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

By ROBYN A. FRIEDMAN
Thu, Jul 7, 2022 11:30amGrey Clock 4 min

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.”

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: June 30, 2022.



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The crafty workarounds would-be buyers use to get into the market

First time buyers determined to enter the Australian property market are taking creative approaches as interest rates steady

By Bronwyn Allen
Thu, Mar 28, 2024 2 min

Aspiring first home buyers are increasingly pooling their resources, adopting new strategies and making compromises to get themselves onto the property ladder, according to research from Westpac. About 56 percent of buyers surveyed are planning to buy their first property jointly with their partner compared to 40 percent three years ago. Three in four buyers say they are willing to compromise on location, up nine percent from three years ago, and 47 percent are willing to pay lenders mortgage insurance to buy their first home sooner.

Additionally, one in two first home hopefuls are considering ‘rentvesting’, whereby they purchase an investment property first ahead of a home for themselves. In this scenario, buyers typically continue renting in expensive lifestyle locations where they want to live and buy an investment property in more affordable locations, often on the outskirts of major cities or in regional areas.

The 2024 Westpac Home Ownership Report, released this month, is based on a survey of 2,015 Australians conducted in January. The report revealed increasing intentions to buy among all types of buyers, with 44 percent intending to buy in the next five years, up from 35 percent in July 2023. This may reflect expectations that interest rates have peaked, with the Reserve Bank keeping rates on hold since December.

Among first home buyers specifically, there was a slight decline in purchasing intention over the next five years, with 86 percent delaying buying a home due to cost-of-living pressures. The survey also found that more people are planning to buy an investment property, which is reflected in recent finance data from the Australian Bureau of Statistics showing a 20 percent increase in the value of investor loans issued over the past year. Additionally, more people are planning to upsize their homes or renovate their existing homes.

Westpac managing director of mortgages Damien MacRae said first home buyers “are becoming more ruthless with their goals”. “They understand it’s a big task, but they are determined to break into the market and are willing to compromise to get there,” Mr MacRae said.

Buyers still prefer houses, but there has been a five percent decline in this preference since 2021 and a seven percent increase for apartments. Preference for a townhouse, or house and land packages, has increased markedly. “Buyers are casting their expectations wider, willing to compromise on location and are forgoing everyday luxuries like food delivery. They are also more inclined to relocate and move to apartment living.”

The latest Westpac-Melbourne Institute Consumer Sentiment Index released this week shows the ‘time to buy a dwelling’ index rose 4.9 percent to 77.8 out of 100 this month, which is a 15-month high, but still relatively weak overall. Buyer sentiment is notably stronger in Victoria at 84.3, with Westpac senior economist Matthew Hassan pointing to softening home values over the past four months.

In contrast, the NSW index is at 73.3 out of 100, likely reflecting affordability challenges in Australia’s most expensive market. “Nearly 70 percent of consumers expect housing prices to continue rising in the year ahead,” Mr Hassan added.

 

MOST POPULAR
11 ACRES ROAD, KELLYVILLE, NSW

This stylish family home combines a classic palette and finishes with a flexible floorplan

35 North Street Windsor

Just 55 minutes from Sydney, make this your creative getaway located in the majestic Hawkesbury region.

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