Well we all have different constraints, but I'd rather own it. How does your long term lease payment ($/mo) compare to a mortgage payment, if your purchased ($/mo)? For most of us, the lease would be more; hence the reason we buy and are landlords!
Hey Clint to follow up on what John said, why would you go the arbitrage route of signing a long term lease and operating a short term rental, if you have the option to just buy the place, do the work - and operate the STR yourself?
If rental arbitrage is your game, I think this is a great approach. There are a lot of people doing this business and it's I've considered it myself. That being said, I'm with John. I prefer fewer units that I own and am gaining equity with.
Sorry guys, in Clint fashion, this is another long post, but there is some gold in here if you’re willing to dig for it.
It’s been a while since I posted, but in response to some questions about this, I thought it might be helpful. This is our third multi-family arbitrage that we’re working on, and I thought that I would just share the email that got things going after the initial phone conversation. Here’s the timeline. A multifamily property in a great location popped up 2 months ago. Loved the location, but there were tenants in place that WERE NOT taking care of the property, and the prices was almost 400k, and the gross monthly rents were $1850. It was an atrocious deal. We viewed the property, spoke with the owner, let him know that even though the property needed work, I thought the location was solid, but that the tenants in place were going to be a big problem, but that I would be in touch to see if anything changed. The property sat for over a months with zero action, of course. I followed up a month later, and the owner let me know that his tenants sucked, and that he would probably be filing eviction. I told him that it was still out of my price range for the amount of work I would want to do, but I would run an analysis and follow up.
From my analysis, and with our track record, I know this property is worth 50k per unit in gross rents (duplex). As is, this property looks like it’s extremely over-priced, but the reality is just that it’s underperforming. After calling the owner again after letting it sit, he informed me that he’s taking on a huge project at work, and frankly he just doesn’t have the time and energy to deal with bad tenants, and he’s just trying to get out of the property what he paid for it in 2005. That’s when I turned the conversation to arbitrage, and told him about what we have done in running our own properties, and in partnering with other owners that had under-performing properties. He was interested, and asked me to send an email with some more information, and if it sounded ok, we would do lunch. Here is that email, with personal info redacted.
“Hey X, wanted to follow up on our conversation the other day of a possible arbitrage or master lease on your duplex on X Ave. Would love to talk more about things over lunch, but here’s the short-ish version. My wife and I moved to Wilmington in 2017 and ended up in X area. I’m in medical sales, I implant pacemakers and defibrillators at the hospital. My wife was previously in medical sales as well, but decided to go full time into real estate once we moved to NC. We had 7 single family rentals and a duplex in Columbia, SC, and just decided to keep going in this new market. We ended up buying a duplex on X ave, its 3/2 in each half, we renovated, staged, and operate short term rentals out of the other half. We spent a lot of time and effort on studying the market data and purchasing review-based data from top performing properties and from super-hosts all over the country. As a result, our first listing crushed it, even during the winter. Average occupancy at CB is 63% annually, highly seasonal, with average of 19% in the winter and 95% in the summer, as you would expect. With using review-based data for everything from renovations, to staging, photos, marketing, we operated at 81% from November through April in our first off season. Our annual occupancy sits around 88%, compared to the average of 63% for our competition. We’ve since expanded, put systems in place, hired our own cleaners, laundry service, purchased our own software management system, and currently have X units operating as top performing listings, and we have 3 more that will be coming on to the market this off season.
Here’s the part that I think may appeal to you. X of the units that we currently operate, and X that will be operating shortly, are all part of the same portfolio that we leased from the property owner. The owner had long term tenants in place that were really treating the properties poorly, breaking things, and were paying under market rents because of the condition of the property. We reached out to him just after he finished another eviction, and we ended up taking over X of his units, while waiting for the rest to finish out their lease. Here’s why this works for him, and why I think it might be a good fit for you as well.
You know the downsides of long term tenants. They live in the property and often don’t treat it with the same respect that they would something they own. There is wear and tear, broken windows, piles of junk, etc. Those repairs fall to you as the property management, and as we both know, you don’t have time for that right now. Here’s what I can offer you. If you get those tenants out, and we get the property in good shape, I can take that property and make it a top performing short term rental on the island. I’ll be the best tenant you’ve ever had. If someone breaks a fan, a window, a toilet, etc, you don’t fix it any more, I do. We have a handyman on retainer that is always available to fix any issues before the next guests arrive. On top of that, I have professional cleaners in the property every 2-5 days on average. Besides just cleaning between guests, we have a once-a-month deep clean that covers air filters, baseboards, ceiling fan blades, etc. Besides that, our tenants are usually only in the property for 3-4 hours a day, they almost never use appliances, and are very gentle on floors, cabinets, etc. The result is your property is being taken care of on a level it hasn’t seen before. My cleaners are always on the lookout for any issue like leaks, floor issues, dents in the wall, etc, and know to forward the pics to me, and then send the issue straight to our handyman. That’s a nice byproduct of our system, but that’s not the real value creation for you as the owner.
One of the real key factors here is that at $(Current price) I think most people are looking at your property as over-priced, but I disagree. I don’t think that’s the case at all. I think your property is just drastically under-performing. Sure, currently showing 22K or so in rents, that price of $X doesn’t make any sense, but I don’t see it as a problem with the price, it’s a problem with the performance. Your location has the ability to triple those rents; it just takes time and work to build a system that will do that. You don’t have that time, but I’ve already spent a year building that system, and it would be easy to put it to work in your property. If we get the property fixed up a little bit that gives us something to work with, I can pay you a little more in rent than you’re currently getting, but keep in mind, that’s not the real value. Sure, you increase your cash flow a little, and you get a small equity build each month, but the real value is the forced-appreciating that comes with running a tremendous amount of rental income through the property. When the property shows 60k-70k in gross rents, all of a sudden $(current price) isn’t overpriced anymore. Keep in mind, there are definitely fixed-overhead expenses in terms of paying cleaners, handymen, short term rental commisions, etc, but the point remains, your property is under-performing, I can see that, and I can fix it. We specifically look for underperforming long term rental units, and we either purchase them and convert them, or we look to partner with the owner to create a win-win situation. Our business model is to take a liability in your portfolio and convert it to an asset so that you either want to keep it because it’s completely hands-off and we continue to partner on it, or put together a deal where we can use the performance of the property to help us purchase it from you.
In summary, if you are willing to partner on this, you turn the listings over to me, and I will stage and operate them. You get paid on the first of every month, and you always get paid first before we ever make a dime. You don’t have any more daily management of the tenants, I do that. The value of your property continues to go up, both from being maintained, building some equity, and from the forced-appreciation from increased gross rents. If we do a good enough job, which we have a track-record of doing, we can pay for the fixed overhead, and still turn a profit that hits our barrier-to-entry metrics. If this sounds like something you might be interested in, let me know and we can grab lunch. Here is the link to X of the Super-host properties we have up and running right now, and if you would like to speak with him, I’m happy to get you the contact info of some of the property owners that we are partnered with that have offered to be references.
Best Regards, Clint Harris”
So there you go guys, that’s what I mean by trying to communicate the value that can be added and creating a Win-Win situation. Hope that was helpful, y’all have a great weekend!
Sorry guys, in Clint fashion, this is another long post, but there is some gold in here if you’re willing to dig for it.
It’s been a while since I posted, but in response to some questions about this, I thought it might be helpful. This is our third multi-family arbitrage that we’re working on, and I thought that I would just share the email that got things going after the initial phone conversation. Here’s the timeline. A multifamily property in a great location popped up 2 months ago. Loved the location, but there were tenants in place that WERE NOT taking care of the property, and the prices was almost 400k, and the gross monthly rents were $1850. It was an atrocious deal. We viewed the property, spoke with the owner, let him know that even though the property needed work, I thought the location was solid, but that the tenants in place were going to be a big problem, but that I would be in touch to see if anything changed. The property sat for over a months with zero action, of course. I followed up a month later, and the owner let me know that his tenants sucked, and that he would probably be filing eviction. I told him that it was still out of my price range for the amount of work I would want to do, but I would run an analysis and follow up.
From my analysis, and with our track record, I know this property is worth 50k per unit in gross rents (duplex). As is, this property looks like it’s extremely over-priced, but the reality is just that it’s underperforming. After calling the owner again after letting it sit, he informed me that he’s taking on a huge project at work, and frankly he just doesn’t have the time and energy to deal with bad tenants, and he’s just trying to get out of the property what he paid for it in 2005. That’s when I turned the conversation to arbitrage, and told him about what we have done in running our own properties, and in partnering with other owners that had under-performing properties. He was interested, and asked me to send an email with some more information, and if it sounded ok, we would do lunch. Here is that email, with personal info redacted.
“Hey X, wanted to follow up on our conversation the other day of a possible arbitrage or master lease on your duplex on X Ave. Would love to talk more about things over lunch, but here’s the short-ish version. My wife and I moved to Wilmington in 2017 and ended up in X area. I’m in medical sales, I implant pacemakers and defibrillators at the hospital. My wife was previously in medical sales as well, but decided to go full time into real estate once we moved to NC. We had 7 single family rentals and a duplex in Columbia, SC, and just decided to keep going in this new market. We ended up buying a duplex on X ave, its 3/2 in each half, we renovated, staged, and operate short term rentals out of the other half. We spent a lot of time and effort on studying the market data and purchasing review-based data from top performing properties and from super-hosts all over the country. As a result, our first listing crushed it, even during the winter. Average occupancy at CB is 63% annually, highly seasonal, with average of 19% in the winter and 95% in the summer, as you would expect. With using review-based data for everything from renovations, to staging, photos, marketing, we operated at 81% from November through April in our first off season. Our annual occupancy sits around 88%, compared to the average of 63% for our competition. We’ve since expanded, put systems in place, hired our own cleaners, laundry service, purchased our own software management system, and currently have X units operating as top performing listings, and we have 3 more that will be coming on to the market this off season.
Here’s the part that I think may appeal to you. X of the units that we currently operate, and X that will be operating shortly, are all part of the same portfolio that we leased from the property owner. The owner had long term tenants in place that were really treating the properties poorly, breaking things, and were paying under market rents because of the condition of the property. We reached out to him just after he finished another eviction, and we ended up taking over X of his units, while waiting for the rest to finish out their lease. Here’s why this works for him, and why I think it might be a good fit for you as well.
You know the downsides of long term tenants. They live in the property and often don’t treat it with the same respect that they would something they own. There is wear and tear, broken windows, piles of junk, etc. Those repairs fall to you as the property management, and as we both know, you don’t have time for that right now. Here’s what I can offer you. If you get those tenants out, and we get the property in good shape, I can take that property and make it a top performing short term rental on the island. I’ll be the best tenant you’ve ever had. If someone breaks a fan, a window, a toilet, etc, you don’t fix it any more, I do. We have a handyman on retainer that is always available to fix any issues before the next guests arrive. On top of that, I have professional cleaners in the property every 2-5 days on average. Besides just cleaning between guests, we have a once-a-month deep clean that covers air filters, baseboards, ceiling fan blades, etc. Besides that, our tenants are usually only in the property for 3-4 hours a day, they almost never use appliances, and are very gentle on floors, cabinets, etc. The result is your property is being taken care of on a level it hasn’t seen before. My cleaners are always on the lookout for any issue like leaks, floor issues, dents in the wall, etc, and know to forward the pics to me, and then send the issue straight to our handyman. That’s a nice byproduct of our system, but that’s not the real value creation for you as the owner.
One of the real key factors here is that at $(Current price) I think most people are looking at your property as over-priced, but I disagree. I don’t think that’s the case at all. I think your property is just drastically under-performing. Sure, currently showing 22K or so in rents, that price of $X doesn’t make any sense, but I don’t see it as a problem with the price, it’s a problem with the performance. Your location has the ability to triple those rents; it just takes time and work to build a system that will do that. You don’t have that time, but I’ve already spent a year building that system, and it would be easy to put it to work in your property. If we get the property fixed up a little bit that gives us something to work with, I can pay you a little more in rent than you’re currently getting, but keep in mind, that’s not the real value. Sure, you increase your cash flow a little, and you get a small equity build each month, but the real value is the forced-appreciating that comes with running a tremendous amount of rental income through the property. When the property shows 60k-70k in gross rents, all of a sudden $(current price) isn’t overpriced anymore. Keep in mind, there are definitely fixed-overhead expenses in terms of paying cleaners, handymen, short term rental commisions, etc, but the point remains, your property is under-performing, I can see that, and I can fix it. We specifically look for underperforming long term rental units, and we either purchase them and convert them, or we look to partner with the owner to create a win-win situation. Our business model is to take a liability in your portfolio and convert it to an asset so that you either want to keep it because it’s completely hands-off and we continue to partner on it, or put together a deal where we can use the performance of the property to help us purchase it from you.
In summary, if you are willing to partner on this, you turn the listings over to me, and I will stage and operate them. You get paid on the first of every month, and you always get paid first before we ever make a dime. You don’t have any more daily management of the tenants, I do that. The value of your property continues to go up, both from being maintained, building some equity, and from the forced-appreciation from increased gross rents. If we do a good enough job, which we have a track-record of doing, we can pay for the fixed overhead, and still turn a profit that hits our barrier-to-entry metrics. If this sounds like something you might be interested in, let me know and we can grab lunch. Here is the link to X of the Super-host properties we have up and running right now, and if you would like to speak with him, I’m happy to get you the contact info of some of the property owners that we are partnered with that have offered to be references.
Best Regards, Clint Harris”
So there you go guys, that’s what I mean by trying to communicate the value that can be added and creating a Win-Win situation. Hope that was helpful, y’all have a great weekend!
Great post! I have been thinking about doing this for years and casually looking into it. I’m now starting to take a harder look. Like our friend from New York right above me I would like to get out of the rat race. Timing is complicated in my case, because my kids will be going to college in a couple years. My plan for the last few years have been to leave the 9 to 5 and move out of New York metropolitan area after the kids graduated high school. Now that it’s becoming crunch time I realize it’s more challenging than I anticipated, mostly due to X factors with college financing. However where there is a will there is away.
Thank you Clint for this thread... Your post and wish you great success.. I personally have 2 beachfront Airbnb s in Rincon PR and even on a slow month (current month of August) I'm at 2k profit! Woop woop!
currently about to negotiate a seller financing note to purchase a 14 bedroom beachfront property in Luquillo.. (i'll live in one of the 3 bedroom apartments) so that's 11 bedrooms I can rent out on STRs should close by November and moving down to manage, eventually automate the process and crew .. quit the rat race in NYC and apply for Act 20 for tax advantages ... So excited! Did I mention.. beachfront?! You're so right about the data analytics.. airdna.. even without the monthly subscription (free version) allows me to dig deeper.. I feel most don't take the time to actually read reviews posted by guests to use the negatives to their advantage!
any meetups happening for strs?
@Clint Harris this is a great post! Although many people may not like the long post I appreciate you going into the details.
My fiancé and I are currently evaluating the Charleston SC market and were looking at doing a SFR for our first deal and continue to scale those buying more doors. With Charleston being voted the #1 place to visit voted by Travel and Leisure there clearly is a market for STR. This is something we will definitely look into now. As you mentioned one downside would be the cost for these properties but there are many affordable places on Edisto Beach which is about 45 minutes from Charleston so maybe that is an option to get us started until we can get into a beach house here locally?
Again great post!