Many local investors are purchasing properties for the sole purpose of holding and renting them out for recurring income.
And while that can be pretty good cash flow when you have multiple properties, what if there was a way to double or triple that per property?
Thus, we introduce the short-term rental model, also known as a master lease.
We're going to show you exactly what the master lease model is and how it can help you increase your cash flow for existing properties or find new properties that you don't have to purchase in order to implement it.
The current rental model is tried and true, but slow and low cash-flow
Yes, while the buy-and-hold strategy has been around and many folks are retiring early from it, it's not the current best way of generating rental income for many types of properties.
What most people do:
They find homes that they can buy at a discount, rehab them, and then find a tenant for 1 or 2 year leases.
Depending on the finances, cash-flow for these properties can be somewhere in the $200-500 per month range, which is pretty decent.
The benefit is that you can get reliable income from long-term tenants.
The downside is that the opportunity cost is missing out on 2-3x more than that on profit per month.
Short term rental properties can net double or triple long-term rental properties
Check this out:
If the note on the property is $1,000 and you're renting it out for $1,300 to a long-term property, you're bringing in $300 per month (we're not counting repairs and taxes, etc right now for this example).
If, however, your property is in a location where short-term tenants may like to stay one or more nights, then you may be able to rent it out for $70-120 per night.
Now, in order to cover the note, you only need to rent 8-14 days of the month.
If the property is in a location near the beach, resorts, cabins, vacation areas, convention centers, or live show spots, then you can very likely rent it out for the majority of the month, as well as booking multiple days at a time.
That means you can get the property booked at least 75% of the time, netting you $1,800 - $2,640 per month, more than double the profit than from a long-term tenant.
With this model, you also don't have to own the property
This is where the master-lease model comes in:
If you don't own any properties but you have some cash on hand, you can find single-family homes or multi-unit complexes and discuss a master-lease model with the owner.
Essentially what happens is that you sign a lease with the complex owner at 80-90% (or larger discount) of the normal lease.
You then prepare the unit or property for airBnB and set up the process for handling check-ins, check-outs, furnishings, and cleaning services.
Now you're able to rent it out on a short-term rental site like airBnB, VRBO, or HomeAway.
As long as the numbers make sense, you can cover the lease and generate profit without having to own the property.
The downside is that you have to cover the lease, which is a lot higher than a mortgage.
The upside is that you don't have to own the property or rehab it.
Additionally, most of these types of properties will have locations that you otherwise would have to pay out the nose to acquire.
That means you can make rental profit on locations you otherwise would have no opportunity to invest in.
The most important aspect of this model is creating a system
As with any business, this is the single most important thing:
A system!
When it comes to creating an airBnB model, you are essentially creating a rental brand.
This brand will have certain presentations that people will come to expect, especially after having used airBnB for so long (it's been out for years now).
Your rental properties will need to accommodate people's needs, including the basics such as a kitchen, electricity, water, and WiFi.
But also, standard cleaning services that can take care of everything from the kitchen and bathroom to the beddings and furnishings.
You'll also want to create a standard manual that tenants can reference for all their needs, stay available for calls and issues, and generally provide anything that the tenants need.
A lot of this process will be trial and error, but there are some resources out there to jump-start what you're going to need in your rental model.
As always, make sure your bases are covered and that you limit liability.
Additionally, make sure you have the appropriate contacts that can respond to emergencies and resolve issues as soon as they occur.
Check out more on Houston's rental and housing market from our blogs ( https://houstonhomebuyer.wixsite.com/webuyhouseshouston)