Luxury short term rental company wants to lease my property

7 Replies

I have a listing for a really nice duplex community (12 units in all). I was contacted by a company that specializes in luxury short term rentals (for professionals like traveling nurses, etc). This company wants to lease a few units, and then run their short term rentals through it. Basically they are paying the rent to make it like an Air BnB? Also, isn't this subletting? I am sure they'd charge much more than the rent. And how do I know they are putting vetted people in? On the other hand, they'd clean it and stock it... probability take immaculate care of the place. It isn't something I've heard of before... what are your thoughts?

This is often referred to as "AirBnB arbitrage" and it's increasingly common. It sounds good, but what happens when the reservations dry up and they're not making enough money? Do you know if this is a professional company or is it a couple amateurs that saw some YouTube videos looking to make easy cash? How do they screen their guests? How do they protect the owner? Do they profit share? Are they paying higher-than-market rates to compensate you for turning a profit with your property?

In my experience, most of these people are amateurs. They will fill the unit with basic furnishings, provide minimum communication with guests, and try to wring out every dollar which they will use to live off of. No reserves, no business model, nothing. And when they get hit with a divorce, market drop, or some other personal issue, the entire thing falls apart and you'll be left holding the bag.

If your property is zoned for short-term and the market supports it, why not do it yourself and keep the profit?

@Amanda Thompson I agree with @Nathan G. that you need to be careful to make sure this is a real established company. Also be aware if you are renting to a corporation, that there is no individual to go after for rents. Some of the people who enter this business are newbies with a get rich quick scheme. See how many units the company operates and how long they have been doing it.

Also check your insurance to make sure it covers shorter term rentals. Have the company carry their own insurance and name you as an additional insured. 

It could be a good arrangement or you may also want to consider it as a business idea for yourself. They believe they can rent several units from you, pay you rent, pay to furnish them, pay to manage them and still make a nice profit. That tells me you could make more money on these units. 

Thank you! We had toyed with the idea of running Airbnb out of a unit or two, but have heard horror stories of damage and drug binges. The company that approached me is a company, not amateur, but from out of state. Eek.

Originally posted by Amanda Thompson:

Thank you! We had toyed with the idea of running Airbnb out of a unit or two, but have heard horror stories of damage and drug binges. The company that approached me is a company, not amateur, but from out of state. Eek.

Personal example. I went to Texas in February and stayed in an AirBnB. The "manager" had 30 rentals in four cities and seemed to really be on the ball. We didn't get the check-in instructions until a few hours before arrival and they included multiple warnings like "DO NOT talk to staff!!!" and "Speaking with any hotel employees will result in an immediate fine of $500!!!"

Long story short, it was a combination of hotel and apartments with on-site management staff. The apartments were not zoned for short-term (direct competition with the hotel) and short-term is expressly forbidden in their marketing and rental agreement. They were just amateurs that didn't care about following the rules. If they don't follow the rules of the property owner, they certainly wouldn't respect your agreement.

I've rented through AirBnB six times in the last three years and three of them were illegal sublet situations. One wasn't discovered until the day I attempted to check in with my family of six three days before Christmas! We had to scramble to find a replacement that same day and had to over-pay.

@Amanda Thompson There is some valuable information in this thread. My wife and I run an arbitrage business and all of the factors that Joe and Nathan expressed are true. Things you can ask are: 1) How much cash reserve do you have? 2) Do you have a rent:cash reserve ratio you uphold (for example: we keep 3x each units rent in reserves to prepare for any market downturn) 3) Do you have a plan if there are shutdowns or the market slows down? 4) As you mentioned, how do you screen your tenants? 5) What are ways you prevent illegal parties or gatherings?

Obviously I'm biased towards the positives in the industry or else we wouldn't be involved (we own a couple of our own units as well). If they are experienced and have a strategic business plan, they could possibly be your best tenants that you'll ever have.

Instead of straight rent, you might want to do some kind of revenue share with them.   Or do it yourself and let them manage.

See what other properties they're managing.  See what they are charging.  Look at the booking calendar for those listings.  See what kind occupancy they're getting.  Will that support renting your place.

Since they're going to furnish the place, you might also have some kind of provision in your lease, like a commercial lease that says you can lock them out and use their fixtures as liquidated damages, vs the standard residential lease.   That way if they don't pay, you can keep and sell the fixtures and furnishings.

I manage a few STRs and agree with those above saying you should give it a try. Take a walkthrough video before and after each guest (this can be done by your cleaning co). I have only had one issue where a guest damaged the property. I submitted a claim to the booking site with documentation and received payment within a few days.