In the short-term rental riches will discuss investing in real estate with a specific focus on short term rentals quick actionable items to wire. Scale your portfolio I’m your host Tim Hubbard.

Welcome back to the short term-rental riches podcast. So I talk a lot about the upsides in real estate in short term rentals and that’s because I’m super bullish and I think it’s got a lot of room to run specially if you’re in the right market but there’s a couple areas that maybe we need to be a little more careful about one of those is lease arbitrage there are some more potential downsides that I want to bring up this week so if you guys have been listen the podcast for awhile you know that I am mainly own all my properties but I did do a lease arbitrage deal with 10 apartments it’s actually working now very very well although we have had a few issues and I was watching a popular YouTube channel Airbnb automated recently not sure if you’ve seen that but a guy named Sean runs it and he exclusively does lease arbitrage so he knows this much better than I do I think is over like 100 properties or something and so he has good advice on the operational side on how to run lease arbitrage deals now he’s not investor in these properties in as you guys know I am an investor at heart and that’s what we talk about almost exclusively on this channel but I did happen to do this lease arbitrage deal and he brought up some good points as to why it lease arbitrage might not be looking so bright in the future so I want to talk about some of those main points a couple of which are actually sort of affecting me right now with my lease arbitrage deals so let’s just jump on the first one what happens if the landlord doesn’t fix big maintenance issues well we can have this in our lease right and I I I hope that you do if you have a lease arbitrage deal out there but even if we have at least it doesn’t mean that the landlord’s gonna fix it I go overnight I can tell you this property that I lease these 10 units it’s in a really cool historic building it was like 90 percent renovated but the part that wasn’t renovated however having a couple challenges with and it’s. Getting delayed and it’s getting delayed and it’s preventing us from being able to rent some of the units I don’t know when they’re actually gonna be able to be rented out there’s some noise issues and stuff like that the good news is I have a good relationship with the owner and some not pain for those leases while I’m not able to rent them out but this has taken a long time and now if you’re in a lease deal with an owner that maybe isn’t so easy to work with you could kind of running out of that deal right so we can kind of relate this to rent control if you’ve studied were in control before you know it usually doesn’t work out and yes they did just pass it statewide in California which is where I’m originally from but a lot of times what happens with rent control is if investor a landlord can’t raise their rents and they have a tenant in there that’s way under rented while they stop fixing things first of all they’re not making as much money but it’s also something that they might be doing and hopes that the tenant moves out so that they can raise rents so it’s not good for either side in what we’re doing these lease arbitrage deals were locked into a lease rate and a lot of these lease arbitrage deals like the one I signed is 7 years long that means if the landlord of the owner thinks that he’s missing out on a lot of rain well then maybe some of these similar things might start happening we can of course covers movies main expenses and I actually have that in our lease that you know if it’s under $200 we’re gonna fix it because we want to get it fixed as soon as possible so that our guests are happy but there’s only so far we can go with that before it starts even returns right so that’s a big issue that you might encounter is just issues with the property in a landlord maybe not wanting to fix them now another one that might come up and as property prices are her booming because we’ve printed so much money in asset prices are getting higher and higher a lot of land lords would like to refinance their properties and pull cash out we talked about cash out refinance. As before but you can’t cash out refinance a property this not least stop right so if a landlord comes along and someone says I would like to lease all of your apartments well that’s a way for them to lease them up really quickly the rains come in regularly and the banks probably gonna be comparable or more comfortable providing them a new loan because that property is fully occupied now what if hopefully this doesn’t happen but what if the landlord really just wanted to lease that property up so you can cash out refinance and then he doesn’t really care what happens afterwards I could kind of go down hill you know what I mean so hopefully that’s not happening this third one we talked about a lot and that’s if the laws change in a city and you don’t have it in your lease you don’t have that as an out in your lease so for example if. Someone says city comes along says you can’t do lease arbitrage and you’re still required to pay that lease and you don’t have that out in your release while cash you’re gonna be you’re gonna be in trouble there so we did a episode awhile back about some of the things I highly recommend putting in your lease arbitrage deal if you’re going to do that I have this clause in our lease and Miley’s 1 other thing that’s happening here in the real estate world and that is that rents are going up there going up really quickly right an average of over 10 percent nationwide some cities as much as 30 percent so if you’re locked into a long term lease that’s great because that means that your arbitrage the difference between what you’re leasing the property for what you’re very likely able to release it or sublease it out to short term rental gases Prague and be higher but what happens when that lease runs out it’s only a year to year from now on your landlord wants to Jack your lease up 20 percent if you’re not in a lease well then they can do that and most states some states have restrictions around that but what’s going to happen at the end of at least walk the 1 that I signed is 7 years I’ve already got my money back basically and it has even been a year yet so it’s working out really really well but I incorporated to lease increases and my 7 year term 23 percent rent increases which means at the end of the 7 year term I’m gonna be running those apartments for way way way less than the market value and what is a landlord very likely going to want to do is gonna want to Jack him way operates so the end of the 7 year lease could very well be the end of my lease arbitrage deal but I’m prepared for that like I said the reason I got in this deal’s already had the operations in place we’ve talked about that before lease arbitrage deals are operated just like a normal short terminal for the most part on all the guest relations everything in that sense so I think they can be really good there’s just things that we have to be careful of. And with rents rising like this maybe they’re not going to be as lucrative has a lot of us maybe wanted them to be so out lastly again I got some of these points from Sean on Airbnb automated he does have a lot of good content on his you tube channel so check it out if you haven’t already in he said that he’s making about 25 to 27 percent on his money now I can tell you and making more than that. And yes there are barriers to entry to purchase your properties and I realize that that can be a bit of a hurdle but this is a long term strategy owning the property is a long term strategy if the rules change in the city I can go back to long term rents if the rents rise really high well then good for me good for all of us to actually own the property because we can charge higher rents I’m actually making more than the percentage that he quoted and that’s not even including the fact that we can do these cash out refinances so some of these properties I have $0 and and they’re making a lot of money so the returns are really good I’m not saying these arbitrage doesn’t have a space in your portfolio or if you already have the operation set up and it could be a really good way to get started just keep in mind the future outlook maybe doesn’t look as bright as it used to and you’ve got to think in the very end of this is is this a long term solution we know it’s not really an investment right or not when I actually owning anything it’s if you stop leasing those properties well then you’re gonna stop making money whereas if you’re on the properties you’re gonna continue have tenants and they’re going to continue to build walls so that is the ultimate goal I know it’s not super easy to get into that we’ve got that initial hurdle of coming up with our down payment but you can definitely do it if you haven’t yet so just want to bring up some of these points and I don’t want to intimidate anyone from getting in the short term in the world because I think it’s fantastic I’m super bullish on it and so until next time have a wonderful day. If you haven’t got a chance to come to one of our last 3 live events which were a ton of fun and we learned a ton while I’m excited to share the dates for next virtual event November 13 and fourteenth you can find out more information at rest methods.com R. U. S. T. methods.com we are going to jam pack those 2 pages full of information if you haven’t got a short term rental yet or if you have a few or if you have a lot you’re going to learn a ton in this weekend event we’re going to share everything that my team and I have learned managing thousands and thousands and thousands of gas we’ve learned a lot we’ll take it from start to finish requiring these properties will run some case studies I will use my property analyzer tool which also get if you join the virtual bent we’ll talk about setting up the perfect online listing like approach to attract the most gas and then we’ll talk about operations and standard operating procedures and some of the tools that you can use to manage these properties as passively as possible but maybe what I’m most excited about is after sharing all that is answering your guises questions live I love hearing all the questions and we always get a lot of good ones so come join us November 13 and fourteenth for our next virtual event again you can check it out at rest methods.com look forward to seeing you there.
RELATED PODCAST EPISODES

• Episode 85: How I Got An Apartment Building For Free
• Episode 72: HAVE This in Your Lease Agreement (Lease Arbitrage)
• Episode 71: Negotiating a Better Lease Rate for Lease Arbitrage
• Episode 47: What Keeps Us From Purchasing Investment Properties Remotely? (F**R‪)‬
• Episode 03: Owning a Short-Term Rental vs. Lease Arbitrage