Owners open to sub-leasing in the South Bay Area.
Kent BaltarePro Member
Investor · Denver, CO · Member since 2016 · 39 posts · 16 votesHello to all.
I am currently searching home or condo owners in San Franciso's South Bay area who are open to leasing their property with with an allowed sub-lease clause. Any sub-lease activity would ONLY be to a traveling professional vetted by myself, a fellow owner and investor, and there would be financial upside above market rents for any willing owner.
I am also interested in hearing whether anyone has any more effective ways of searching out an owner who would be open to sub-leasing?
Thanks to you all for your time,
Kent
This is definitely a trial and error for me. This is what I've learned, and it's not quite pleasant IMO. This is my sole opinions, and it has nothing to do with J's operation.
1) The location of the building/house has to be right IMO. Otherwise, your neighbors will complain. How do you like living next to a house that has different people coming in and out every several months? Did I mention there's a chance that your tenant MAY throw Airbnb guests when there's a one or two week gap between his/her corporate rental turnovers?
2) Noise issue - Sometimes, they have too many guests in a unit. This create noise issue. If you can cure it quick enough, your long-term tenants may use this as an excuse to break the lease, or they will move when their lease ends. You will only find out after the fact.
3) Safety issue - Your building is now operating like a hotel/motel/transient place rather than a "home". Your long-term tenants no longer feel safe because they don't know who lives next to them. If they want to break the lease, you have to let them out, or they move out when their lease ends. Again, you will only find out after the fact.
4) Does this mean you should run all of your units as corporate rentals or none? If all, the turnovers would be quite a bit. This goes back to the location of the building has to be right.
5) For 5+ unit buildings, our lender doesn't lend to furnished rentals. How do you plan to refinance when the loan is ballooned?
That's what I've learned so far...I hope there's nothing more to come.
This is a very interesting idea. The thing that pops immediately into my head, and will be what you likely run into the most, is that it will sound like you're renting to essentially AirBnB their place.
Why would they let you do that, and how would the lease be structured in a non-onerous way where the owner lets you select the sub-leaser w/o direct involvement from themselves?
I am seriously interested in your answer and this is in no ways a dig on the idea.
Thanks for the reply David, and very valid question.
If you are a buy and hold investor who is looking for better than market rents, while having great professional tenants, this scenario may be for you. This would not be a scenario where people are coming in to your home weekly using it as part of their vacation which is what I think you are referring to when you say "AirBnB their place".
These individuals occupancy would be no less than 1month and up to 3months. Furnishing would be done by myself at the beginning of the lease.
After meeting with an owner, and explaining the opportunity along with my professional background and providing references, the owner could trust their property would be treated as I would treat one of my own properties, which is with the utmost respect. At that point, they would feel comfortable with my vetting process for those staying in their property.
Hope that helps,
Kent
Kent,
Did you attend @J. Martin's summit over the weekend? This topic was covered in details by Al William of Leading Landlord, David Adams of Homesuite and Kimberly Smith of Corporate Housing by Owner. J has been doing very well with this niche so you should consider reaching out to him.
Let me ask you this question as I'm going through some growing pain with this. What are the downsides of allowing you to sub-lease? Do you know the downside of leasing and sub-leasing in a condo complex? Have you gone through one yet? If yes, for how long?
@David Kyo, J Martin is your go to guy as he's doing 15 of these rentals in the Bay. He's grossing over $40k/month, and his goal is to net at least $1k/unit. I'm one of his victims unfortunately.
Just kidding J.
Thanks for the responses guys. I recently considered a service that basically does what you mention specifically as "corporate housing" with companies, but never went further into it as I ended up renting the unit out to some normal folks.
@Account Closed, are you seeing downsides with J Martin subleasing from you? Other than him talking about his monthly gross all the time of course... ;)
I'm interested in pursuing his business model down in the South Bay, isolated down several areas but have yet to reach out to landlord to ask. How did J. end up convincing you?
@Account Closed and his infamous "gross" numbers.
But, yeah, from the unit owner's perspective what are the downsides and pain points Minh?
This is definitely a trial and error for me. This is what I've learned, and it's not quite pleasant IMO. This is my sole opinions, and it has nothing to do with J's operation.
1) The location of the building/house has to be right IMO. Otherwise, your neighbors will complain. How do you like living next to a house that has different people coming in and out every several months? Did I mention there's a chance that your tenant MAY throw Airbnb guests when there's a one or two week gap between his/her corporate rental turnovers?
2) Noise issue - Sometimes, they have too many guests in a unit. This create noise issue. If you can cure it quick enough, your long-term tenants may use this as an excuse to break the lease, or they will move when their lease ends. You will only find out after the fact.
3) Safety issue - Your building is now operating like a hotel/motel/transient place rather than a "home". Your long-term tenants no longer feel safe because they don't know who lives next to them. If they want to break the lease, you have to let them out, or they move out when their lease ends. Again, you will only find out after the fact.
4) Does this mean you should run all of your units as corporate rentals or none? If all, the turnovers would be quite a bit. This goes back to the location of the building has to be right.
5) For 5+ unit buildings, our lender doesn't lend to furnished rentals. How do you plan to refinance when the loan is ballooned?
That's what I've learned so far...I hope there's nothing more to come.
@Account Closed, thanks for the response. What kind of units are you letting J sublease?
I believe Al Williamson attempted to cover this in the panel at the summit. He puts all his short term rentals on one side of the apartment, and the long terms on the other side. That way, the long terms generally never see the short terms. He said it also helps alleviate the sense that everyone is so transient. In practice, I don't know how well this works of course.
Regarding the noise, have there been complaints for you?
Thanks for the responses, I'm just trying to anticipate what other landlords would say if I approach them.
@Andrew Wong @Account Closed,
I love how this conversation is going, let's keep it going.
When a tenant wants to break a lease and you give them a reason to, who do you blame? Here's an excerpt email from one of our tenants who wanted to break her lease.
"My primary concern is the changing nature of renting a unit in a building whose units are being converted to day rentals, comparable to Airbnb. This introduces a very different living environment than was described to me when I moved in last fall. The foundation work, the exodus of so many former tenants, the appraiser visit, and the inquiries about Airbnb from strangers in the back parking lot are all signs that this apartment house is changing into a kind of hotel. The building feels a whole lot less secure and more transient. As a woman living alone this is a safety concern for me.
We hereby request that the subject Rental Lease Agreement be terminated as of September 19, 2016 without penalty to renter or guarantor."
How do you respond to that?
With respect to the noise concern, the other tenant didn't let us know the reason until she was out of the building. I found out afterward when I ran into her a couple of days later. This is for an 8-unit building in DTSJ.
Corporate rentals and travel nurses are definitely a good niche. However, the location has to be right IMO. I wouldn't bother with condos as the HOA will raise hell.
@Account Closed, I'm sorry to hear that. I guess as you learn more through the experiment, you'll decide more of what to do with it in the future.
I definitely notice that any large apartment complexes won't work, like the ones in North San Jose.
I've been looking at smaller apartment complexes, or even just separate buildings in the back of someone's house. Though, like you said, even with smaller apartment complexes, the landlord may have worries about it.
How long is J's lease @Minh?
@Chris Mason and @Andrew Wong,
This is definitely a trial and error for me. This is what I've learned, and it's not quite pleasant IMO. This is my sole opinions, and it has nothing to do with J's operation.
1) The location of the building/house has to be right IMO. Otherwise, your neighbors will complain. How do you like living next to a house that has different people coming in and out every several months? Did I mention there's a chance that your tenant MAY throw Airbnb guests when there's a one or two week gap between his/her corporate rental turnovers?
2) Noise issue - Sometimes, they have too many guests in a unit. This create noise issue. If you can cure it quick enough, your long-term tenants may use this as an excuse to break the lease, or they will move when their lease ends. You will only find out after the fact.
3) Safety issue - Your building is now operating like a hotel/motel/transient place rather than a "home". Your long-term tenants no longer feel safe because they don't know who lives next to them. If they want to break the lease, you have to let them out, or they move out when their lease ends. Again, you will only find out after the fact.
4) Does this mean you should run all of your units as corporate rentals or none? If all, the turnovers would be quite a bit. This goes back to the location of the building has to be right.
5) For 5+ unit buildings, our lender doesn't lend to furnished rentals. How do you plan to refinance when the loan is ballooned?
That's what I've learned so far...I hope there's nothing more to come.
I agree. There are a lot of challenges when expanding in a single building that pop up with owners, tenants/community, etc.
Thanks for being such a good sport Minh ;)
And that timing when I walked in the door when you were commenting on @Al Williamson 's net vs gross comment.. priceless!!! Wish we had it on video.. ;)
I believe the scene was something like this.. I think I can see the back of your head there..
Huge thanks to Al Williamson for helping out with the event, coming out to share with others, and teach us more about furnished rentals!! I'm glad I got your course :) My GROSS and my NET are way up!!! :)
Nice picture!
and @chris m. Leave the lifestyle entrepreneur @J. Martin alone.
His numbers are flat out impressive - wish I had the margin he does.
When a tenant wants to break a lease and you give them a reason to, who do you blame? Here's an excerpt email from one of our tenants who wanted to break her lease.
"My primary concern is the changing nature of renting a unit in a building whose units are being converted to day rentals, comparable to Airbnb. This introduces a very different living environment than was described to me when I moved in last fall. The foundation work, the exodus of so many former tenants, the appraiser visit, and the inquiries about Airbnb from strangers in the back parking lot are all signs that this apartment house is changing into a kind of hotel. The building feels a whole lot less secure and more transient. As a woman living alone this is a safety concern for me.
We hereby request that the subject Rental Lease Agreement be terminated as of September 19, 2016 without penalty to renter or guarantor."
How do you respond to that?
With respect to the noise concern, the other tenant didn't let us know the reason until she was out of the building. I found out afterward when I ran into her a couple of days later. This is for an 8-unit building in DTSJ.
Corporate rentals and travel nurses are definitely a good niche. However, the location has to be right IMO. I wouldn't bother with condos as the HOA will raise hell.
Regarding your very last sentence, about HOAs, I just spoke with a rep at a national corporate housing firm as I was getting their thoughts on different markets, property types, etc. His belief was to go for small condos (that allow 1-month lease terms) and stay away from SFRs. Have you had direct experience with HOAs in this regard, or is this just your feelings on HOAs in general? I can see an issue specifically with daily rentals, but how about the monthly (or 3-6 month) rentals?
Wow, a lot of traffic on this post which is awesome!
@Account Closed, I apologize for missing you at the summit where you may have addressed this, and if you did/do, please let me know so I can get involved with your program.
Thanks again for everyone's time with this, interesting topic for sure.
Kent
When a tenant wants to break a lease and you give them a reason to, who do you blame? Here's an excerpt email from one of our tenants who wanted to break her lease.
"My primary concern is the changing nature of renting a unit in a building whose units are being converted to day rentals, comparable to Airbnb. This introduces a very different living environment than was described to me when I moved in last fall. The foundation work, the exodus of so many former tenants, the appraiser visit, and the inquiries about Airbnb from strangers in the back parking lot are all signs that this apartment house is changing into a kind of hotel. The building feels a whole lot less secure and more transient. As a woman living alone this is a safety concern for me.
We hereby request that the subject Rental Lease Agreement be terminated as of September 19, 2016 without penalty to renter or guarantor."
How do you respond to that?
With respect to the noise concern, the other tenant didn't let us know the reason until she was out of the building. I found out afterward when I ran into her a couple of days later. This is for an 8-unit building in DTSJ.
Corporate rentals and travel nurses are definitely a good niche. However, the location has to be right IMO. I wouldn't bother with condos as the HOA will raise hell.
Regarding your very last sentence, about HOAs, I just spoke with a rep at a national corporate housing firm as I was getting their thoughts on different markets, property types, etc. His belief was to go for small condos (that allow 1-month lease terms) and stay away from SFRs. Have you had direct experience with HOAs in this regard, or is this just your feelings on HOAs in general? I can see an issue specifically with daily rentals, but how about the monthly (or 3-6 month) rentals?
Jake,
Well, it seems like Kimberly Smith of Corporate Housing By Owner agreed with me about staying away from HOAs when she gave her presentation at J Martin's summit.
I own more than a handful of condos and townhomes. I was planning on gradually converting them to corporate rentals. Guess what? I haven't done it yet and I got a letter from one of my HOAs questioning one of my units. I followed up with my tenant, and apparently his mom was there to visit for a month. I couldn't believe that triggered it. All I can say is that others are watching. Since the incident, I've had a second thought about it. This is only my personal experience so don't let me stop anyone from doing what you guys and gals want to do.
With respect to J Martin's guest who were loud which caused us to lose one of our tenants. Could it be a blessing in disguise? She was paying $1,050/mo due to rent control. Since she vacated last month, we've re-rented it for $1,600. Basically, the value of our building just went up $85k due to her voluntarily move-out. You have to take the good with the bad and roll with the punches. I look at life as an experiment. Sometime it works, sometime it doesn't. Don't get too uptight about things.
Cheers!
Thanks, @Account Closed. Blessing in disguise, or new strategy on future units? ;)
HOAs can surely be a headache, and some have minimum lease term allowances. While I'm sure I can find some that don't, it would come down to talking with them if I found a place I really liked. Otherwise SFRs would be better in regards to complaints and whatnot. Less amenities but less headaches.
@Jake Knight, @Andrew Wong, @David Kyo and @Kent Baltare,
Enough with the nuisances. So how do you find owners that would allow you to sublease their property? What does J Martin usually tell you guys? Network, network, network. Your network = your net worth. If he knew what he knows now, he would have network a lot sooner. Didn't he say that? It takes time and serious commitment to achieve what J has. If what you've been doing is not working, shouldn't it time to do something different?
As far as I know, J leases 11 out of 15 units through his networking with local BP property owners. Astounding isn't it? It takes time to build trust and relationship. He didn't get there over night. I know his mark up on my units are between $1,800-$1,850/month and his goal is to net at least $1k/mo/unit. He has a good team that takes care of furnishing and cleaning up the units between turnovers. He just left for another trip to Southeast Asia this afternoon. All I can say is that he got this biz figured out. It sure beats a W2. Well, maybe.
As a property owner, I don't see myself say yes to allowing someone to sublease my property. Put yourself in the owner's shoes and you'd understand why. Something to think about. As you dig more into this niche, I'm sure you'll find more obstacles as well as opportunities.
Best of luck.
This thread has been very useful and timely. I was at the summit last weekend and like many was very fired up after hearingl, Al, Kimberly and David speak on monthly rentals.
I have been investing in Long term SFR for a while but because if these sessions I am now looking at short term in Hermosa Beach. The problem, only thing o buy that could CF is a condo and the HOA scares me.
Minh brings up some great thoughts on this so Thank you!
Brian
@Jake Knight, @Andrew Wong, @David Kyo and @Kent Baltare,
Enough with the nuisances. So how do you find owners that would allow you to sublease their property? What does J Martin usually tell you guys? Network, network, network. Your network = your net worth. If he knew what he knows now, he would have network a lot sooner. Didn't he say that? It takes time and serious commitment to achieve what J has. If what you've been doing is not working, shouldn't it time to do something different?
As far as I know, J leases 11 out of 15 units through his networking with local BP property owners. Astounding isn't it? It takes time to build trust and relationship. He didn't get there over night. I know his mark up on my units are between $1,800-$1,850/month and his goal is to net at least $1k/mo/unit. He has a good team that takes care of furnishing and cleaning up the units between turnovers. He just left for another trip to Southeast Asia this afternoon. All I can say is that he got this biz figured out. It sure beats a W2. Well, maybe.
As a property owner, I don't see myself say yes to allowing someone to sublease my property. Put yourself in the owner's shoes and you'd understand why. Something to think about. As you dig more into this niche, I'm sure you'll find more obstacles as well as opportunities.
Best of luck.
Whoa whoa, don't tell the kids too much!!!! lol Jk It's all good. Slight correction: I try to price about $1500/mo gross over fair market, although have been a little low lately. Not quite $1800/mo over.. Then net out the utilities, cable, internet, vacancy, furniture cost, etc.. It's a good biz, but has had a lot of challenges. A lot of off-hours texts and calls. Cleaning issues. Key exchange issues. Trash. Mail. You name it. But you live and learn.
I have to double down on what Minh was saying - that it's all about networking. People are apprehensive about anything new. I doubt Minh would have rented to me if I would have posted on BP without having developed a relationship with him over years. Same with others I work with. Maybe one exception. But I think my reputation on BP and as a meetup group leader definitely helped.
I'm still not sure how much that willingness was financial, or just wanting to me succeed, with some financial benefits to the owners.. I'll have to bug Minh and others to see what they say about it.. ;)
Reading Emyth right now, and on @Arlen Chou's encouragement and mentorship, I am deciding how big I want to make this train right now...
What do you guys getting into this biz think about the economic cyclicality of revenue and profit in the furnished rental biz? I have my own speculation, but curious what you think about longevity in this market.. ?
This thread has been very useful and timely. I was at the summit last weekend and like many was very fired up after hearingl, Al, Kimberly and David speak on monthly rentals.
I have been investing in Long term SFR for a while but because if these sessions I am now looking at short term in Hermosa Beach. The problem, only thing o buy that could CF is a condo and the HOA scares me.
Minh brings up some great thoughts on this so Thank you!
Brian
Brian, I recently turned down a sublease for a fantastically placed condo in Palo Alto. Couldn't be a better location. Why did I turn it down? HOA. I don't want it. Even doing 30+ day rentals, you are exempt from the sh0rt-term rental restrictions, if that's what exists. But I still think there will be a headache with neighbor complaints, depending on size of complex/community. I just didn't want those hassles.
I also discourage people from buying properties based on a unique operation of the property - like it making sense as a furnished rental. That may not always exist, and the next guy probably won't buy it based on that. So just be cautious.. It's a great play to know you can make more. But I wouldn't buy/rely on it. It's the extra gravy money. Just my 2 cents.
On that note, how much would you sell Easy St for @Arlen Chou!?! lol Just throw out a number.. ;)
I am looking for property that would cash flow well as a standard rental, but has potential as furnished rental. The potential in the short-term market is the icing, but it has to work if/when our national economy slows down.
As for networking, you can't meet everyone at once, but I am starting to build solid connections and have already benefited in multiple ways from the folks I've met (and hopefully been of value to them). I'm also on the phone every day expanding my network, plus connecting with people here on BP. Networking is not hard; you just have to be dedicated, helpful, and have good follow-up. The book "How to win friends and influence people" had a huge impact on me and frankly I think it gives me an advantage over others who don't practice some of the methods Dale Carnegie presents. Somebody just gave me Emyth as a gift so that's on deck.
@Account Closed I agree with you and @J. Martin that networking and developing strong relationships is a key first step and that those efforts with networking will likely be rewarded with these kinds of amazing opportunities.
J. Martin, my background is in economics so I do have some thoughts on your comments about economic cycles and this REI model.
I tend to think the economics in the South Bay are strong for this strategy but my thoughts on that may differ from yours..
Due to high home costs our local market, investors struggle to maintain cash flow under standard lending conditions/structures. With that said, allowing owners a % of anything you can make over market rent as furnished corporate rental is a unique play that can be used to attract great home owners with GREAT properties (Win/Win). This strategy is a bit different than yours (I believe) but it relates to maintaining your supply of strong/highly marketable properties.
The demand for a corporate rental is a different conversation which is subject to local business, but two things here:
1) If the property is located in an area where only a handful of businesses would likely require its use, you are a lot more sensitive to local market pressures/economics compared to a place that is close, proximity wise, to not only multiples businesses which could demand your property but also multiple industries (Ie: tech, hospitals, finance, etc). I think focusing on that initially is a good way to cover yourself in economic downturn, by being very picky.
2) Personally I would also think of other locations where the economics of the area are such that this model could work out great, and determine if you have any contact(s) there with a strong RE network? Consider partnering with those people by providing the capital for lease/furniture, and have them take care of the property (owner) search + tenant search, then come to an agreement on cash split and responsibilities, go from there..
Long answer short, I don't feel that local economics should slow the implementation and growth of this/your model, but doing it with the right properties locally and also diversifying with operations in different markets will help cover your exposure if things start slowing in a specific industry within a specific market.
Hope that helps.
Kent.
Also wanted to mention for those looking to become first time homeowners consider this strategy tied in with a househack. Could be a real success.
@Account Closed that networking and developing strong relationships is a key first step and that those efforts with networking will likely be rewarded with these kinds of amazing opportunities.
J. Martin, my background is in economics so I do have some thoughts on your comments about economic cycles and this REI model.
I tend to think the economics in the South Bay are strong for this strategy but my thoughts on that may differ from yours..
Due to high home costs our local market, investors struggle to maintain cash flow under standard lending conditions/structures. With that said, allowing owners a % of anything you can make over market rent as furnished corporate rental is a unique play that can be used to attract great home owners with GREAT properties (Win/Win). This strategy is a bit different than yours (I believe) but it relates to maintaining your supply of strong/highly marketable properties.
The demand for a corporate rental is a different conversation which is subject to local business, but two things here:
1) If the property is located in an area where only a handful of businesses would likely require its use, you are a lot more sensitive to local market pressures/economics compared to a place that is close, proximity wise, to not only multiples businesses which could demand your property but also multiple industries (Ie: tech, hospitals, finance, etc). I think focusing on that initially is a good way to cover yourself in economic downturn, by being very picky.
2) Personally I would also think of other locations where the economics of the area are such that this model could work out great, and determine if you have any contact(s) there with a strong RE network? Consider partnering with those people by providing the capital for lease/furniture, and have them take care of the property (owner) search + tenant search, then come to an agreement on cash split and responsibilities, go from there..
Long answer short, I don't feel that local economics should slow the implementation and growth of this/your model, but doing it with the right properties locally and also diversifying with operations in different markets will help cover your exposure if things start slowing in a specific industry within a specific market.
Hope that helps.
Kent.
I agree about diversity and potential for other markets.
But the biggest cyclical/economic issues here, IMHO, you did not mention:
Hotel rates, execustay rates, Airbnb rates, and other furnished rental rates are higher during an economic boom. And lower when there are job losses. Even if the volume is still there, the rate will suffer, IMHO. I haven't really seen this model tested in a downturn, so not sure if I want to go into that with 100 unit, for example.. I'd like to keep all these apartments in the next downturn, at a reduced profit, then blow it up during the next boom..