Short-term rental management: sub-lease or mandate?

If you want to become a short-term rental property manager and "acquire" the management of the properties from the owners, you have to choose the contractual formula with which to set up the relationship with them.

It's an important decision that defines your business model and impacts your cost structure and your concrete future opportunities for success.

In practice, there are two alternatives: the so-called "rent to rent" or sub-lease and the mandate.

Let's see what their main features are.

The traditional formula with which property managers have begun to operate is that of rent to rent o subletting to empty contracts for full e long-term leases with sublease.

This is the simplest way to acquire properties because it guarantees income for owners and reduces the risk of a lower but more certain return. Many owners have a lower risk appetite and for them this is the only option they consider, even if the investment is rigid. in fact, the property cannot be used for the entire duration of the contract.

This limit for the owners translates into an advantage for the managers who have greater flexibility in the use of the apartment: less communication with the owners for example and maximum tariff freedom.

In practice, the manager is free to use the apartment as he sees fit to achieve his goals without having to account for it to the owner who, however, must pay a rent, in most cases entirely fixed, and this represents an element of rigidity in the income statement. 

What happens when the market flattens out on the price front or demand drops?

Margins are reduced and the risk of unsold stock becomes particularly high, above all when the portfolio is not very varied and poorly equipped.

This is a very common situation for most property managers who have properties concentrated in the same location and who can find themselves in great difficulty if for some reason the demand for the destination drops sharply for long periods.

A good rule of thumb is to diversify your portfolio as much as possible e address different target customers to minimize the risk of a drop in demand.

Another very important rule is to protect yourself by providing in the contract ways to solve problems that may arise with the owners in these situations.

Therefore, the rent to rent is not the best solution ever and the alternative is to operate through a management assignment received by the owner in different forms, often combined with each other:

• real estate brokerage
• mandate with representation
• order to collect the fees
• mandate without representation
• advice

The manager does not rent and then sublet, therefore he is not paid a rental fee but is offered earning opportunities, for example, on the percentage of the turnover achieved.

Why should the owner accept that he has no certainty or guarantee of performance?

• Higher yield
• Greater usability of the property
• High and recognized managerial and commercial ability of the property manager

It is a model which implies for the owner the possibility of a higher gain compared to the "fixed fee" and which translates for him into the classic situation: higher return, higher risk.

In fact, the risk of lost or reduced earnings is shared with the manager who, in this case, will not have the fixed cost of the fee and therefore will be less exposed in the event of a lack of bookings.

The property remains "available" to the owner who restricts its use for shorter periods, perhaps pending the sale and therefore can "reappropriate" it quickly.

This model, which has proved successful in the long run, however requires a high and recognized managerial and commercial capacity of the property manager to whom the owner entrusts his property and with whom he shares risk and success.

This element is also partly common to the rent to rent formula but becomes fundamental when the relationship between owner and manager is based on investment sharing.

This is the case of structured and consolidated Property Managers such as CleanBnB who can count on a high reputation and credibility and who thus manage to overcome the reticence of the owners and to attract investors.

Email: development@cleanbnb.it
phone: +39 338 238 2702
CleanBnB SpA
Piazza Velasca 7/9, 20121 Milan