Title the Addendum to Link it to the Original Contract, Date, and attach to the original. State effective dates and any additional payments (or state the fact that there are none).
Define everyone involved and what roles they play. Make it crystal clear who you are, what you do, and who your guests are and what part they play in your business. Be clear in and make it understandable to those not in our business.
State clearly, in easy to understand language and using examples if possible, what each term is meant to do. You may wish to restate things in your lease that are remaining the same and things you are adding to or taking away from that changes the original terms of the lease. Terms usually add to your lease, like the fact that you won't be the main resident, but plan on using it to clarify what each party is responsible for and exactly what they have agreed to do or not do. Who pays for what and when - like when there is a leak under the sink or a major thing like the AC goes out? All of this must be covered in your Addendum.
Always have your attorney look over any leases you are going to sign and have them go over or even prepare your addendum for you. An attorney should be a part of your team!
Have both parties date and sign.
Recommended Article or Blog Post Related to This Week's Podcast:
Here's an excellent Wiki How on Addendums: How to Write a Contract Addendum.
Get This Episode's Show Notes in a pdf form...
[00:01] Over the last two centuries, nearly 90 percent of the world's millionaires have created their wealth through real estate. Here to tell you how you can ride this wave with less risk and less capital while creating greater income, is your host, best selling author and Speaker, Michelle Russell.
[00:21] Hi, this is Michelle, the Master of Money Mindset, and you are listening to the Short Term Rental Revenue Podcast...
and in today's episode,
Speaker 1: (00:28)
we're going to talk about addendums. Addendums are the little contracts that we put onto our lease. We add them to a lease to protect our businesses, protect ourselves, and make sure that our landlords aren't going to ruin our business when we rent from them. They're cool little legal things, so I'm going to give a legal disclosure here. This is just for educational purposes only. It is not meant to give you any kind of legal advice. We ask that you take your notes, write what you want, but then seek advice from an attorney in your state to make sure that everything is legal and on the up and up and that you only use this advice for educational purposes only.
Speaker 1: (01:14)
Write down, take notes, and like I said, just let your attorney know what you really want to do and what you're trying to come across. But we're going to give you all kinds of little tidbits of information, but it's not meant for you to write down and go do and then screw up and then sue us. So don't do that. Everything here is just our opinion, okay? And not legal advice. But before we get started, I wanted to remind you that today's show is brought to you by audible. You can get your first audio book for free by going to audible, trial.com forward slash s t r revenue. That's audible, trial.com forward slash s t r revenue. You'll be able to download your first book for free and get 30 days of membership, which means you get two free books with your 30 day memberships.
Speaker 1: (02:03)
You get a book deal a day, there's channels, there's all kinds of things for you to listen to. You will love having audible. Go to audible, trial.com forward slash s t r revenue to get your free book today. So when it comes to creating contracts, we're changing our contracts all the time. And that is me and Carol. So I'll tell her something that happened or something that was relevant to a part of my doing business. And then I'll say, how can I fix this so it doesn't happen again? And she will fix it. Or I'll write something out a lot of times and I'll say, I want to add this to my contract. And then she'll say, let me tweak it for you and I'm gonna change it just a little bit. She is a legal attorney, which like I said, I suggest you guys go and get your own attorney.
Speaker 1: (02:54)
They're awesome to have. It's nice to have somebody on your payroll and advice that not only do you admire, but that is legal, that they know what they're doing. Because a lot of times I want to write something in there and she goes, hey, technically that doesn't explain this, this and this. And she'll tell me why it doesn't work. You want an attorney to look over any and everything that you do. Any contracts that you sign, always get an attorney, have them on retainer. They are part of your crew. Okay. You should have like a crew of regular people who you're working with all the time. And bookkeepers attorneys. These are people that you'll be working with all the time. So you need good ones. So make sure that you do that first. That should be one of the first things that we do. So when we do rental arbitrage or co-hosting, we have to have an additional contract with the owner or landlord, let's say in a scenario that we are renting a property from someone.
Speaker 1: (03:55)
We go and we see a property for rent and we know what the rents are in that area. And we also usually know what our bnbs can pull in. So let's say for instance, right now we're looking at replacing some properties that have been sold down in Tucson and we know that down in our certain area of Tucson and one, one pulls in approximately 22,000 gross, uh, three to will pull anywhere between 38 and 42,000 a year depending on where it is, depending on the conditions, blah, blah, blah. We know about what we can get, we look at the stats, we look at our numbers, we compare them, and we have a relative history from doing short term rentals there in the past. So we kind of know what we're looking for. We know we can afford a $600 a month rent there. And so we look for properties that are for rent for around $600 a month, five 50 to $600 a month.
Speaker 1: (04:52)
And sometimes we can go up a little bit more. It depends on where the property is and it depends on how much we are going to make. Correct. Okay. So we find a landlord. We go in, we take a look at the property and we say, Hey, you know what? This is perfect. This is going to work for us. We love this. We'll be able to come in here. Let me tell you who I am and a little bit about what I do. My name is Michelle Russell. I have a business called x, Y, Z, B and bs, and what my business does is we rent from landlords like you. I was landlord just like you, and we take them and we use your property as a short term rental. Now I know that sounds scary to you, but we handled the whole business part. We've been doing this for a long time.
Speaker 1: (05:33)
We have all the systems and processes in place and let me tell you something, it's amazing because not only will I become your favorite renter, you are going to love me because I'm going to improve the value of your property. I'm going to take care of your property like no renter ever has. You're going to get less wear and tear on all the appliances, probably all the flooring, everything else. We're going to keep it in tip top shape. We're going to have a professional cleaners in there on average six to 12 times a month. Depending on the location. I can tell them closer to what that is, but then I'll explain to them too. We also have our own 24 hour maintenance crew. We handle every little thing in case something breaks down. I'm not going to be calling you if it's under $500 I won't even be bothering you.
Speaker 1: (06:19)
My company will take care of it and we're going to fix that problem quickly because we have people going in there. Now, most of the guests that we have, they're professionals and we go through our guests, but most of our guests, they don't smoke, they don't have pets, they don't have parties. And we go through this whole scenario with a landlord telling them who we are, what we do, right, and we've got a whole podcast about that. But when we do that and he finally says, yes, I'm interested, let me take a look. When we get to the point where we both are in agreement, we decide we're going to rent from the landlord, then we start pulling out contracts, right? He's going to pull out his standard contract, which is totally fine with us, but we're going to pull out our addendum and we're going to let him go through it.
Speaker 1: (07:03)
If he needs time to let his attorney take a look at it, obviously that's fine with us. We have no problem with that. But what our addendum does is protects us. It basically lets everyone else know that we are renting this property in order to do a short term rental inside of it. So if this landlord is part of an Hoa and he knows that inside the Hoa, no short term rentals are allowed, part of our contract states that he needs to let us know ahead of time if he knows of any legal reason why we shouldn't be able to run a uh, short term rental in there. There's a lot of things that we have in our contracts so that he can't fool us into renting from him and then we can't perform our business and then we can't fulfill our contract. So imagine if he had a property that he was trying to rent out for months and months and then he sees us coming in and says, yeah, sure, go ahead.
Speaker 1: (07:59)
But he knows that they just passed some kind of short term rental thing that we missed. Hopefully we never miss anything like that because that would be major, but maybe he knows something. We don't know this contract. This agendum would be able to get us out of those scenarios so that we wouldn't be stuck paying rent on something that we couldn't use or make money on. That would be a bad thing. Correct. Also would be a bad thing if, let's say we started doing business and let's say this is in some kind of condominium units where it's a small owner maybe has, you know, 50 or a hundred units and it's just one owner or maybe two partners or something and they see what we're doing and then they decided they want to do it themselves and they start giving us a hard time because they want to get us out of there and they start giving our guests a hard time or making it difficult for our guests to stay or doing something that's going to make our guests uncomfortable and put a damper in our business.
Speaker 1: (09:02)
We also have something in our addendum to refer to that so they can't sabotage our business and then force us to pay rent on something that we are unable to rent out mostly because of them, because they've made it difficult or hard in some way, shape or form. There's also going to be a ton of different reasons and a ton of different things you might want to put into your identity them. And every single time you have something bad happen or negative happen, or even you read some thing, this is what happened to us. We were renting, this happened. You might want to address that in your agendas. Your addendums can be as long or as short as you like. The shorter the better because they make them easier to understand. But there's a few things that they definitely should have and explain because if ever there's any kind of anything that goes wrong, this is what you're going to take to court with you to show.
Speaker 1: (09:58)
Here's the agreement we had never ever, ever get any kind of verbal agreement that you don't put in writing with somebody. So let's say for instance, you're at a place and the landlord, you know says, well, here's where everybody parked and you're like, look, I need two designated parking areas. And they go, Oh yeah, here's number apartment one oh two A and this is one oh two a this is your second parking space. You might want those parking spaces designated to you, but you want that in writing too because if they changed their mind, they decided to take out the signs because you know too many people had not enough parking and they were tired of walking and they decided to take out the designated parking. But you were told when you were in there that there was going to be that, but it's nowhere in your contract.
Speaker 1: (10:47)
You're not going to have any legal leg to stand on. You want to make sure that you have a legal leg to stand on. So everything we talk about is in our contracts. So if there's something that's concerning you write it down, you can get it verbally first and you can even record a verbal conversation that you have with a landlord, but then write it down and get them to sign it before you signed the contract. Because here's the deal. There's a lot of, unscrupulous is a very good word for these people. There's a lot of bad landlords out there who want to trick people into signing a lease. And don't ask me why because it seems to me that there would be a lot of trouble having to take people to court and everything, but some people are just like, they love trouble and they attract trouble and I don't know why, but when you feel something is off with a landlord, get the heck out of dodge.
Speaker 1: (11:43)
I mean do not stay in that situation. Your gut is going to tell you a lot about a person. Never get in a contract with any landlord you don't like. Because remember it's almost like a marriage. You're going to be with this person for a while and it's especially hard to not walk into something like that when you are first getting started in your, you know, rental arbitrage business, you, you were looking for properties, you're looking through things, you don't have that history behind you. You're feeling a little bit antsy. And so every time you go in and get to know, you get to know, you get to know and then you're like, aw man, I just want a yes. And then you meet this guy and you just kind of get this feeling about him, but you just want that first yes and you say yes and then it turns into a nightmare.
Speaker 1: (12:30)
You should never say yes when you feel like saying no. Don't get that antsiness when you first get started, because I know, I know you're working your way up hill. I've got a couple in my membership and a married woman. They're both amazing people and they work really hard and they're doing their best to get their first properties. And what's crazy is they're working so diligently that they came close to saying yes on this really awesome property, but the landlord was not quite who he should have been. I mean just, you could tell by the way he talked to them, the verbiage he used when he said things and it was like, look, you don't want to be in partnership with this guy. And the property was perfect. The location was perfect, the price was even perfect. There was so much good about this, but the guy was just not going to be on the up and up and you could feel it walk away.
Speaker 1: (13:27)
I know it's so hard guys, but walk away and I'm so glad they're an amazing couple. I would have hated for them to have gotten into it just because they wanted their first place, but the thing was that we knew it wasn't going to be good and I also have another member and she's been doing the same thing, working really hard come across a bunch of different places, but the numbers just don't work. And if the numbers don't work, you can't make them work. You have to find a place that works and it's so hard when you first get started, but I, I really hope you guys hang in there because when you do get the right place, when you do hold out for everything to align, it will work out amazingly well and you can get that one, tweak it, get it rolling and then start on your second one and it gets easier as you go along, especially because you'll have more than one property.
Speaker 1: (14:16)
I can say, look, I already have this property. Here's what we're doing over there. Here's what we can do for you. And when you get a little bit of money in your bank account, you can say, tell you what, I'll start you out and I'll pay you for six months up front. And they love that. A lot of times you don't even have to deal on prices and stuff hanging on the prices. You can find a rent for five 50 and you can say, look, I'll give you 600 a month and that would make a good, or you can say, look, I'll give you five 50 I'll give you all six months upfront right now. And that's even better, right? You don't have to go up in the price. You can give them six months in advance and they love that. But make sure whatever you do, whatever you talk about, you take all of that into account and you don't just get into a contract to get into a contract.
Speaker 1: (15:02)
Okay. Be Very, very careful. Run your numbers. Be Very specific. Have your team in place, have your attorney look over your contracts and make sure you're not getting yourself into something you cannot get out of. So the number one thing that we have when we go into an addendum is we have the contract date, the date of the original contract execution date printed right on top. So we'll say something like this had done dumb as to the original contracted lease executed on x date for Xyz property. You know, at one, two, three elm street or whatever, right? So we're going to say this contract or this property that we signed on this date, and we have it right there, right in the title. So it's upfront. So there's no saying, well this was for another property or this was last year as a done dumb or whatever.
Speaker 1: (15:56)
We make sure that we have that old there in writing. And the second thing that we do is we make sure that the addendum modifies and supplements the attached lease because we're going to attach the lease, right? That was also executed on this day by this owner, right? Or landlord or whatever term that you use in the original one and the tenant, the tenant a k a host. We're going to start putting our terminology into this form so they know what we're talking about when we do this. Just by changing and saying, from now on, we're going to call herself the host. They're going to start realizing, and anybody who looked at this contract later on is going to say, Hey, wait a minute. You know? Well, he didn't tell me he was hosting people. He's like right there, he called himself a host or she called herself a host.
Speaker 1: (16:48)
There's no denying that you're a host. You're also going to bring into that first paragraph there. You're going to bring in the fact that you have a business that is conducting short term rentals and that you welcome guests, that the guests are not on the lease, but they are a paid guest of you by your business. And that way you're going to have some kind of explanation that says this is what a guest is. So the definitions that I want you to make clear are so the landlord or the owner, right? That's definition number one. I want you to define who you are, the leasee, the tenant, and the host. You want your name as a host in there. And then I want you to define what a guest is in your view, what a guest is. Okay, now the guest is not part of the contract.
Speaker 1: (17:44)
Why? Because they're not signing any part of the contract. But in a short, small explanation of what a guest is is important. And a lot of people leave that out of their contract. What makes this really clear is if anything ever happens, you can put that terminology and use that terminology to describe what happened. So let's say for instance, a guest comes in, a tree falls on their head from the front yard or smashes their car, right? Let's say it smashes their car and they want to sue you. Now, first of all, it's going to say in here that you have extra insurance and we're going to get to that. But when they sue somebody, they may want to sue the landlord and when they do and they say, so-and-so's car got hit, and they'll say, well, whose car was that? Was that that the tenant's car?
Speaker 1: (18:38)
Was it whoever's car or was it the owner's car? And they'll say, neither it was the guest's car. And they'll say, who or what is a guest? Nobody had given them an explanation in any of the other parts of the contract. And there's a lot of contracts out there where they don't give that explanation. You really need that explanation in there. Who or what is a guest? What defines a guest and what if a guest has a guest? What if they invite somebody over for a party in that car gets hit or by a tree or something like what is included in that and who are the parties that could be involved? And that's what you want to have in there. You want those definitions in there to help you out. So make sure you have that terminology. So I'm just going to read you one of ours, the very first paragraph, this Adenda modifies and supplements the attached lease agreement that was also executed on this day.
Speaker 1: (19:33)
And then the date by the owner and the name and the Tenant Aka host, and then your name or your company's name, the parties to the original lease agreement period. Okay, so that tells that the original agreement was between you and the owner. Okay. So that's what defines that. The business conducted by the host using the property includes transactions, hosting guests, and you can even put down like you're using airbnb or you're using homeaway or you're using big instrumental by owner or booking.com or whatever. You can do what you want but make it very clear what your business is and what it does and then it will say it is understood that guests are not a part of this lease but paid guest of the host, the owner, host and guest, right? So you want to make sure that you have those three definitions in there, owner hosting, guests it claim who they are.
Speaker 1: (20:27)
These are the parties, the soul parties of this addendum so that those two are the sole parties of this denim. This document shall become effective immediately as of this date and then the parties agree that wherever there is any conflict between the addendum and the original lease agreement, the provisions of this addendum will control the original wheeze and be construed accordingly. You can put in there too, if you're in the state of Arizona, state of Florida, state of California, wherever you're at, I know that you want these to also be everything to be to the state of Arizona or under the state laws of Arizona. Have your attorney take a look at that and let them decide how they want that verbiage because sometimes you need it in there. Sometimes it's already very clear in the first lease agreement and c you're only adding two and changing a few things.
Speaker 1: (21:21)
So if there's something in that first lease agreement that you're contract with, agree with, you don't even need it in there. So let's say for instance the dates of the lease. So you're renting it from a year from September 1st to September 1st right? You're not going to have to put anything in the addendum about the date because it's already in there. It's already been agreed upon. The same with the money that is being exchanged for it, but when it comes to the money being exchanged for it, you want to put in there that you're not changing that because every single contract and addendum has a what this person is going to do and what does this person going to give them for doing that. You want to make it very clear that this is denim is in addition to that and it's not in any way shape or form changing the exchange of currency that has been involved.
Speaker 1: (22:12)
So if you're paying $600 a month rent, you're still going to be paying $600 a month to rent. Okay? So make sure that you make that very clear. You're like, these are just an addition to that contract, right? We're just making modifications and supplements. We're making it very clear we're putting everything out there, but we're not changing the monetary agreement. So you want to have that in there. So the original lease agreement shall be modified in these ways and then you can list them and number them. So it's good to, to take a look at the contract that you will be signing before you sign it and go through everything with a fine tooth comb on the contract that they're giving you. Because there might be things in their contract that you don't like and you can modify those in your contract and sometimes you can do them in a way that they're not going to see.
Speaker 1: (23:03)
For instance, one of the new things that really bugs me about rental agreements is, especially out here, I don't know if they're doing it in every state, but out here in Arizona they're trying to nail us on landscaping bills and what that F is that all about? It's absolutely maddening because first of all, if people don't know how to landscape here, if they come here from another state and open up a landscaping and they just set a tree down and then they tried watering it and it doesn't grow and this what we call soil, but it's really not soil in this Arizona clay and the tree dies, they want you to replace that a lot of times. So now a lot of lease agreements out here, we'll have some kind of something that says you're responsible for the landscaping and that if any tree dies, you will replace it or any plant tree or shrubbery and that can be really expensive.
Speaker 1: (24:00)
Or they'll say you have to trim it. And if it's a palm tree and it's an old, tall palm tree, holy cow, it costs a lot to trim palm trees. And if they leave you in charge of that and you put that in there, oh my gosh, now here's what we changed that to. We change those things. If somebody has one of those in there and it's not going to be in this contract right here, but if they do, then we change it to say we will maintain the current, you know, landscaping, but we're not going to place a tree that dies if we didn't have anything to do with it. If we are responsible for not watering the tree and the tree dies, then we replace it. But if the tree dies of natural causes or it shouldn't have been there in the first place or whatever, and we do everything we can.
Speaker 1: (24:47)
We do preventative maintenance on the landscaping. We trim things, we water them, and we do all that we can do. We're not responsible if that plant dies or not and we're not going to replace it. But if we are responsible, if we failed to water, if we failed to do something and then the plant dies and we'll replace it. So we make sure we change that up. But, and that's something that's really pissing me off lately. How they try putting all this maintenance stuff on you as a tenant. And some places it's okay, but other times they're like, you're like, what the heck is this? They're like, we're going to charge you $8 a light bulb that's missing. And then you walk in the place and there's not a light bulb in a closet and you're like, I'm not gonna put light bulbs in here.
Speaker 1: (25:31)
And then have you guys charge me for light bulbs if I take them back out. So I do videos now. When I do walkthroughs, we do video walkthroughs. When we go through stuff, we do the walkthrough with them and then you usually have a day or two to find other things and we do a careful walk through finding every little thing and we send them the video. Now, sometimes they want it in writing. This is all you need legally. This is all you need. What's really cool about videos on your phone now is they're dated, they're stamped, they're time-stamped and date stamps, so they can tell that yet. This was the first day that they took a look at it, but if they need it in writing, just get it transcribed. It's super easy. Go to Amazon has an AWS service, so if you just walk through then just get it transcribed and give them the transcription.
Speaker 1: (26:18)
But whatever you do, make sure that you really go through that checklist. Okay. All right, so back to the lease agreement. This is our number one on this lease addendum that I'm reading from. The owner hereby acknowledges and agrees that the tenant here and after referred to as the host, shall be entitled to rent the property to which the lease refers to and any sub units there of urine after collectively referred to as the property, two persons here and after referred to as guests on a short term rental basis. Owner and hosts hereby agree and acknowledged that the host shall not reside on the property but be using the property as a short term rental owner. Hereby agrees that monthly rent owed by the host shall remain as provided in the terms of lease agreement. No amount beyond the agreed upon monthly rent shall be owed or expected.
Speaker 1: (27:13)
See how we put that in there. So we're just telling them like you already knew we were going into this, we agreed upon this rate with that in mind for not gonna change that at all. So I want you to have that in there. Make your, make sure you have something like that in there. And number two, the second paragraph that usually goes on about the owner agreeing to allow us as a host to conduct any and all activities that pertain to the business of running a short term rental. Meaning he's going to allow us to take pictures of the property of its amenities, posts those pictures, put them on any kind of platform like airbnb or booking.com whatever we need to do to advertise into the property. Correct. So he's going to allow us to do whatever we need to do with the property.
Speaker 1: (28:02)
And it also includes hiring third parties to help take care of the properties. So that means hiring our cleaning crews, our maintenance guys. If it's a house and we have to have a pool guy or pest control, whatever we need to do to run that property, he's basically giving us permission to do that. So number two is very important, but it can include and take away from anything you want. But please make sure that you cover the fact that you are going to be taking professional pictures of that place and you're going to be placing those pictures online on certain platforms. Okay? So that's very important. Our number three might want to go into something about the property and what you're going to do to the property in order to make it rentable. So what if there's some kind of fixing up that you have to do?
Speaker 1: (28:55)
What have you have to go in and you're like, you know what, we'll change out the sings or we'll do this or we'll do that. You want to make sure, because most likely your lease agreement has that you can't alter the property in any way. So a lot of times you can't even paint the property. So take a look at that lease and you want to make sure that you either leave that alone if you're not going to touch it, right? Because remember, if you're not changing it, you don't need it in there. But if you were to go into that place and you're like, look, this needs a new fresh coat of paint and we're going to do that and maybe it needs new carpeting and you agreed to do that. You know, you can negotiate a lot of things on fixing up a property to make it a little bit nicer for that guy.
Speaker 1: (29:39)
So let's say the rent was 600 a month and it needed new carpeting. He didn't want to do that. He didn't want to do new flooring. The place needed to be painted. You could say, look, we're going to paint it and we're gonna put new carpet in it. You know, it's probably gonna cost you less than two grand to do that, but we will give you six months up front, less $2,000 or maybe you're saying, okay, the, the rent was by 50 you'll raise it up to 600 a month. You'll give him six months up front of the 600 less than two grand to fix it. So it's like, okay, here's my six months, but I'm going to take a little bit out of that. And I'm going to paint it and I'm going to put new carpet in there. So you want to have something there if you're going to alter it in any way.
Speaker 1: (30:26)
Remember if that is in your other contract, you don't need to change it. But if you are going to change something, you're gonna want it in this contract and you're gonna want it in a way that shows exactly what you're doing. You're saying, okay, this is going to cost us this much and in order for us to do that, we're going to get this much off of the rent. So make sure you have that in your contract about any alterations. And if he said you could paint, but your contract says you can't paint, if his lease agreement says you can't paint, make sure you have it in your [inaudible] that you agreed that you were going to be able to paint, that you agreed you were going to be able to change the flooring, the door knobs, whatever locks you're putting on, whatever you're doing that you are changing it.
Speaker 1: (31:11)
You want to have in this contract that says you are going to do it. Okay? That's usually our number three. So number four, the host agrees to provide and pay for a specific short term rental insurance that includes coverage on the properties, full replacement value, and at least an additional million dollar liability policy for the guests who may be injured while using the property. The owner will be added as an additional name to set insurance policy in order to have the property fully covered and returned it in a light condition or better at the term of this agreement. So we put right in there that we're going to give him additional insurance and we buy proper insurance using proper insurance, the proper insurance company, right? Go to proper dot insurer instead of.com it's dot. Ensure proper dot insurer and we use proper insurance. And then there's also a million dollar airbnb policy on top of that.
Speaker 1: (32:13)
So we are doubly insured now. It's not really double insurance because AIRBNB's insurance is a million dollar policy and it's only liability and it's only when they deem fit to do it. So we've got another episode coming up about how incredibly difficult it is to get any money back from airbnb. I mean, they do do it, but you are going to have to have your receipts and everything in line. So we're talking to a lot of people who have recently gone through some losses and had to deal with airbnb. They've had positive results as the outcome on most cases, but they'll tell you how it was pretty difficult. I mean, they had really stringent timelines, sometimes 24 hours or 48 hours that they had to deal with. They had to get these receipts back. The thing that we tell you, it's gonna make it easier for you.
Speaker 1: (33:04)
But we do have two policies on every property. And honestly, you cannot be over insured. You really can't be because you have no idea what's going to happen. And even when things don't happen, it's like Murphy's law. You know, things happen when you're not insured. When you get insurance, you're going to be okay. So if you have proper insurance, you can sleep at night and that's what you really need to do is be able to sleep at night. Okay, so in this addendum number five, our number five says of the host agreed to provide and pay for any general maintenance on the property that is less than $500 that could interfere with the running of our short term rental property. Okay. These maintenance costs are usually things like leaky faucets, running toilets, small problems that need to be addressed quickly. If a major issue occurs, like an air condition unit breaks, the host may have to fix the problem quickly, but will not be expected to be responsible for major issues over $500 in repair, like heating, cooling units or roof damage.
Speaker 1: (34:05)
The general wear and tear of a property is still the responsibility of the owner. All those small fixes may be covered by the host. If they interfere with their business, the entire cost of major issues will still be covered by the owner. So we kind of go through our $500 policy. Now your policy might be $250 maybe you have a $250 limit, whatever limit you want to put in there, then do it. And maybe you didn't negotiate fixing anything at all. I don't recommend doing that because you need to get things fixed quickly. If you have a guest in there and something breaks, you gotta get it fixed and go ahead and just do it. If you're one of the best tenants in there, things shouldn't go wrong. If you go through everything and you've checked through everything correctly and you did your walk through and you see that everything's in pretty decent condition, you'll be able to tell if something's gonna need to be fixed.
Speaker 1: (34:57)
You'll take a look at it and go, we're probably gonna have a problem here. We're probably gonna have a problem there. And take those prices off just like you did the paint and the carpet and the last example. Do that with anything else that you may see coming. Okay. It's easier for you as time goes on guys, because like we flipped houses and I remember like the first few houses I flipped, I had no idea what things cost, but by the time you do a bunch of them, then you're walking in and you see a flat door and you're like, oh, we're going to get some six panel doors. I'm going to get the lever door knobs. We're going to change all these light switches to toggle light switches. We're going to change the base boards to make it this. We're going to put some crown molding in here.
Speaker 1: (35:38)
We're going to do this. And I started to know each time he did it in my head, I started adding it up. And you'll be able to do that too. The only thing that brings that to you guys is experience. So don't be afraid when you first walk in there going, Oh shit, what if I don't know and I miss something? You're going to not know and you're going to miss something. Don't worry, you will. But the thing is you'll get as you go along, you'll get better and better at it. So don't be afraid of it. Know it's coming, but embrace it because you're gonna learn more and more. You'll be able to tell easier and easier. We walk in just pulling up to a house and I can see the roof and I'm like, that's going to need a new roof. I mean, look at the dip in that and somebody else would look at it and go, how in the hell did you even see that?
Speaker 1: (36:20)
I opened up the electrical panel. I can tell what's old electric. I'm like, aw man, we're going to have to replace all this electric. This whole panel is coming out that's at least five grand, you know? And people are like, how do you know that is because you do it over and over and over again. So that's fixing and flipping has done that for me. But just these little little tiny things, you're going to become really good at this stuff, but it just takes time to build up that experience. You're not going to be, you can't learn enough to, well I'm going to keep learning, going to keep learning, going to keep learning and then I'll buy a property that will never happen because shit changes all the time. Jump in both feet. Just jump in and find your parachute later because honestly it's going to work better that way you are going to learn more jumping into these situations and learning as you go.
Speaker 1: (37:06)
So that number five paragraph is to us what covers all the little maintenance problems that we have, what we cover and what they don't cover. Now you can also put in there the fact that you've got a maintenance guy going in there once a month to change out the air filters. You can make that arrangement with your, your landlord. So if it's in a place, we have got a lot of places that are in condominiums and there's a guy who goes through every single month and changes all the air filters. If that's already in our contract and the main lease contract that the guy's going to come in there. We don't change that. And if we said anything about it, it would change it. So we don't, but if you want to, you can make it crystal clear that we will not change the general maintenance scheduled for the air filters.
Speaker 1: (37:54)
Whatever you want to put in there, keep in there, but make everything crystal clear so nobody can say, hey, but they changed it with this paragraph. If there's something in there about general maintenance that you want to keep, this would be the paragraph to put it in there so that you could restate that. That will remain the same. Just as we said about the money. Remember how we said the rent is going to stay the same? You'll want to put in here, we're going to fix small leaks and repairs, blah, blah, blah. But the general maintenance such as the air filters will remain the same. Do you see what I'm saying? So if it's gonna stay the same, just put in there that it's going to stay the same. That would be the paragraph to put in. All right, let's move on to paragraph number six.
Speaker 1: (38:38)
So in this paragraph we talk about homeowners associations, bylaws, covenance, zoning, a state laws, federal laws, city ordinances. I mean you name it, right? This is where we're going to go about the regulation, but we're going to state that the host acknowledges and agrees that they're going to be responsible. We as the host, we are going to be responsible for complying with all these regulations, right, that are applicable to our business of short term renting so that we can even put in there, this includes this, you know, homeowners associations, cc and Rs, local zoning, anything that comes up by any governing party, right? We're going to put that in there. The host will be responsible for obtaining and paying for any and all permits or licenses necessary to run a legal short term rental business using this property. And we'll provide copies of those to the owner if asked, the host will be responsible for all costs obtaining these permits and we'll be responsible for maintaining them following any rules and restrictions that may apply.
Speaker 1: (39:40)
And the host acknowledges and agrees that the host shall be responsible and liable for any violations of the above. So let's say you're a city, like the whole state of Arizona now has a party restriction, right? So there's no big parties allowed in any short term rental spaces. So if anybody has a party who's responsible, it's going to be you as the host, according to this paragraph, you're taking responsibility for all of that and any violations of those things, right? So in a state like ours right now, we have to add a lot of those little noise awares because we need to know what's going on. We've got to make sure these kids aren't having parties and we've got to watch the people renting from us too, so that they're not just 18 year olds and stuff. So we're being very careful with WHO's renting our properties from now on.
Speaker 1: (40:29)
Right? So like I said, the host acknowledges and agrees that they shall be responsible and liable for any violations to any of those above. Right? And we further agreed to pay any fine in association with those which may be accrued as a result of such violations. So we just make sure that's our number six but we go on a little bit later and you'll see, ah, here it is. Okay, this is what helped us with another instance. So our number seven is kinda going to cover our ass in this because we're obviously gonna do our due diligence and everybody has to do their due diligence before they go and rent a property to make sure that you're not breaking any laws or restrictions. But we have found that there are, like I said, those naughty, naughty little landlords who are trying to get us in there, right?
Speaker 1: (41:19)
But we came up with this kind of way to defer them from doing that. So our number seven says the owner declares in having no previous knowledge of any legal reason to short term rental cannot be operated using the property at the time of executing this agreement. If a law or statue from the state city council, county homeowners bylaws or any other governing body is found to exist or is created after this agreement is signed, the host has a right to give a 60 day notice of cancellation in writing and will not be expected to complete any length of the lease agreement beyond that 60 days if the rules or regulations prevent the hose from operating their short term rental business legally. Okay. So we said legally at the end because they're like, yeah, you could still run it and no, not legally or like it.
Speaker 1: (42:13)
So we made sure we put that in there because there were a couple of unscrupulous guys who kind of knew about something that was coming that we had not even heard of and we couldn't even find it when we had searched and they tried to trick us into it. So now we have an out clause that's basically our out clause. If that agreement came in, most likely there's going to be some kind of grandfathered clause or some kind of, let's say if they came up with a law tomorrow that says, all right, that's it. All short term rentals are illegal now it would have a starting date and it would give us a little bit of time. So that's why we put a 60 day notice in there and a 60 day notice is really all a landlord needs and if we can't run our business then we can't pay the rent.
Speaker 1: (42:59)
So they should have no problems or challenges with this. The only time they seem to him and hall is when they know something is up because you know, especially in the state of Arizona, we're like, hey, this is a great state. So if they ever say anything to us, they'll say, well what? What is this? And you're like, hey, don't worry. Our governor already signed something that said, you know, short term rentals are welcome. No other cities can implement anything here. You know, anything that would take away from the state so you don't have to worry about that. They've tried it in Tucson, they've tried it in Sedona. So we can say something like that. But this just protects us just in case something were to happen. Just in case your homeowners association came up with something or just in case something happened, we can't run our business if it's not being run legally.
Speaker 1: (43:49)
So they should see no problem in that. And a 60 day notice is more than fair. So number eight, this was a huge one because we had some people purchasing a property that we were renting and they were not happy that we had a lease agreement that went into the dates that they own the property. So let's say you were buying a duplex and we were renting one side of that duplex and our lease went into let's say July and you were buying this property in January and you wanted both sides of that duplex. But I already had a lease agreement. Now according to the state of Arizona, I get to continue my lease. So they were doing was making it extremely difficult and just giving our guests a hard time and sane stuff to them. And it was getting very, very uncomfortable and we needed something that would make it crystal clear that they can't interfere with our business.
Speaker 1: (44:46)
We can only do business if you leave our people alone because part of our business is making sure that our guests have a pleasant experience. And if you're constantly saying stuff to them and being really rude or doing things that make them uncomfortable, you're ruining our business. And if you do that, we can't pay you rent. So it turned into a big deal. And so this paragraph really helped us out with this. And Carolina did a really good job on this. The owner agrees not to prevent or interfere in any way or manner or in any circumstance with Xyz BNB LLC, the business operations and their guests day, including communicating with guests or interfering in any way that creates a negative experience for the guests. If such interference results in a loss of income and or negative reviews of the host or its business name or operations, the owner agrees to pay monetary compensation to the host equal to the damages suffered by the host including but not limited to the expenses, costs, attorney's fees, and any loss of income not covered by the businesses.
Speaker 1: (45:59)
Insurance owner shall pay such compensation to the host within 30 days of receipt of an invoice from the host itemizing such costs and damages. Now what's really cool with something like this is we know and we have projections for our businesses, we know what they're going to make and we have a history too of what they make in each area. So if they were to do something that prohibited us from renting out the place or they were super loud or they did something to make the guests stay not enjoyable and ruined our stay and people were canceling left and right and something were to happen. If they were to do that to us, we know exactly what loss of income we're going to have and we can sue them for that, not just sue them for that. They would have to pay for our attorneys as well.
Speaker 1: (46:49)
So this basically says stay the hell out of our business. And I love that. I know that some people are put off by that, but if a good landlord comes to you and says, why do you have that? All you have to say is, look, we had an experience with a landlord who wanted that property back and instead of just asking us to cancel the lease instead of making it easy and giving us some type of timeline, the went the opposite way and made our guest's experience so bad that we lost income and that, you know, we had to cancel and then they wanted us to pay for the six months that were losing when they were the ones preventing it from us. So this just prevents that from happening. We would rather have a good relationship with you and you could call us and we could mutually come to a date where we canceled the lease if you wanted to sell it or something to happen, but we sure as oh hell wouldn't want to be stuck in a lease we couldn't pay for because you are ruining our business and we couldn't pay you because we weren't making money so it seems only fair to us that if you want a fair market rent and we're going to be paying you rent and we're going to be maintaining your property and doing all these things for you and making sure that the value of your property remains high.
Speaker 1: (48:05)
We even improve the value of a lot of the properties that we stay in and since we're doing that for you, we just ask that you make sure that we can run our business and as long as we can get along then there will be no problems. This is only if somebody decides to do something. Now, if somebody is on the up and up, they're not going to have a problem with that. The people who have challenges with most of this stuff are the people breaking those rules. That's when people have a problem with something. You'll notice that all throughout life. Think about it. Snowden came in and told the world that the United States is literally has every single text you ever put out there, that they're recording your phone calls, that they're doing all this stuff. Even when your phone is off, they've got all this information on you and no one in the u s seems to squawk about it because like, well, I'm not doing anything wrong.
Speaker 1: (48:57)
So it doesn't really bother me. It doesn't bother them that everything is being monitored and that they're being recorded and that their privacy, there's no privacy, let's say what privacy, right? But it would bother someone who is breaking the law. Do you see? So now it should bother us. All of us. Anyway. I believe that my example is saying that the only people who usually have a problem with this stuff are the people who abuse those things. And the reason why the majority of us don't have a problem with it is because we know we're not doing anything wrong. So that's why we don't care. That's like when somebody says, you know, do you mind if we search your car? But most of the time we're like, yeah, I don't care if you search my car. I know I have nothing in my car, so go ahead.
Speaker 1: (49:42)
But you know, if you knew it was gonna take two hours and they were going to take the seats out and shit, you wouldn't have said yes, right, but here's the deal. If you have nothing to hide, you don't care. That's the same with all these restrictions that we have on these addendums. Most of the people don't care that we have it there. If anything, they'll ask us, why you have this? Explain this to me. And if you give them an example of why you have it, then they're like, oh, I see. I get it now. And they're not going to squawk about it because they're not planning on prohibiting your business in any way, shape, or form. So don't worry so much about putting that stuff in there. So many people are like, Oh man, I just, I don't even want put that stuff in there because it just seems so offensive.
Speaker 1: (50:30)
It won't seem offensive to somebody who wouldn't do anything about it. It's not gonna offend them. So just do it among, so just do it. But an addendums are extremely, extremely important. Now here's your bonus on this is when you're doing co-hosting, you're going to use the same type of contract, okay? It's not an addendum, right? But the contract that you print out is going to have this same type of verbiage. Here's what I'm going to do with your property, right? Here's the address, here's the monetary compensation. Here are all of the activities I'm going to do for you and the money you are going to pay me for doing it the way we're going to split this cost, right? And give an example. Just like when we were talking about the maintenance, we gave little examples. So when the leaky seam comes, or a toilet, Nah breaks or something, I don't know.
Speaker 1: (51:29)
We gave him an example so that they knew what we were talking about. A lot of times when you put something in writing, it may seem clear to you, but when you give an example, it's going to help out. So I suggest when you're doing a co-hosting contract with a home owner that you put in what you want to happen. So let's say for instance you say that all the expenses are going to be covered with the first part of the income. Then the second part you're going to get a flat rate for the month and that the third part of the income you're going to split 50 50 or 60 40 or whatever. You're splitting it, right? So when you do that, it seems very, very clear. But what's not clear is what are the expenses? Well, does that mean the mortgage and the insurance and taxes or does it mean the cleaning fees and the utilities and maintenance and the pool maintenance and like what?
Speaker 1: (52:28)
What, what expenses exactly are covered before you get your flat fee? Make sure you have that. So then give the example. For example, here's my expenses for this month. You know, if the mortgages this month, the Texas, the insurance, these utilities, and you list them all out, then I'll pay those first, right then and then you list them out. But then after you've paid all those, the next portion is going to be my flat fee of x amount of dollars. So let's say $500 a month or $1,000 a month. The next part that comes out is mind. And then above that would be a 50 50 split. So let's say for instance, $5,000 came in, you know, 1800 went to this, my thousand dollar fee came after that. And then the remainder of this was split 50 50 and there's your example. Do you see? So you want to make things really clear because if you have to go to court, if there's anything leaning in any direction, you have no idea which way and which contract the judge is going to lean because these things don't go to trial.
Speaker 1: (53:40)
Small claims courts are usually done in small claims court. And if you have to go to a larger court, it's going to cost you a lot more money. So make sure that you put in there exactly how things should be run and when they're not, you nip that shit in the bud as fast as you can with your attorney because let's say for som reason, you allowed them to handle all the money, which I would never do. My company handles all the money, but we're licensed and bonded and insured, so we should be able to handle the money. Make sure your company is like that when you're doing co-hosting, right? So we handle all the money, but we have every single thing written out. But if we were to have allowed the owner to collect the money and we did for them to pay us, I would have made sure that there were dates that said they have to pay us by this date.
Speaker 1: (54:29)
Whenever we submit any type of invoice that has to be paid within this timeframe, you be clear. Because if you're not and there's no timeframe and there's no nothing that explains exactly how it was supposed to be, then you're screwed. You've shot yourself in the foot. Contracts are only as clear as you make them, so make them as clear as you possibly can. And then give an example, give an example in there so that they know what you're talking about. See how we covered also that we're not covering big things like air conditioner units and roof leaks. That's not our job, man. You know, we will hire somebody to fix it and fix it quickly and a good company and a good price, but they're going to reimburse us for that. And hopefully we can even do it without a reimbursement. Hopefully we've got to deal with our AC crew or our plumbing crew or whoever you know has this big job.
Speaker 1: (55:25)
Something happens and we'll say, look, we're going to give you this much to get it fixed right now and then whatever has to be done, we'll go to this. Because if it's something bigger major that's going to close down shop, the owner's going to have to fix it first and we're going to just take a loss on our insurance. That's all we'll do because I won't pay for that and wait for an owner to reimburse me because I know something that most people don't know. Landlords are fucking broke. It's like most landlords don't have the money. That's why this whole thing in California amazes me that they're putting in rent control. Rent control never works. Actually, both sides of the fence will say this. If you look at economists, it doesn't matter if they're left or right. They will both agree 90 what is it like 92% of the time economists will tell you that it doesn't work.
Speaker 1: (56:17)
You know why it doesn't work? Because if you have rent control, then your landlords can't the money they need to fix a property and maintain it and then you have something in those landlords turn into something called a slum Lord because they can't fix and maintain their property. You have to be able to raise your rents. The only reason you usually raise your rents is because the cost of living goes up. The cost of maintaining a property goes up. The older a property gets, the more that go wrong. You're going to have to fix a whole roof or a whole air conditioning system. And if you've got a multiunit property and you can't raise the rents and something major happens, what are you going to do? You are going to be stuck. And that's how slums are built. It really is because if you look at New York City, that's why they have all those slum lords.
Speaker 1: (57:10)
You sit there and think that those are bad people. Those people were once investors like you and me who just wanted a multiunit property and they dreamed of taking care of people and having people stay rent from them forever and ever and the place would maintain itself and grow in value. But then they put rental control on it and what happened? Their dream turned into a nightmare. People didn't leave, but they also didn't raise the rent. So when things broke, there was no money to fix it. Where were they to get the money and then the values fell and when the values fell, they could get less and less money and then they couldn't sell them and then they had slums. And that is exactly what happens when you have those controls. So I want you guys to realize that most landlords don't have a lot of extra cash.
Speaker 1: (58:01)
They really don't. They are cash poor. Don't fix something and wait for them to to give you money because it's not going to happen. It probably won't happen. Very few landlords have extra cash. Good landlords do because we learned to put so much away. But remember, if you're putting money away, what do you have to have? You have to have some kind of equity in some kind of Kush, right? So you can't put, let's say if you've got a bunch of people paying $1,000 a month for rent and your costs are 800 a month per unit, that means you would have 200 a month that you could put away. But not really because that 200 would have to cover maintenance. It would have to cover management fees, it would have to cover all kinds of things. So the only money you could be putting away would be whatever was left after you pulled all those expenses out of that $200 cash flow that you had.
Speaker 1: (58:59)
So that's why most landlords don't have money and it's, you know, it's a, it's just a hard reality and not a hard truth. But rent control never works. Good luck out there. And in the People's Republic of California, I feel so sorry for you guys. I have so many friends out in California and I love you guys, but man, how they mess up your laws like it is like the People's Republic of California. You got like a little thing going on. I feel sorry for you. It takes us four days in Arizona to get a bad renter out. Four days, they don't pay their rent. We go file a, a document, have it served and posted on their front door and then boom, four days later we show up. They can show up if they want to. They usually don't. And then they're out. And then we get the sheriff and they're out of there.
Speaker 1: (59:47)
We take their stuff and they're gone. You have got to conduct a business like business. You can't be a charity because there's always a sob story guys. There is always a sob story. What's strange is we hear those sub stories over and over and over again. The longer you've been a landlord, the more of the same stories. You hear somebody's sick, somebody who's got cancer, this person died, this person's in the hospital, blah, blah, blah. And sometimes they might be telling the truth, but it's the same damn story you've heard a hundred times here. I was like, look, I get it, but my mortgage has to be paid. It got to a point where W as a landlord, I don't tell people I'm the landlord. I tell people I work for the landlord, Maria Gr, Donna, when she was on, she says the same thing. Maria is just like me.
Speaker 1: (01:00:35)
We don't even tell people we own the property. Why? Because we're going to hear their whole lives. Sad story. You know they had an alcoholic, abusive father. So did I. So what? Who didn't have would be good standup comedians because we would be standing there going, which of you? Yeah, just raise your hand. Look everybody here, it's like we all went uphill in the snow to go to school. Like you know, we all did it. We hear you. But the thing is that doesn't change the fact that we have to make our mortgage payments, it doesn't change it. And so you can hear them, you can sympathize with them, but you can't be stupid. You have a business that you have to run and you have to pay those things. And in some states it's not going to matter because the law is on their side.
Speaker 1: (01:01:22)
So something bad happens to them. And like I said, it happens to a lot of people. So they're allowed to live there and you're paying the rent, you're paying two rents and going broke. It's not a cool thing. So you need to be in a rent friendly state. And if you're not, I mean California has great because when you're a rental arbitrage business owner running a short term rental and renting from a landlord in the state of California, it seems to me that the odds are probably in your favor because they're definitely not in the landlord's favor. So maybe rental arbitrage is the business for California because they're not helping out your landlords at all. They're really creating some major problems for you guys. And I feel bad because there are some great cities there, there's some great neighborhoods and there's going to be some that are just going to go down, down, downhill because of this, because they won't be able to maintain their properties.
Speaker 1: (01:02:19)
And that's sad. That is sad. Okay, so that's it for this week. I hope that helped you out. It's my favorite, favorite thing to talk about. Lawn stuff. I carry lead and I talk every week and she helps me so much. So when I tell her a problem, she comes up with a solution. That's why you need an attorney to go over all these things with you. But when you come up with your, with your contracts, have your attorney go through it with you, explain what you're trying to do or what you're trying to prevent and they'll help you make sure that all the terminology is defined clearly so people understand exactly what's going on, what you want to do and what they are meant to do. Right. But write your rental contracts, get them all done and get them done through a legal attorney. It's not going to cost you much.
Speaker 1: (01:03:13)
If you were to write down pretty much everything we said and hand that to an attorney, they would probably charge you less than a hundred bucks, maybe 150 bucks. I know they would out here to just go over that and make it more legal for your state and help you out so that you could attach that to pretty much anything. And you'd only have to do that one time if you were just renting in that same city and state and stuff. You know, as long as you're not changing it, you can use it over and over and over again. So it's not going to be that much money. Guys. Don't walk over dollars to pick up dimes. It's not going to work. Thanks so much for listening. Hey, if you get an opportunity, please, please go on iTunes and leave us a review. I would love that. We're going to get back to reading the reviews very shortly.
Speaker 1: (01:03:58)
I still have to hire somebody. I need a new guy. I need a new Gal. Man. Business is booming here cause we've got rental properties that we're buying, rental properties that were selling properties that we're selling, things that are going on and no, my gosh it gets, it gets so difficult to even deliver these to our guys. We're doing them and dropping them for us. So my shout out to the people who are in the back always helping out and the companies that we've been using lately, we've been trying out a few and hopefully we'll pick one and we can name them by name next week. But God bless you guys. If you need anything, drop us a line on our website. Go on there. There's a lot of free stuff, lots of news. And we've got new things coming up all the time that are going to help you out and educate you. God bless you guys. Have a great day. Go and grow.
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