates. Folding both into one transaction log is the classic failure mode: the balance looks healthy at month-end, but half of it belongs to the owner next month. The rule: every collection posts against a receivable bill, every payment against a payable bill — and only the difference is your operating result.

Vacancy: the Real Killer

The difference between subletting and owning: when the unit sits empty, tenant income stops, but the owner's rent doesn't.

Quick intuition: acquisition at $4,000/month, re-rent at $5,200 — a paper spread of $1,200. Two vacant months a year put vacancy loss at 2 × $5,200 = $10,400, eating most of the annual spread. So the pricing decision is never "charge as much as possible" — it's trading rent level against empty weeks: $5,200 that takes six weeks to let often loses to $4,900 that lets in one.

Two habits worth building:

• Record vacancy loss as days × daily rate, not as a vague sense that "the month went poorly." Daily rate = monthly rent ÷ 30 (or actual days).
• Watch occupancy rate: the gap between 92% and 85% over a year can outweigh everything you negotiated off the acquisition price.

Break-Even First

Work this out before signing the head lease: break-even occupancy = (annual rent payable + annual fixed costs) ÷ (annual rent at full occupancy)

Fixed costs: agency fees amortized, renovation amortization (standard in sublet deals), furniture depreciation. Say acquisition is $4,000, fixed costs $12,000 a year, full occupancy is $5,200 × 12 = $62,400: break-even = (48,000 + 12,000) ÷ 62,400 ≈ 96%. A unit that may essentially never go vacant is not a deal — renegotiate the price or upgrade the fit-out to lift the re-rent. Most sublet failures date back to the day the head lease was signed, not to operations.

Easy Traps to Miss

Deposits misaligned at both ends. You collect one month from tenants; the owner collects two from you. Deposits are liabilities, not income — amounts often differ, refund dates can drift months apart, and your cashflow needs to be planned around that.

Who pays utilities. "All bills included" means every hour of air conditioning comes out of your spread. Either price in a buffer or install sub-meters and bill by usage.

Term misalignment. Three years with the owner, one year with each tenant: every year brings a re-letting and vacancy risk, and the owner can take the property back in year three. In the head lease, renewal priority and compensation clauses are worth more than another $100 off the rent.

Repair responsibility. You fix natural wear (it's a cost), tenants fix what they break (from their deposit), the owner fixes structure (put it in writing). Without terms, every repair is a negotiation.

Let the Ledger Watch Both Lines

The structure above — receivables from tenants, payables to owners, vacancy loss, occupancy — is exactly the model behind RentPilot, the app we're building: attach an upstream contract to a property and payable-to-owner bills generate themselves, vacancy days convert to loss at the daily rate automatically, and a vacancy simulation slider helps you weigh "+$100 rent" against "+2 weeks empty". Fully offline, no account — the data lives only on your phone. Coming to the App Store and Google Play.

Start with the basics of rental bookkeeping in how landlords should track rent; when a tenant does fall behind, see rent reminder templates.