All Forum Posts by: Miguel Del Mazo

Quote from @Corby Goade:

Ugh. Arbitrage is the worst. Still waiting for someone to explain to me how this model truly benefits the property owner. 

If you want to manage STRs, start an STR management business and just do everything on the up and up. If you are offering excellent services, you'll win and your clients will win too.

I can't comment on STR arbitrage as I have no experience with it, nor is this an STR forum. With regards to MTR arbitrage, a quick definition may help less experienced investors follow this topic better.

In this context, arbitrage refers to entering into a long-term lease with a property owner, and then furnishing the space (also probably setting up the utilities and Wi-Fi), with the purpose of renting it out at a higher rent for a profit.

The value to the property owner is that if they enter into a lease with an honorable and responsible person, the rent will be paid every month on time and without fail (regardless of whether or not the MTR provider leased the space). MTRs do have higher turnover than a typical LTR (usually between 2-4 times a year), but since most MTR residents treat the space well and since there is less moving in and out of furniture, it is not uncommon for an MTR to actually have less wear and tear over the year than an LTR (and a lot less than an STR),

Arbitrage for the MTR operator has its own sets of pros and cons, but I just wanted to address the question of why would a property owner ever want to allow an MTR in their unit.

You've opened up an interesting can of worms.  I fully support doing everything you can as a landlord to be in compliance of local zoning and ordinances, so I want to use your thread as a chance to let newer investors know a really important lesson: you can call the local municipality prior to owning a property. 

If you want to know what they are willing to allow you do with a place you're considering buying, then reach out before you reach the closing table. This is part of the "due diligence" period, and it is so important.

My advice would be to figure out the demand in the area for larger spaces.  We've been happily shifting away from catering to traveling medical professionals in favor of larger groups of either families in a insurance relocation situation or a work crews coming through.  I think you may be happily surprised while still being in compliance.

While BP has a rent estimator as does rentometer.com (both allow a few free uses, I believe), I agree with @Zachary Deal that your best bet is to seek out guidance from either the listing agent or a property manager well-versed with the area. 

One thing to watch out for is that Atlanta has significant short-term rental restrictions in place, and while Buckhead is trying to secede from the city of Atlanta's governance, it has not been successful in doing so. That wouldn't be a deal breaker as we are in the MTR forums, not the STR ones. However, a lot of condominium communities have clear guidelines on rental restrictions that often prohibit leases less than 6 or 12 months.

Before paying for a really nice high-rise, please make sure you will be able to monetize it the way you'd like prior to purchase.

Best of luck. I am an Atlanta native (yes, there are a few of us), and I think Buckhead has good days to come. 

I agree with @Jonathan Greene that the question is vague, so my advice will have to be as well.

The short answer: MTRs are real estate, so just like all real estate, any place that can long-term-rent cash flow with increasing jobs/population can be a suitable site to purchase. 

The longer answer: Listen to the BP podcasts. Learn how to evaluate a market by either reading and listening to a lot of content or by providing some sort of value to someone who already has that knowledge. Underwrite your RE purchase to long-term rents, so that no matter what, you can cash flow. Learn how to cost-efficiently furnish everything for the space, and take a risk on MTR. Most importantly, you will make mistakes, so wake up, try your best, forgive yourself if you make mistakes, and try again tomorrow.

@Tanya Maslach I would be glad to share our experience as we have learned to love the corporate client avatar. With the decline in traveling medical professional pay since the end of the COVID era, corporate clients represent the highest-paying clients we serve.  The market is a bit trickier because you need to be a good host to the residents while being a good vendor to the paying client. Since there are often different entities, there are different skills and systems needed.

With that said, I can tell you are definitely better at building systems that I am (I have built up some best practices, but they mostly reside in my head). I would love to help out while also learning from you as we are growing fast enough to need more robust and reproducible systems.

Thanks,

Miguel

I agree with @Jamie Banks that, while it takes time, its best to develop these relationships organically. Depending on how you reach out, using another operator's list can feel transactional to the contact. Obviously, using the online listing page at ALE solutions is different than a cold email, and I am referring to the latter.

That brings up an obvious question: how do you develop those leads, then? I would recommend advertising on the usual platforms (FF.com, airbnb.com) with a focus on bringing value to the resident while also being very responsive to any business to business leads that come in. The folks who are placing families affected by a need for an insurance claim have an "inbox" that is overflowing. Help them get a family squared away quickly by answering all incoming emails and phones calls as soon as possible. Be flexible and respectful to both the residents and to the employee of the company actually paying the bill.

I know this sounds incredibly basic and simple, and it is. Still, you can distinguish your company doing the basic and the simple. If you ever read the side of a Heinz Ketchup bottle, it reads "Do a common thing, uncommonly well". That's the Heinz motto, and it serves us well as landlords too. 

These are among our favorite residents to host. Insurance relocation rents are often capped (at least in our area) to be 1% of the insured value of the affected property per month. They will not offer that (instead relying on your advertised rate), but they will be willing to pay what you're asking without fuss as long as it is below that high threshold. The companies we've interacted with have all been very professional, and they have appreciated being treated respectfully and professionally in return. 

Some have been willing to use our lease (through Avail.co) while others have wanted to use their own. Security deposits have been paid by the resident family half of the time and the relocation company half the time. 

One perk with these companies is that they often extend the lease as construction timelines are notoriously difficult to estimate. We've had luck where if the family is able to move back in to their home earlier than expected, the relocation company has been OK with us looking for new residents without the company requesting a refund for the overbooked days. We always get that permission in writing, though, to cover our bases.

All in all, I recommend nurturing these relationships as these are among the best clients to serve in the MTR space.

Quote from @Sylvia Santelli:

@Miguel Del Mazo advice is probably a really good approach. Talk to a lawyer.

If you get in trouble with your city you won't be able to rent it out now or later. It also makes it harder for other operators down the road--- not your main concern but we all impact each other.

What about you and your wife live in the garage unit, and rent out the house for a lot more, at least until all this permitting is figured out. I imagine owners can live there, you just can't rent it.

I think the idea of living in the unpermitted area is a great idea. The challenge is convincing one's partner to move into it :)

I agree with the above. Great photos make a world of difference in providing confidence for your potential resident. Video is even better, if professionally done.

Most of our travelers that are coming from any distance are happy enough for great pictures and good customer service to rent.

The people who tend to want a tour are usually already in town at another rental and aren't happy there for some reason or another. They are asking to see the space so they don't wind up jumping from the frying pan to the fire. We are local, so we try to accommodate requests to see our units, but realistically, with vacancy so low, it's hard to do showings. If we can't show, usually just talking to the potential resident and taking the time to assure them that we aren't scammers or slumlords is enough to get their commitment to rent.

It sounds like you and your wife are in a tough spot.  Take the following with a grain of salt, as I am not a lawyer, nor am I in your area. You may have a recourse if the listing agent falsely claimed that the unit was permitted. Talk to your agent to get a little more information about this.

I agree that if the unit is not permitted to be rented on its own, then it's probably best that you don't rent on any platform illegally.

However, if you are able to allow access to the main part of the house, you may be able to rent the space as a room in a home depending on local laws and ordinances. Padsplit (never used it myself) may be an option.

What I would try is to look for a family member who wants to have some privacy, and is willing to still come inside the main house (and pay some rent), or try to get the space permitted.