Master Leases in Corporate Housing: How the Model Works

Master leasing is how most corporate housing providers grow without buying property. It is also where most of them get into trouble, usually by signing leases faster than they can fill them. Here is how the model works.

How it works

1. The operator signs a lease with an apartment community or owner, typically for 12 months.
2. The lease permits corporate occupancy: residents who are not on the lease, staying for 30 nights or longer.
3. The operator furnishes the unit and rents it to companies for their travelers.
4. The operator pays the rent to the property every month, booked or not.

Many apartment communities run corporate unit programs for exactly this. They like the steady rent and the professional operator; the operator gets a supply of units in good locations.

What the landlord has to allow

Get it in writing. A standard apartment lease usually forbids subletting and limits who may live in the unit. A corporate lease or addendum should cover:

• Permission for corporate occupants who are not named on the lease
• Minimum stay lengths (often 30 nights)
• How the operator registers each new occupant with the community
• Insurance: the operator's liability coverage, often naming the community as an additional insured
• Furniture deliveries, move-in and move-out rules
• Parking, amenity access and community rules for residents
• Renewal terms and early termination

Without written permission, you are subletting in breach of the lease, and it can end badly for everyone.

The economics

Your margin is the monthly rate minus your monthly cost, multiplied by the share of the time the unit is booked.

Break-even occupancy = monthly cost ÷ monthly rate = $2,700 ÷ $3,600 = 75%. Below 75% occupancy the unit loses money; above it, it earns. Know this number for every unit, and measure it with the occupancy rate calculator.

The risks

• Vacancy. The rent is due every month. A slow quarter on ten leased units is expensive.
• Mismatched terms. A 12-month lease and a three-month client. Plan the next stay before the current one ends.
• Renewal increases. Rent can rise at renewal while client rates stay put.
• Concentration. Too many units in one community, or with one client, ties your fortunes to theirs.
• Relationships. One bad resident can cost you a community. Screen corporate clients and enforce community rules.

Other ways to control units

• Management agreements: the owner keeps the unit and you run it for a fee or a share of revenue. Less risk, less margin.
• Owning: the most control and capital, and no landlord to answer to.

Many operators combine all three. Compare them in how to start a corporate housing business.

The accounting side

Master leases add their own bookkeeping: rent paid to each property, deposits you paid to properties (an asset until refunded), renewals and, for 1099s, rent paid to landlords that are not corporations (see the 1099 guide). In Staylio, master unit contracts, rent to property, property deposits and owner statements are tracked alongside the stays in each unit, with profit and loss by unit.

Frequently asked questions

Is a master lease the same as rental arbitrage?

They are close. "Rental arbitrage" usually describes leasing a unit and renting it short-term, often nightly. Corporate housing master leases are typically for stays of 30 nights or longer to corporate clients, with the landlord's written permission.

Do apartment communities allow corporate housing?

Many do, through corporate unit programs or a corporate lease addendum, because operators bring steady rent. Permission must be in writing.

What is break-even occupancy?

The share of the month a unit must be booked to cover its costs: monthly cost divided by the monthly rate. At $2,700 of cost and a $3,600 rate, break-even is 75%.