BRRR/STRP Management Lease?

Question

On a traditional BRRR, you refinance with an executed long-term lease.

Has anyone had their management company sign a LTR lease guaranteeing the minimum lease amount of rental income for the refi and then have the management company handle the STRP deployment?

David Bergmann · Answer

Yes - I've done this as a property manager to help owners out.  I think the easiest way that will produce the least red flags for banks is that the management company just has a standard long term lease on the property. Then you can have a secondary service agreement with them that basically says that in addition to the rents they owe on the lease, the mgmt company will pay you the short term rental proceeds that are above and beyond the amount of the rent (less their fees).  And I would write in the reverse scenario too, that the owner is responsible for paying the mgmt company if the proceeds aren't sufficient to pay the rent (although if you set the rent correctly, this shouldn't happen).  As a mgmt company, I just wouldn't want to take on any of the owners downside risk if the property doesn't perform...at least not for free.

Example:

LEASE: Rent - $1000 per month (PAID)

STR PROCEEDS: $2000

MGMT FEES (25%): -$500

NET PROCEEDS: $1500 - $1000 = $500 DUE TO OWNER IN ADDITION to rent

John Underwood · Answer

No.

I self-manage over 20 properties with little effort because I have systems and a team to do the heavy lifting. No employees, just contractors who do work as needed.

I have STR and LTR's. I just kick back and watch money appear in my account every month.

I don't use an app, I use Excel to keep up with everything.