Leasing a Property or Apartment for AirBnB
Rental Property Investor · Union, ME · Member since 2018 · 161 posts · 104 votes
Leasing a Property or Apartment for AirBnB
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Investor · Parrish, FL · Member since 2014 · 120 posts · 115 votes
7yI'm actually doing this right now except I'm the owner of the house, and leasing it to a long term tenant who is then airbnb'ing the property.
My tenant has been doing Airbnb since it started, agreed to a 10 year lease, with 2% escalation clause, meaning the rent raises 2% every year. And it's triple net, meaning he's responsible for all repairs, maintenance, pays my property taxes and home owners insurance. I'd only be responsible for full roof replacement and ac replacement if needed.
I'm making about 1k a month off this deal so I am happy and he's happy because he has an awesome house to make money with using Airbnb.
I'm in the process of buying another house with this same model in mind. For me, it's awesome cash flow, passive, no need for a property manager, and I'm banking on both cash flow and long term appreciation, since these houses are in a nice part of town.
Just wanted to share that to this post. And everything is clearly spelled out in the lease, so there are no surprises about what he is doing.
25 Replies
- Frisco, TX · Member since 2017 · 8 posts · 4 votes7y
I have heard about people doing this without informing the owner. I consider that a huge no-no. In some cases, the renters installed cameras, new locks, etc., then stopped paying rent while still trying to collect it from AirBnb users. I wish I could find the link... anyway, not good for the owner.
You have to be forthright, otherwise, you are looking for lots of issues. For example, the owner doesn't know you are doing this. The tenants of an apartment notice it and notify the owner/landlord. You are potentially evicted. Or in a condo, the condo owner gets foreclosed on for breaching the restrictive covenants and they didn't even profit.
Just something to consider. People do it.. but I wouldn't.
If there isn't language in your lease forbidding short-term rentals, and there isn't an HOA governing the complex, then I guess it's theoretically doable. But...I haven't seen a lease in the last 5 years that doesn't explicitly discuss short-term rentals like Airbnb, and virtually all of them say they aren't allowed without the owner's consent. As a landlord myself, I have this language in all of my leases, and I also check short-term rental websites every once in a while to make sure my units aren't offered. I'd consider legal action on any renter that I find to be short-term renting my units without approval.
- Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes7y
@Luke Carl We have a live one here.
The upside is that you can make about 1x - 2x what your monthly rent for the house is. In other words, if you rent a place for $750/month, you could make between $750-$1500 a month.
The downside is that once you find a landlord that would let you take advantage of them for the duration of the lease, they would decide to do an Airbnb themselves and cut you out of the picture. Another downside is that you don't have enough rentals in a month and you barely cover your rent. If you are doing this in your own town, you'll have more control over housekeeping, maintenance and simple repairs the landlord won't do.
If you are doing this remotely, it is going to be very difficult as a first time investor. You need to stock it with appliances, electronics and basic furniture. You need a system to clean and restock it between occupancies. But most of all you need a demand for those kinds of places in your market.
My day job is a part time job. My full time job is running 24 STRs with 82 beds in my town. Contractors are who I rent to. The guys you see working on the large upright structures of steel at a petrochemical refinery. Nobody comes to this town for a vacation. They come here to work at a 110 year old refinery that still has Swasticas on some of the piping valves from the molds they were made from.
- Rental Property Investor · Union, ME · Member since 2018 · 161 posts · 104 votes7y
Lots of information here! Would anyone recommend it if I did have the Landlord's express consent? The idea here is if the economy turned south, I'd only have the rest of the lease to cover, or pay an early cancelation fee, VS. a 20-30 year mortgage with potentially spotty income.
- 7yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Originally posted by @Bryan Clement:
Lots of information here! Would anyone recommend it if I did have the Landlord's express consent? The idea here is if the economy turned south, I'd only have the rest of the lease to cover, or pay an early cancelation fee, VS. a 20-30 year mortgage with potentially spotty income.
No I would not recommend it. Like Paul said there is no reason why the Landlord would not cut you out of the picture once you have spent 10k to furnish the place and have it up an running.
- Investor · Parrish, FL · Member since 2014 · 120 posts · 115 votes7yI'm actually doing this right now except I'm the owner of the house, and leasing it to a long term tenant who is then airbnb'ing the property. My tenant has been doing Airbnb since it started, agreed to a 10 year lease, with 2% escalation clause, meaning the rent raises 2% every year. And it's triple net, meaning he's responsible for all repairs, maintenance, pays my property taxes and home owners insurance. I'd only be responsible for full roof replacement and ac replacement if needed. I'm making about 1k a month off this deal so I am happy and he's happy because he has an awesome house to make money with using Airbnb. I'm in the process of buying another house with this same model in mind. For me, it's awesome cash flow, passive, no need for a property manager, and I'm banking on both cash flow and long term appreciation, since these houses are in a nice part of town. Just wanted to share that to this post. And everything is clearly spelled out in the lease, so there are no surprises about what he is doing.
id say lock in written contracted deal with the landlord. if hesitates offer give him % of higher rent and 5 yr lease if its very good location.
youll be fine if its hot spot in maine. im in process doing str on my 3 unit. one unit 2nd floor is 3 bed apartment by lake and ski resorts.
waterfront or mountains or downtown?
- Real Estate Agent · Nashville, TN · Member since 2018 · 123 posts · 74 votes7y
This is a growing concept out there by both investors and some companies. I know a few people here in Nashville that do it in bulk with 30+ units and over 80 around the country. Not sure how they are making the permits work.
Domio is a company that seems to be doing this in larger cities around the country. Looks like they have 100+ units in Nashville but again not sure how they are scoring the permits.
Airbnb has also started to get into the game and opened up a hotel partnering with a hotel company called Niido here in Nashville. They actually took over a residential condo development and opened it up to allow the residents to do STRs with their units and the zoning was changed to allow it. Had a client that was looking at some STRs developments here to purchase but ended up finding a place in Niido to lease and then STR it out.
- Rental Property Investor · North Fork, NY · Member since 2016 · 1k+ posts · 631 votes7y
@Greg Junge Thanks for your input. I can't recall a landlord who does this on this forum! Where is your property and what would happen if STR regulations changed? Do your lease terms change?
- Investor · Boston, MA · Member since 2018 · 15 posts · 12 votes7y
@Greg Junge Love your strategy and the terms sound fantastic! The triple net piece is super appealing and I haven't heard of it being used in SFRs before. A couple of questions:
- How did you come to a rent $$$, given the other terms of the deal? How close to market rent is the tenant paying?
- How did you find a tenant who wanted to run an AirBNB business?
Thanks!
- Rental Property Investor · Union, ME · Member since 2018 · 161 posts · 104 votes7y@Jeremy A. My area (Camden Maine) has all three! It is super seasonal though, but the charge per day can sometimes be upwards of $450 on AirBnB from Memorial Day through Colombus Day.
- Rental Property Investor · Union, ME · Member since 2018 · 161 posts · 104 votes7y@Greg Junge that seems like an incredible deal! The triple net is so creative! If I move forward and do this I may mention that to the landlord, seems like that may be a good bargaining chip!
- Investor · Parrish, FL · Member since 2014 · 120 posts · 115 votes7y
@Bryan Clement - Yes it's a nice deal for me and for my tenant, win win. I can't take credit for this, my buddy did a deal with this same person a few years ago and I'm following his lead, only with financing, which makes it even better using leverage.
@Kristin Zajac - Yes I love the triple net aspect of these deals, makes it truly passive. As far as the rent amount, that's negotiable and it has to make sense for both parties. It's usually over market price by 25% or so, which is good for me. I simply look at my cashflow after paying my mortgage (my only true expense really) and if the numbers work, then I do the deal. I have a tenant that has been doing this since day 1 on airbnb, and has a track record. I wouldn't rent this out to anyone, since they need to be successful to remain in the house.
@Nancy Bachety - My property that I run for this airbnb scenario is in Scottsdale, Az, which has a huge draw in the winter time for out of state people visiting. This house isn't in a HOA and I don't see Phoenix changing their laws anytime soon, but you never know. My lease terms are longer terms, anywhere from 5 to 10 years with a small escalation built in every year.
Hope this info is helpful and any more questions, please let me know. - Investor · Phoenix, AZ · Member since 2017 · 36 posts · 25 votes7y@Bryan Clement Hi Bryan, I have a SFH we run like this in Downtown Phoenix and it works our great. We partnered with the landlord and were 100% transparent about what we intended to do. The home is not in an HOA and Phoenix is very AirBnB friendly in regards to local legislation, and I don’t hope that will be changing any time soon. We gross $50k annually with expenses being right around $24k. It is a great way to test your market and get started with a smaller investment than actually purchasing a property. The down side is you do not experience debt pay down, appreciation or tax benefits of actually owning the property which are some of the best parts of investing in RE. If you can find a property that cash flows strongly as a long term rental, but would cash flow even better as a short term rental I would jump all over it. As long as you are not over extending your self and the property cash flows, you should have no problem making it through the downturn and continue cash flowing until you find a good time to sell!
- Investor · Phoenix, AZ · Member since 2017 · 36 posts · 25 votes7y@Chris Pike *will not be changing any time soon*
Are you guys able to do this (rental arbitrage) with apartments/condos in your market? In mine, I don't think STR income is much higher than LTR income for 1 or 2 bedroom units.
However, whole houses or townhouses look good.
- Investor · Parrish, FL · Member since 2014 · 120 posts · 115 votes7y
@Paul T. - I'm not sure about this working in apartments or condo's. I assume most condo's are out because of the HOA not allowing it. I know there are a handful of condo's here in Phoenix that allow airbnb, but I personally wouldn't buy in a hoa because they can change the rules very easily.
- 7yTim BergstromPro MemberInvestor · Nashville, TN · Member since 2016 · 127 posts · 71 votes
This thread is super interesting! @Bryan Clement I've also been considering this strategy for a time now as well for similar reasons. I'm still in the data gathering stage of this. I have two STRs here Nashville that I own, so I have some experience under my belt at this point. But I can empathize with your line of thinking! Thanks for starting this discussion!
I appreciate the more conservative approaches of @Paul Sandhu and @Luke Carl. Their models seem to work really well and with their experience they have good insight!
One thought or element to this whole thing that I've been thinking of and would love to add to this discussion is cutting in the landlord on a percentage of the net profit that the STR would produce. In my mind that would provide more incentive for the landlord to not cut you out and to also enjoy added cashflow at no extra cost to him/her. From what I've read/researched, it seems to me that since there are people doing this successfully its a matter of which landlords you choose to work with, being up front with them, and how you pitch it to them that makes or breaks success with this model? What would be anyone's thoughts in adding that kind of element? This way when the STR listing has a great month, both the landlord and you the operator get to enjoy the benefits. Everybody wins.
Even though I'm interested in this model, I'm still looking to buy properties that would work well as STRs and would also love to help other investors who want to get in on the Nashville STR market! To that point @Steve Frye your comment was very informative! Thanks for the info you shared there. Gonna put that info in my tool kit!
I do not believe that rental arbitrage is a sustainable business model. You're setting yourself up from the beginning to fail.
Assume you find a landlord willing and legally able to rent to you as a STR. Score! You sign the lease, spend your money buying the appropriate furnishings. You spend the time setting it up. Your listings go live and you're on your way. You make your money and probably do pretty decently for a while. Maybe a year, maybe five years.
Then a neighbor complains. Or the city. Or you have an 'incident' like a 911 call that puts pressure on the owner. Do you think the owner will renew your lease? Do you think his 'extra few bucks in rent' is worth the headache and fighting for you? All that investment, both capital and time, gone. And then you need to cancel all future reservations, lose your super host or premiere partner status and you're back to square 1.
STRs already have higher than average risk with changing regulations. Why add to the risk by adding an additional layer when the landlord can change his mind at any time... and can often legally get out of a lease if its well written. I see these posts every week and cringe. There are some of us that have been doing this for many years, successfully. And they all say the same thing... don't do this. Yet no one ever seems to listen... And we frequently get attacked for not being 'yes men'. But by all means...
- 7yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Bryan Clement I know a guy that leased a whole floor of a new apt building for Airbnb, just make sure the property owner knows and is ok and local laws are in favor of airbnb
The Moorhead Team5142 Reviews @Mike V. "I do not believe that rental arbitrage is a sustainable business model. You're setting yourself up from the beginning to fail."
Perhaps, but, in the tech world, similar arguments were made about Amazon several years ago with their AWS cloud business. Specifically, it was insane to think that one of Amazon's competitors would allow them to serve as their IT department. Obviously, that's changed, and a new business model was formed. Some dying companies that sell on-premise hardware are still screaming that cloud is a fad and not sustainable due to security issues. Now, as they gained strength and own the market, Amazon is morphing again and offering a hybrid cloud and on-premise solution. They adapted.
As far as AirBnb, I both own and lease several units. In 2019, I plan to scale quickly using leases. It's a growth strategy to build up capital at low cost. Just like with traditional renting, volume cures a lot of ills and can minimize a lot of risk that you mentioned above. As an example, when I have had a conflict arise, I can usually upgrade a guests to a nicer house for free to resolve any issues- no ding to my rating.
I think the question is different. Today, if an owner has a $10m AirBnb business, it would be hard to find a buyer. Particularly, if they were leasing the properties. But, tomorrow, as AirBnb becomes more accepted, who knows?
Personally, I find it to be exciting times!
- Rental Property Investor · Arlington, TX · Member since 2016 · 706 posts · 611 votes7y@Bryan Clement Yes I do it. I suggest only doing in Sellers markets though. No point of arbitraging if you can grab a property for cheap in a buyers market but arbitraging it is a great way to get the capital for a down payment. Yes you can sublease an apartment you just have to get a corporate contract but you have to have your ducks in a row to do it. I’m on my 2nd year of doing rental arbitrage and I was able to receive bank financing for a duplex with my business.
- @James Michael Few, I live in the heart of the Silicon Valley and you’re tech example is comparing apples to oranges. If you have multiple investors throwing virtually unlimited funds at you then by all means my advice won’t apply. Most of us live in the real world though and this isn’t the case. Your story is a very familiar one and I wish you the best of luck. I hope you bucK the trend and succeed....
- Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes7y
Bryan, many retirement investors are looking to be passive landlords. If they can triple net lease a property to you for your business, STVR, and receive 10-12% return without leveraging, they want to talk with you.
It's a great investment for the SDIRA or Solo 401k investor. An alternative to the stock market or bond market, as a tangible asset it's easy to safeguard the real estate.
The key is networking with investors who want to own real estate in their retirement plans. Once investors are identified you can purchase or build a STVR that fits their wants. I personally like duplexes with no garages.
There is a reason why most businesses lease their store ( Walgreen's) or office building. It frees up capital to have more locations! It's about guaranteed cash flow for investors not about the future promise of capital gains.
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