March 23, 2021

Episode 71: Negotiating a Better Lease Rate for Lease Arbitrage

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Property Acquisition

How to build an Airbnb business: Negotiating a Better Lease Rate for Lease Arbitrage

At first glance you may think that a landlord would never want to rent you his or her rentals so that you could sub-lease them and put them on Airbnb. There are parties, increased wear and tear, and much more liability with short-term rentals right?? Isn’t there? Well, if you’ve listened to this podcast for some time you know that’s not really the case. When managed properly short-term rentals can help you earn far greater returns without all the headache. And while you can also earn better returns so could a potential landlord leasing their rentals to you. I just signed a lease for 10 apartments with one owner and want to give you some pointers on how I negotiated the lease rates.

Benefits to the landlord and how to discuss them
Why one tenant can solve their management problems
Why the landlord might earn more leasing to you!
Presentation: Two sided spreadsheets (one long term vs. short-term)

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Why would a landlord want to lease all of his apartments to someone who’s gonna turn around and sublease them out.

Well there’s a lot of benefits for talking about lease arbitrage this week and at 10 unit apartment deal that I just signed want to share the details with you and the benefits from a landlord from an owner’s perspective why they would want to do this let’s jump right in.

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

Welcome back to the short-term rental riches podcast happier here again as always where ever you are in the world I’m still down here in Brazil but still working on deals in the US with my team I’m really excited about one that I just signed want to share with you guys this week we’re gonna be talking about lease arbitrage and if you listen to the podcast for a while you know that my whole goal behind all of this is to build wealth and with lease arbitrage I have certain feelings about that essentially we’re not building wealth with lease arbitrage because we don’t actually own the properties but we can make a ton of cash flow and I just signed a deal for 10 apartments in what used to be an old historic hotel I’m really excited about it I want to share with you guys this week why it was such a good deal for the owner but also such a good deal for me so let’s just go ahead and jump right in and there’s a lot to talk about with these arbitrage the beautiful thing is that if we’re doing these arbitrage we can use our same operations of the same operations use for properties we own identical with lease arbitrage in terms of gas management and housekeeping and reservations and everything like that but of course the whole process of acquiring the properties is much different so this week we’re gonna talk about some of the negotiating leverage that I had as an individual wanting to lease apartments to sublease and on the landlord side why he could actually make more money than if he rented to long term tenants so I’m going to break this down and then next week we’re gonna talk about some. At the very very important pieces of our actual lease that we asked for and we made sure we had before we signed on the line so in terms of an owner trying to rent their properties out so it as we invest in property our biggest goal is to make the most cash flow right that’s why we do it cash flow and build wealth and hopefully we have it set up as a passive operation now for this particular owner he’s renovating 10 apartments all the apartments that exist in this building above a restaurant in his restaurant guy he’s had a restaurant for over a decade luckily it’s done well through coding he’s expanding actually and so he bought a property right next to its existing restaurant Stan towns awesome location and he renovated the whole thing Anne’s doing a fantastic job and so these old apartments are actually basically brand new and now for him to go find tenants find management do you want the credit backgrounds in the checks and all those things and the time it takes to lease out up that could take a lot of time in Consolata money and he actually approached me about leasing all the units so I had that advantage from the very beginning we might not all have that advantage but I want to share with you the things that we talked about we’re negotiating the actual price per unit so I essentially I came up with 2 spreadsheets and I said yeah I’m interested I actually haven’t done these arbitrage before but I know a lot about it I own on my own properties but I think this could work out really well for both of us and here are the numbers that Iran so on one side I had my offer price per apartment and then all the associated costs if he were to rent it to me as a short term rental now on the other side I had. The long term rental equation and all of the associated costs he would have if he decided to just take it on and rented out as traditional long term rentals so on my side these are the benefits for the landlord he’s gonna have 0 vacancy because if im leasing these apartments I’m giving him as payment every month no matter whether we rented it or not now you gotta be careful there we’re gonna talk about the actual terms of the lease next week but from the owner’s perspective if I’m leasing the apartments she has 0 vacancy for the life of our lease so that’s a positive in his particular situation I’m leasing all 10 from day one so he has no time to lease these up maybe it takes 6 months to find long term tenants so that is one risk that he could avoid by sub leasing another beautiful thing from the landlord’s perspective is that if one person is renting your apartment and wants to rent all of them because they’re working out well as a sublease model well then you could essentially have one tenant for a larger apartment so he only has to deal with me for these 10 apartments he doesn’t have to collect rents from 10 different people it’ll be so much easier to deal with one person than it is with 10 people so he also has no lease up costs you know if he decided to to rent this out long term and let’s say he found a management company and he didn’t want to do this himself will typically he’s gonna pay half the first month’s rent or a full month’s rent to get that apartment leased up and that might only be for a year on top of that he’s gonna have to pay that manager on going on a percentage basis every month to manage those tenants also if he’s only dealing with one tenant me for example running all 10 well his bookkeeping is gonna. To be a lot easier it’s a small thing but it is important as well so I tried to outline a lot of these things coming from the owner perspective and I laid those all out on one side of an excel sheet with all of the numbers these are the potential rents this is potential time Lisa mop these are potential constantly sum up this potential ongoing management fee and your average lease might be you know hopefully 2 years but usually a minimum one year and in this situation he’s gonna be leasing these apartments to me for potentially 7 years so there’s no turn over there he has no turnover costs doesn’t have to go in and redoing apartments to find a new tenant have vacancy during all of that so these are some really really good benefits and the cherry on top for this deal for this owner for this investor the city has a restaurant on the first floor and that is his baby that is the most important thing for him because he’s not a perfect guy yeah he he’s a restaurant guide that just happen to find a great building that had apartments there already so by me managing these 10 apartments furnished just like I do with all the properties I own it’s not only going to make it easier for him but it’s going to provide a lot more opportunity for his restaurant I already have properties in this area so is able to run calms and give him a realistic idea of how many gas you could expect to come in and then we factored in $1 amount her gassed very conservative but that’s really just like a bonus on top this is probably gonna be unique situation but when you guys are out there if you’re doing the lease arbitrage route where your running apartment to sublease it for short term rental gas you got a look at every benefit to the land are possible because it’ll help you in the negotiations and in the air. And the final result I saved about 15 percent off the rent for all 10 apartments from what he was initially asking was also able to get a month for free and we negotiated some really good rent increase terms I’m going to go over all the terms of the lease next week because it’s too much to cover in one episode but for this episode in particular just want to cover how I handled that and recap some of those benefits from an owner perspective why they would want to lease to someone who’s gonna turn around and sublease. So hopefully got some value out of this if you guys are out there doing a lease arbitrage model good for you stay tuned for next week because there’s some really important things that you need to have in your lease or this could be dangerous you could be put yourself at risk you could be putting your money at risk and we don’t want to do that so stay tuned until next week until I have an awesome week. There’s so much money to be made the short term rentals but it all starts by having the right property if you guys haven’t yet seen my free ebook on our website rest methods.com head over there and get a copy it’s going to break down what I look for in a property in some great short cuts so that you don’t have to spend hours and hours researching at over rest methods.com and you can grab your free copy there if you want a crash course in everything I’ve really learned to short term rentals in over 5 years managing over 15000 Gasol recorded on our last live event I am happy to say we broke it down really nicely into a bunch of different modules that you can watch at your own pace it takes you from start to finish from finding a property we talk about analyzing the property but then also some of the more important pieces how to find your team and how to set up everything so that you can run your operation is passively as possible and free up your time you can find that it rests methods.com forward slash virtual.