Addendum for Rental Arbitrage?

[Richard Davis]

I'm getting into rental arbitrage, and I'd like to have an addendum I can offer to landlords to be added to their existing lease. The idea is to cross out the "No subletting" clause from the lease and replace it with "See addendum." The addendum should at least specify that I'm allowed to do short-term sublets through AirBnb, etc. Perhaps there are also other clauses it would be helpful to include for my arbitrage business.

Does anyone have an addendum for this purpose that they'd be willing to share? Or even a set of points that should definitely be covered somehow in an addendum? I'm a newbie and would certainly be grateful.

[Rick Albert]

I haven't done this yet but as a landlord I would want a lot of assurances.

-What kind of insurance to project the landlord? Having them named as additionally insured.
-What happens if laws change and you can no longer do Airbnb? What happens then?
-If the city imposes fees or taxes, who covers it? For example Malibu requires a 15% tax on gross revenue. 

Those are some initial thoughts.

[John Underwood]

Quote from @Rick Albert:
I haven't done this yet but as a landlord I would want a lot of assurances.

-What kind of insurance to project the landlord? Having them named as additionally insured.
-What happens if laws change and you can no longer do Airbnb? What happens then?
-If the city imposes fees or taxes, who covers it? For example Malibu requires a 15% tax on gross revenue. 

Those are some initial thoughts.

 Also the insurance has to be changed to a commercial policy that the owner needs to have in their name before canceling the landlord policy. 

It should state how much profit is being shared with the owner in addition to the normal guaranteed lease amount. I would want the person subletting to personally guarantee the lease and a larger deposit for the risk. (No LLC).

I'm sure there is more that should go into it.

[Michael Baum]

I wouldn't do an addendum. I would write a specific lease agreement. That way there is no confusion should things go awry. 

[Richard Davis]

@Rick Albert The insurance company Proper specializes in insurance for this situation. The tenant (me) can buy a policy which covers the landlord's building, enough to rebuild it from the ground up. Even in the event of intentional damage from the subletters (something typical renter's insurance does not cover).

Unfortunately such a policy is very expensive -- something like 8x the cost of typical homeowner's insurance. On a quote for a 4-bedroom house in Decatur, GA, the number was $4200 for a one-year policy.

I believe there is also a way for the landlord to buy insurance that has the same effect, but I'm not sure of the details.

As for if the law changes, there are several ways to handle that:

(a) Build in a lease-break clause. E.g., tenant (me) may give 60 days notice and pay a one-month's lease-breaking fee to terminate the lease.

(b) Give the tenant the right to vet and place a long-term tenant (background, credit check, income verification, rental history), with the landlord's approval, in order to take over the lease.

(c) Allow the tenant to end the lease in the event that it becomes illegal for him to short-term sublet (with or without some stated penalty).

My experience is very limited, but I've run into all three of these options (or some combination) in Atlanta. One landlord volunteered an additional clause saying that if occupancy was too low (<30% for three consecutive months), then I could end the lease with no penalty. However, he wanted 10% profit-share on top of the usual rent in order to cover his risks.

About the law changing: I suspect that in most cities where this happens, there are several months of notice, at least, between the passing of the new restriction on STR and the day that it comes into effect. So the tenant and the landlord both have warning, which helps keep things viable.

@John Underwood I'm not sure about the switch to a commercial policy, but you may be right. I've found it difficult to get details on the landlord's side of the insurance situation.

I will probably be PGing my first few arbitrage contracts. I believe it's typical for arbitragers to start that way and then switch to No PG after they have a proven track record and substantial cashflow.

[Ben Fenhoff]

Hi Richard, were you able to find a rental arbitrage addendum? I've recently opened a company with similar intent in Rental Arbitrage the Miami, FL area. 

[Clint Gable]

Hi Richard. I would be very interested in seeing such an addendum also.  I'm in the process of starting an AirBnB arbitrage in the Baltimore area.