Renting Properties to Ultrawealthy Tenants Isn’t As Glamorous As It Seems

If you’re a landlord, you’re no doubt aware of all the issues that can arise when you rent your property for the median monthly asking rent in the U.S., which was reported by Redfin to be US$2,002 in May 2022.

But what about an ultraluxury home or condominium, one that rents for US$50,000, $100,000 or even $130,000 per month?

“High-end luxury rentals create unique challenges for landlords because the tenants are high-net-worth individuals, often celebrities, who have special requirements,” said Julian Johnston, a real-estate broker at The Corcoran Group in Miami Beach.

Mr. Johnston, who last year represented the owner of an 11-bedroom, 15-bath waterfront home in Miami Beach that was leased to a celebrity for US$130,000 per month, recently worked on a deal where he had to sign a lease rider stating that “if I needed to go to the residence for any reason that I would not speak to, or look at, the tenant.” Another celebrity client wanted to ensure privacy at the rental home, so Mr. Johnston arranged to purchase $20,000 worth of 2.4-metre-high potted plants that were placed along the sea wall and on bedroom balconies so that paparazzi couldn’t shoot photographs from a boat offshore.

The high-net-worth individuals who can afford to rent these properties often come with high expectations. Many demand almost concierge-level service from their landlords or the agents or property managers working on their behalf.

“In your average landlord-tenant relationship, the landlord pretty much dictates the terms, and the tenant will not have that much say,” said Zachary D. Schorr, a real-estate attorney in Los Angeles. “But when you get into these higher-priced leases, it’s not atypical for an attorney to negotiate the terms of the lease.”

Eric Rollo, a licensed broker and managing partner of the Boston office of The Agency, recently worked on a lease where the tenant was a player for the Red Sox, who was renting a townhouse in Chestnut Hill, just outside Boston, for US$18,000 a month. “He was in Florida at spring training but expected to arrive at a turnkey property,” he said. “So, we had shades installed, the internet and cable hooked up and everything done on the front end to make sure the property was ready.”

Danny Hertzberg, a real-estate agent with The Jills Zeder Group at Coldwell Banker Realty in Miami Beach, also has coordinated requests from high-net-worth tenants. “I often receive the initial call with the complicated requests and then connect the tenants with the property manager, who makes all the arrangements for them,” he said. “They expect the fridge to be stocked and massage therapists, chefs and drivers to be arranged. They also want to know that the landlord has a professional management company that has the resources to respond at 4 a.m. on a Sunday morning for a leaky faucet.”

Mr. Hertzberg said many landlords even do light remodelling between tenants so their properties are in pristine condition.

Leases for high-end rentals can be complicated as well, with tenants demanding unique clauses that may adversely impact the rights of the owners.

Mr. Hertzberg was involved in the sale of a five-bedroom home on Palm Island in Miami Beach where, before signing the listing agreement, the owner rented it to a famous Reggaeton artist for over $100,000 a month. The tenant had his own security team, with multiple guards in front and in back of the property, and they were so protective that even though Mr. Hertzberg had the right to show the property to potential buyers, the guards wouldn’t let them access the premises.

“We lost a lot of buyers because they weren’t willing to jump through hoops,” said Mr. Hertzberg. The tenant allowed access only on certain days and at limited hours. Prospective buyers also had to sign a nondisclosure agreement, which prohibited them from taking photographs.

Ultimately, the parties were able to negotiate a showing when the tenant was out of town, but access for home inspections and the appraisal were a nightmare as well, he said. All inspectors needed to be approved by the tenant and were escorted around the property with the tenant’s security team.

The house was listed for about US$20 million and ultimately sold for about $15 million, Mr. Hertzberg said. “The seller left millions of dollars on the table as a result of the tenant,” he added. “He took a big haircut.”

If you’re the owner of a high-end property and planning to rent it out, here are some things to consider.

Be creative when qualifying the tenant. Owners of ultraluxury properties, or their representatives, need to do more than just a basic credit check and background search on the prospective tenant. Some landlords ask for proof of funds, such as bank statements, as well as personal references from former neighbours or landlords. Others request a letter of credit or that the tenant pay six months or a full year in advance. Ethan Assouline, an agent with Compass in New York City, does all this and more. “If it’s a celebrity, you can also google them and do your due diligence to see if they had past troubles or noise issues,” he said. “Plus, we often know who the broker is on the other side when we’re representing the landlord and the reputation of that broker and the kind of clients they work with.”

Make sure your insurance is sufficient. Landlords of high-end properties should consider securing an umbrella policy, which kicks in when the underlying limits of the landlord’s policy aren’t enough to cover the costs if the landlord is sued for an accident or injury on the property. All landlords of homes that are rented long-term—anything over six months—regardless of the rent level, should have a landlord’s policy, or rental dwelling policy, according to the Insurance Information Institute, an industry trade group. A landlords’ policy provides coverage for physical damage to the property caused by fire or other casualty, as well as coverage for personal property the landlord leaves for tenant use. It also includes liability coverage in the event a tenant or guest is injured on the property. Many landlord’s policies also cover loss of rental income in the event the property can’t be rented while it is being repaired due to damage from a covered loss. Landlord’s policies typically cost about 25% more than a standard homeowners policy for this extra protection.

Do a preoccupancy inspection. While inspections on lower-priced rentals are common when the tenant moves out so the landlord can ensure there are no damages, for high-price rentals, Mr. Schorr recommends a preoccupancy walk-through to protect both parties. “Document everything via video and photographs, and have the tenant sign off on it,” he said. “That way, if a dispute arises, you have a record.”

Looking to build, or renovate, a home in 2024? You’re not alone. According to a recent study from Resolve Finance, over a third of Australian homeowners are planning to renovate their current properties in the next 12 months. And if the Federal Government achieves its ambitious goal of delivering 1.2 million new dwellings over the next five years, there will be many new home owners looking to build their dream home in 2024 and beyond.

But before tackling such a behemoth task, considering all the latest—and future—architectural trends is pivotal in your new build’s success. Award-winning architect and interior designer, Georgina Wilson said sustainability will be at the forefront for many interested in energy efficiency and saving money on power bills.

“Elements of passive design are moving into the mainstream. Improvements in the technology with double glazing, building wrapping and insulation are meaning that more people have access to these materials,” Ms Wilson said. “Solar has proven itself and homeowners are now looking for other ways to make their home more efficient.”

The following eight trends reflect a growing emphasis on sustainability, flexibility, and wellbeing in residential architecture, catering to the evolving needs and preferences of homeowners in 2024.

—

1). Consider your colour palette

The colours you use say everything about the type of spaces you want to foster, whether they be bright and warm, dark and moody, neutral — the list goes on. If we’re looking to trends, earthy, calming neutrals are in — think brown, beige and eucalyptus green. Colours that feel natural and soft, but welcoming provide an inviting environment that’s easy to live with.

However, interior designer and stylist, Jono Fleming said contrast is important to create interest and one of the most powerful ways to do this is through colour.

“It doesn’t have to be a big splash of colour, it could be introduced through smaller decorative objects, a statement furniture piece or an artwork, but the colour should add balance to the space,” he said.

2). Modern, outdoor living areas

Ever since the COVID pandemic and subsequent lockdowns, expanding living spaces to the outdoors has gained in popularity. Features like plant-filled front porches, outdoor kitchens, fire pits, and cosy seating areas create inviting spaces for relaxation and entertainment for all family members.

“There has definitely been a greater appreciation for outdoor living spaces since COVID,” said Ms Wilson. “Outdoor fabrics and mechanisms for shading have greatly improved in recent years allowing people to fully embrace seamless indoor/outdoor living.”

3). The integration of smart technology

Integrating smart home technology throughout your home continues to gain traction with homeowners. As we increasingly look to rely on technology to make our lives all the more seamless, smart technology throughout allows homeowners to control a variety of tasks and zones remotely, enhancing convenience, security, and even energy efficiency. This can include controlled heating and cooling from your phone, automatic lightning, voice control commands, and more.

“The technology for seamless appliances has come a long way. At Salone del Mobile Milano this year, we experienced the new Gaggenau fully integrated induction bench top, which in terms of kitchen design, is a huge advancement,” said Ms Wilson.

Gaggenau, the German manufacturer of high-end home appliances, is at the forefront of smart home technology, paving the way for intelligent cooking appliances that learn and adapt to user preferences. Gaggenau’s essential induction cooktop, the functional and seamless cooking surface Ms Wilson speaks of (pictured below), is designed to be “seamlessly integrated into a kitchen’s worktop”.

4). Health and wellness features

Prioritising health and wellness in 2024 is paramount, and home design that can include features like air purification systems, dedicated exercise spaces, recovering hubs—like saunas and ice baths—and relaxation areas to support physical and mental wellbeing will go a long way in not only adding value to your home, but providing a space that is architecturally on-trend and with the times.

“I’m seeing a lot of demand for in-built saunas, both traditional and infrared, particularly in the homes of our US clients,” said Ms Wilson.

“Bathroom suppliers such as Kohler, Duravit and Toto are offering increasingly sophisticated products that incorporate an almost spa-like experience in your at home bathroom. Examples of this are fantastic multi-nozzle showers and steam showers, Japanese toilets incorporating bidet technology, and elegant and serene bathroom furniture that can be fully customised for clients.”

5). Sustainability is key

A common goal among homeowners and future buyers alike is to own a property that is flexible enough grow with them. Futureproofing your home with sustainable measures will not only ensure its longevity, but it will help homeowners to play their part in addressing their carbon footprint.

“The current cost of living crisis is leading to a lot more multigenerational living, meaning families are prioritising durable materials and sustainable power sources, like solar,” said Ms Wilson.

Consider adding solar panels to your home, utilising sustainable materials in any upcoming renovations or builds, like recycled timber, and utilising energy-efficient lighting throughout your home.

6). Minimalist design

Do as the Scandinavians do – introduce minimalist design into your home. Embrace simplicity and clean lines with a focus on interior design. Decluttering in main living spaces is surprisingly effective. Adopting the approach of ‘Swedish Death Cleaning’, which essentially involves slowly ridding your house of unwanted or unused items once you reach the other side of 50, will also help you whittle your possessions down to the beautiful and the necessary.

Minimalist design in home appliances is also making a resurgence in 2024 according to Ms Wilson.

“What I’ve been interested to see at Salone del Mobile Milano in 2024 is a huge return to stainless steel finishes, and more and more seamless integration of appliances,” said Ms Wilson.

“We’re seeing timeless materials in reimagined applications: copper baths and stainless steel basins are emerging trends with the potential to be timeless. These materials are so practical, and pair beautifully with natural stone and timbers.”

Above all, maximising different spaces through efficient and effective storage options will also do wonders in achieving that minimal aesthetic.

7). Multifunctional spaces

As we move towards greater efficiency of space, it’s useful to consider multifunctional spaces throughout your home. In 2024, we are seeing more homes incorporate multifunctional spaces and trends. This includes using multifunctional furniture in main bedrooms or living spaces—furniture that can act as storage ottomans or convertible sofa beds—as well as transforming wasted space, and open up indoor to outdoor living.

“Multifunctional spaces in homes are a great idea. Particularly in small homes, it makes a lot of sense to achieve maximum value out of the limited space available. The way you use a space can change as your family evolves over time, so it’s always good to design in such a way that allows for flexibility,” said Ms Wilson.

“Make sure that the functions you allocate to a single room are compatible with the space available and each other. For example, it works really well to combine a living room, a dining room and a kitchen in one open plan space because these are all public, lively spaces. It doesn’t work very well to combine, say a study, with these spaces because you will want control over the visual and acoustic privacy in a study.”

8). Think about biophilic design

A buzz word among architects and interior designers, biophilic design is one of the strongest trends in 2024 thanks to its benefits in garnering a sense of harmony and connection between your home and the environment. Consider incorporating natural elements into home design, such as large windows to maximise natural light, indoor gardens, and natural materials like wood and stone.

“Biophilic design is a timeless principle, in that home design should connect people in a positive way with their natural environment by maximising access to, and the ability to control, natural light and ventilation, which really helps to create an enjoyable (and healthier) environment to live in,” said Ms Wilson.

“Increasingly, there is a demand for this positive relationship to the natural environment; by leaning on the principles of biophilic design, you can create a haven and retreat at home that can help with the daily stresses of life.”

Ways to foster that indoor-outdoor connection can be through the addition of smaller internal courtyard spaces filled with greenery, or incorporating indoor plants and adding greenery into different rooms throughout your home.

—

Renting Properties to Ultrawealthy Tenants Isn’t As Glamorous As It Seems

High-net-worth renters, especially celebrities, have ‘special requirements’ that go beyond a typical lease agreement.

Futureproof your home and maximise your return with design directions that focus on contemporary ways of living