Is rental arbitrage a good idea?
Hey everyone I'm a 22-year-old that just graduated from the University of Buffalo, I graduated with a bachelor's in Computer Science, for about 2 years I've been researching and strategizing on how to become financially free as soon as possible. Through a plethora of ways, investing in stocks, developing and investing in side hustles that aren't too labor extensive, and so on.
Lucky for me, I got a job straight out of school through the power of networking, and landed a job in Reston, VA as a software engineer. I noticed the area that I'm moving to (or plan to move to) costs a bit much for buying a house, so I decided that I'll rent for my living spaces, and decided since I don't have a ton of money upfront, I will invest in rental arbitrage where I rent out a space, furnish it and Airbnb the space under some LLC.
I'm not sure if this is a great idea, and I don't really know much about real estate, but I definitely know I want to invest in this path. Any advice, information, and I would love if anyone could give me some insight on the housing market in North VA.
Thank you!
"It Depends"
Could it be great allowing you to do some STR with a landlords permission if you run the business the right way? Sure!
But I would look at all of the people at the beginning of COVID who were stuck with leases that they had to pay for regardless of if STR was allowed in their area or not during the pandemic. A lot of people got upside down very very quickly trying to find ways out of their leases because the arbitrage business model failed for that event.
For me, its all about having multiple exit strategies, and that is the one reason I do not pursue arbitrage. When I own the property I can rent in different forms between LTR/MTR/STR, and I can sell if I REALLY need to get out of the property and move on.
If I were in your shoes, I would look into House Hacking. Start building equity immediately while letting someone else pay for it.
Thank you Karl, you make a very great point, I initially wanted to house hack, but sadly the area that I will be moving into are bit too expensive but I'm currently in the talk with some lenders and will definitely use your suggestion, house hacking is the main goal. But if it's not possible I still want to be able to invest my time and money into some form of real estate.
Karl made great points already. With limited funds, you can also look into vacant land and rent spaces for RV and Boat storage in the area. Also, look into businesses with low barriers to entry that you can do on the side, such as food truck of some sort, maybe have a partner. There are a ton of ways to create wealth and income as you focus on your end goal.
@Fakaradin Floyd just know if you go down the rental arbitrage path, it's going to be a numbers game. You may have to talk to 179 landlords before you find one that says "maybe." You might be better off networking with other young hustlers like yourself to crowdsource the purchase of your own STR property. Good luck!
#2 Contractors Contributor
- Severna Park, MD
@Fakaradin Floyd Reston and that whole area is expensive , very expensive . You may want to be a roommate . Or look 1 hours drive to invest .
@Matthew it is crazy expensive luckily my salary for my job allows me to get a nice apartment in the range of my budget, my job gives me an extra 10k sign on bonus if i get a house so it's most beneficial for me to get a house if I decide on that route...its just crazy expensive so ill probably invest nearby or in maryland/washington d.c
And thank you everyone, currently I do Amazon FBA which makes me more than 1-4k a month so I'll just focus on that whilst i save up to get a house (after i pay off my debt) im still going to try the rena arbritage if i cant find a nice rental property or vacant lot...its truthfully my last resort
@Fakaradin Floyd Hello ! I found this thread from about a year ago , and I was wondering what is Amazon FBA? How do you make $1K - $4K a month at that? Are you still trying to do Rental Arbitrage in Virginia? Best of luck to you.
Quote from @Tricia O'Brien:
@Fakaradin Floyd Hello ! I found this thread from about a year ago , and I was wondering what is Amazon FBA? How do you make $1K - $4K a month at that? Are you still trying to do Rental Arbitrage in Virginia? Best of luck to you.
@Tricia O'Brien Hey Tricia!
Amazon FBA is just basically getting products and selling it on amazon, its a bit like Ebay the difference is when you sell an item on Amazon they have alot more features and data for you to work off like whats the sales rank (how well it sells for its category) how much other people are selling that specific item for and so on.
if you ever noticed that amazon sometimes has a seller name other than the products company its usually sold by a sole person.
Amazon fba also does packaging, shipping and so on depending on what you choose.
I'd recommnd going on YouTube and looking up "Amazon FBA" or just doing a quick google search.
I bought and sold books on amazon which is extremely lucrative since books are very cheap or being thrown away by libraries. But I moved from my home state and calmed down on it, its alot more handson than real estate i would say but if done right alot more easier to do and more lucrative upfront. I made about 1k-4k in revenue and made about 47k in 12 months (but most of the revenue was done in 4 months when I was the most active I was a college student at the time) and about profit wise it was about 10-20% maybe more but usually i reinvested the money. Into student debt or the items i needed to buy.
Yes I just started going about rental arbitrage again I had a new life to start in virginia so Investments took a pause whilst I created a new life in a new state i knew nothing about.
@Fakaradin Floyd Your rental arbitrage idea is interesting. I read an article somewhere that Airbnb was going to negotiate with large Apartment complexes to allow the tenants to do short term rentals. You can see how if someone is away on the weekend, they can let someone stay there. Tenants still need an agreement with the landlord. But many landlords are reluctant because frankly real estate and renting is fraught with many problems and liabilities. One area that I have thought of are homes that sit on the market for a long time for sale or rent. Perhaps possibility but the complexities of showing and selling/renting all at the same time can make your head spin. But these are the sorts of gaps that people come up with solutions for.
@Fakaradin Floyd
Have to ask yourself what is the worst case scenario in an arbitrage scenario. If STR market tanks then you'd have to assume you'll sublease it for the remainder of the term to try to back out and eliminate your exposure.
@Fakaradin Floyd If I could make "made about 47k in 12 months" on a side hustle, I would do that and use it for the DP on an STR.
@Richard Elvin well it was in revenue the actual amount in profit was around 15-20k
and....I used it all for student debt 😞
I hear you! Student debt sucks. My point was more that if since that worked I would be more inclined to try it again vs arbitrage.
To get to the point about arbitrage:
Why would a LL choose you over a good PM company?
PM company:
Has insurance
Has references
Has experience dealing with guests
Has a relationship with cleaners and repairmen
Provides a 24/7 emergency response number
Knows the laws inside and out to avoid any nasty daily fines
If you want to do arbitrage, you need to be able to advise a LL why you're better than a good PM company.
Or, conversely, start a good PM company. :)
You're right, the side hustle I had was good but I felt like it could not be automated and scaled to the level I want it to be so I stopped doing it at the time.
You make a very good point though i need to build a rapport to get the trust of a landlord. Right now I'm contacting landlords left and right and today actually I'm meeting with someone to discuss their experience with their success in airbnb they said "they'd give me a shot" not sure what it means but they make 7 figures from airbnb arbritage so I'm going to go and connect with them and learn the ins and outs a bit more.
Richard thank you for your insight truthfully I really appreciate you and everyones insight and whatever choice I make you all really helped broaden my view