How To Negotiate The BEST Price For Your Lease Arbitrage | The STRR Podcast #71 | Tim Hubbard

Why would a landlord want to lease all of his apartments to someone who's going to turn around and sublease them out? Well, there's a lot of benefits. We're talking about lease arbitrage this week and a 10 unit apartment deal that I just signed. I want to share the details with you and the benefits from a landlord, from an owner's perspective, why they would want to do this. Let's jump right in. Welcome to Short Term Rental Riches. Quick, actionable ideas to help you along your real estate investment journey, but with a specific focus on short term rentals. Happy you're here again, as always, wherever you are in the world. I'm still down here in Brazil, but still working on deals in the US with my team and I'm really excited about one that I just signed. I want to share with you guys. This week we're going to be talking about lease arbitrage. And if you've listened to the podcast for a while, you know that my whole goal behind all of this is to build wealth. And with lease arbitrage, I have certain feelings about that. Essentially, we're not building wealth with lease arbitrage because we don't actually own the properties, but we can make a ton of cash flow. And I just signed a deal for 10 apartments in what used to be an old historic hotel. I'm really excited about it. I want to share with you guys this week why it was such a good deal for the owner, so, but also such a good deal for me. So let's just go ahead and jump right in. And there is a lot to talk about with lease arbitrage. The beautiful thing is that if we're doing lease arbitrage, we can use our same operations. So the same operations we use for properties we own, it's identical with lease arbitrage in terms of guest management and housekeeping and reservations and everything like that. But of course, the whole process of acquiring the properties is much different. So this week we're going to talk about some of the negotiating leverage that I had as an individual wanting to lease apartments to sublease and on the landlord side, why he could actually make more money than if he rented to long term tenants. So I'm going to break this down and then next week we're going to talk about some of the very, very important pieces of our actual lease that we asked for and we made sure we had before we signed on the line. So in terms of an owner trying to rent their properties out. So as we invest in property, our biggest Goal is to make the most cash flow, right? That's why we do it, cash flow and build wealth. And hopefully we have it set up as a passive operation. Now, for this particular owner, he's renovating 10 apartments. All the apartments that exist in this building above a restaurant. And he is a restaurant guy. He's had a restaurant for over a decade. Luckily it's done well through Covid and he's expanding, actually. And so he bought a property right next to his existing restaurant. It's downtown to awesome location. And he renovated the whole thing and he's doing a fantastic job. And so these old apartments are actually basically brand new. And now for him to go find tenants, find management, deal with the credit backgrounds and the checks and all those things and the time it takes to lease that up, that could take a lot of time and cost a lot of money. And he actually approached me about leasing all the units. So I had that advantage from the very beginning. We might not all have that advantage, but I want to share with you the things that we talked about when we were negotiating the actual price per unit. So I essentially, I came up with two spreadsheets and I said, yeah, I'm interested. I actually haven't done lease arbitrage before, but I know a lot about it. I own all my own properties. But I think this could work out really well for both of us. And here are the numbers that I ran. So on one side I had my offer price per apartment and then all the associated costs. If he were to rent it to me as a short term rental, then on the other side, I had the long term rental equation and all of the associated costs he would have if he decided to just take it on and rent it out as traditional long term rentals. So on my side, these are the benefits for the landlord. He's going to have zero vacancy because if I'm leasing these apartments, I'm giving him his payment every month, no matter whether we rent it or not. Now you got to be careful there. We're going to talk about the actual terms of the lease next week. But from the owner's perspective, if I'm leasing the apartment, he has zero vacancy for the life of our lease. So that's a positive in his particular situation. I'm leasing all 10 from day one. So he has no time to lease these up. Maybe it takes six months to find long term tenants. So that is one risk that he could avoid by subleasing. Another beautiful thing from the landlord's perspective is that if one person is Renting your apartments and wants to rent all of them because they're working out well as a sublease model. Well, then you could essentially have one tenant for a lot of your apartments. So he only has to deal with me for these 10 apartments. He doesn't have to collect rents from 10 different people. It'll be so much easier to deal with one person than it is with 10 people. So he also has no lease up costs. You know, if he decided to rent this out long term, and let's say he found a management company and he didn't want to do this himself, well, typically he's going to pay half the first month's rent or a full month's rent to get that apartment leased up. And that might only be for a year. On top of that, he's going to have to pay that manager ongoing a percentage basis every month to manage those tenants. Also, if he's only dealing with one tenant, me for example, renting all 10, well, his bookkeeping is going to be a lot easier. It's a small thing, but it is important as well. So I try to outline a lot of these things coming from the owner perspective. And I laid those all out on one side of an Excel sheet with all of the numbers. These are the potential rents. This is potential time to lease them up. These are potential costs to lease them up. This potential ongoing management fee and your average lease might be, you know, hopefully two years, but usually a minimum one year. And in this situation, he's going to be leasing these apartments to me for potentially seven years. So there's no turnover there. He has no turnover costs, doesn't have to go in and redo an apartment to find a new tenant, have vacancy during all of that. So these are some really, really good benefits. And the cherry on top for this deal for this owner, for this investor, is that he has a restaurant on the first floor and that is his baby. That is the most important thing for him because he's not an apartment guy, he's a restaurant guy that just happened to find a great building that had apartments there already. So by me managing these 10 apartments furnished, just like I do with all the properties I own, it's not only going to make it easier for him, but it's going to provide a lot more opportunity for his restaurant. I already have properties in this area, so I was able to run comps and give him a realistic idea of how many guests he could expect to come in. And then we factored in a dollar amount per guest. Very conservative. But that's really just like a bonus on top. This is probably going to be a unique situation, but when you guys are out there, if you're doing the lease arbitrage route where you're renting an apartment to sublease it for short term rental guests, you got to look at every benefit to the landlord possible because it'll help you in the negotiations. And in the final result, I saved about 15% off the rent for all 10 apartments from what he was initially asking. Was also able to get a month for free and we negotiated some really good rent increase terms. I'm going to go over all the terms of the lease next week because it's too much to cover in one episode. But for this episode in particular, just wanted to cover how I handled that and recap some of those benefits from an owner perspective why they would want to lease to someone who's going to turn around and sublease. So hopefully you got some value out of this. If you guys are out there doing a lease arbitrage model. Good for you. Stay tuned for next week because there's some really important things that you need to have in your lease or this could be dangerous. You could be putting yourself at risk, you could be putting your money at risk and we don't want to do that. So stay tuned until next week. Until then, have an awesome week. Want to get on the fast track to financial freedom through short term rentals? Well, it all starts with the properties you acquire, but you want to make sure that you acquire the right properties. I want to give you my ebook that will show you how to do just that. There is no charge. It's my gift to you for being one of our subscribers. Just go to restmethods.com that's R E I stmethods. Com.