Starting out in real estate investing: Purchase vs Arbitrage

Starting Out
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Starting out in real estate investing: Purchase vs Arbitrage

Micah Lundstrom
New to Real Estate · Los Angeles · Member since 2022 · 7 posts · 1 vote

Hello, 

I am new to real estate investing and hoping to source some advice on first steps. Currently I have about $60k that I would be willing to move into real estate. By the end of the year I could have $80k. I work a full time-job and am attempting to pursue real estate investing as a side-hustle. 

My current strategy is to buy my first rental property this year, and then to use Airbnb Arbitrage to increase the rate at which I am able to collect cash for additional units. 

Two questions:

- Any feedback on this approach? Any tips for a beginner starting in real estate?

- I have considered starting with Airbnb arbitrage, pushing back the purchase of the first property to next year when market conditions may be look more favorable. Any thoughts here?

- A number of Instagram arbitragers have $5k programs where they "hand-hold" you through the first few deals. I know this information can be found online for free - but thoughts on leveraging something like this to get started quicker / with fewer mistakes while collecting a solid network of likeminded folk?

Thanks so much for any guidance here. 

Micah



1Reply
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Joshua MessingerBusiness Member
Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
4y

Hey @Micah Lundstrom! 

1. I wouldn't recommend buying any course until you talk to at least 50 people on this platform in the niche you are desiring to learn about. There are so many people that are here to give you a plethora of knowledge for free. 

2. Getting into Airbnb arbitrage can be tough if you don't have the right systems or team set up behind you. This is a hotel business keep in mind, not just "Airbnb arbitrage". 

3. What are your goals for REI? Where do you want to be in 5 years from it, what do you want to get out of it, and why do you want to invest in real estate?

If you start asking yourself these questions and building out a real business around the vision you have in mind there is no way you won't get what you want if you are consistent. 

I hope this helps and feel free to reach out if you ever need anything! 

-

Josh

[email protected]484-986-5012
3Reply
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  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @Micah Lundstrom

    can you house hack?

    the best way to generate capital for real estate is... regular job(s)

    0Reply
  • Micah Lundstrom
    OP
    New to Real Estate · Los Angeles · Member since 2022 · 7 posts · 1 vote
    4y
    0Reply
  • Micah Lundstrom
    OP
    New to Real Estate · Los Angeles · Member since 2022 · 7 posts · 1 vote
    4y
    Quote from @Nicholas L.:

    @Micah Lundstrom

    can you house hack?

    the best way to generate capital for real estate is... regular job(s)

    I live in Santa Monica - do you think house hacking here would still make sense?  

    0Reply
  • Michael Dumler
    Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Micah Lundstrom, Airbnb arbitrage is a full-time business that takes on an enormous amount of risk. I would advise utilizing your spare time and energy in acquiring your first actual real estate investment. I can't attest to the programs you are referring to, but most likely your money can be better spent elsewhere. I would also highly recommend researching Airbnb arbitrage more before you purchase a course. Hope this helps! 

    2Reply
  • Izzie Y.
    Member since 2018 · 8 posts · 3 votes
    4y

    Hi Micah, if you are planning on buying in Santa Monica I'd highly advise looking into the city's short term rental ordinance. SM has very strict rules on these things and the only way you can really airbnb anything here is if it is rooms in your primary residence. The city monitors very closely and I have heard of people getting large fines for breaking the rules.

    1Reply
  • Nicholas L.Pro Member
    Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes
    4y

    @Micah Lundstrom

    I don't know the market at all... but I suspect it would be better than trying a monster BRRRR as your first deal

    1Reply
  • Micah Lundstrom
    OP
    New to Real Estate · Los Angeles · Member since 2022 · 7 posts · 1 vote
    4y

    Thanks so much for all the replies. 
    @Izzie Y. - yes confirming Airbnb is essentially impossible in LA, so if I were to house hack in LA I would rent out the other space / rent out the hold thing when I moved. 

    @Michael Dumler  - I thought I had done a fair amount of research on arbitrage, but the more I look at it the more I realize the time investment likely needed to make it work. I think what you're saying makes sense.

    @Nicholas L. - My hope is to just buy / hold a good unit that can cover itself and will increase in value / rental income over time. So I guess I could house hack in LA or try to find a unit like that out of state. 

    0Reply
  • Joshua MessingerBusiness Member
    Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
    4y

    Hey @Micah Lundstrom! 

    1. I wouldn't recommend buying any course until you talk to at least 50 people on this platform in the niche you are desiring to learn about. There are so many people that are here to give you a plethora of knowledge for free. 

    2. Getting into Airbnb arbitrage can be tough if you don't have the right systems or team set up behind you. This is a hotel business keep in mind, not just "Airbnb arbitrage". 

    3. What are your goals for REI? Where do you want to be in 5 years from it, what do you want to get out of it, and why do you want to invest in real estate?

    If you start asking yourself these questions and building out a real business around the vision you have in mind there is no way you won't get what you want if you are consistent. 

    I hope this helps and feel free to reach out if you ever need anything! 

    -

    Josh

    [email protected]484-986-5012
    3Reply
  • Allen DuanPro Member
    Property Manager · Los Angeles, CA · Member since 2022 · 590 posts · 463 votes
    4y

    Hi Micah! I'm also based in LA, specifically the South Bay. We started out doing rental arbitrage in the Disney tourism market in the OC and have since pivoted to primarily managing mid-term rentals throughout LA. Others have said it before, arbitrage is a business. You have to ask yourself if you want to start a business, create all the systems, and hire and manage employees. If not, investing in your own properties might be a better fit for you.

    I personally don't think arbitrage is scalable in LA because most cities don't allow STRs. I'm glad to chat more about our market and strategies :)

    1Reply
  • Mike Eichler
    Realtor · Pocono Pines, PA · Member since 2019 · 183 posts · 108 votes
    4y

    Hey @Micah Lundstrom I strongly suggest against getting a course as I don't really think they help at all. I have seen and am in some arbitrage units myself in Philadelphia and Pittsburgh and as well I have an str property in Poconos, Pennsylvania and I'm under contract for my second. I haven't seen nearly as much success with arbitrage as I have with my SFH house that I own. Arbitrage units require the same amount of work for much less profit, and on top of that you don't even own the place. Based off of my experiences I would not get an arbitrage again and just wait til you can get a house again.

    Hope this helps, feel free to reach out with any further questions.

    Live Free, 

    Mike 

    1Reply
  • Micah Lundstrom
    OP
    New to Real Estate · Los Angeles · Member since 2022 · 7 posts · 1 vote
    4y

    @Joshua Messinger @Allen Duan @Mike Eichler - Great information / advice - thank you!

    0Reply
  • Sam C.
    Lehigh Valley, PA · Member since 2016 · 144 posts · 91 votes
    4y

    My first question is what is Arbitrage? And then where in LA will 60-80K get you into an investment property?

    0Reply
  • Michael Smythies
    Real Estate Broker · Seattle, WA · Member since 2022 · 62 posts · 68 votes
    4y
    Quote from @Michael Dumler:

    @Micah Lundstrom, Airbnb arbitrage is a full-time business that takes on an enormous amount of risk. I would advise utilizing your spare time and energy in acquiring your first actual real estate investment. I can't attest to the programs you are referring to, but most likely your money can be better spent elsewhere. I would also highly recommend researching Airbnb arbitrage more before you purchase a course. Hope this helps! 

     Hi Micah, 

    I'm also following this discussion and potentially looking to invest in AirBnb arbitrage. I'm curious as to why you say this model takes on "an enormous amount of risk"? It seems to me that in many cases, it might be LESS risk than buying a SFH in most markets and might be a better way for people to get started.

    At the end of the day, you are only worried about your monthly rent and are not committing hundreds of thousands of dollars to an investment. Yes, OWNING real estate has tremendous upsides and advantages but to say arbitrage is an enormous amount of risk is perhaps a bit exaggerated. 

    Again, I'm simply trying to understand your point of view. Any insight is much welcomed! Thanks. 

    0Reply
  • Henry Lazerow
    Real Estate Agent · Chicago, IL · Member since 2017 · 2k+ posts · 2k+ votes
    4y

    Airbnb arbitrage is mainly get rich quick courses now, it worked well few years ago before nearly all the cities had regulations preventing it. Huge risks of signing the lease and losing the right to airbnb it or never being given that right being not the owner. If you actually own the property its much easier to get legal with airbnb.

    1Reply
  • Micah Lundstrom
    OP
    New to Real Estate · Los Angeles · Member since 2022 · 7 posts · 1 vote
    4y
    Quote from @Michael Smythies:
    Quote from @Michael Dumler:

    @Micah Lundstrom, Airbnb arbitrage is a full-time business that takes on an enormous amount of risk. I would advise utilizing your spare time and energy in acquiring your first actual real estate investment. I can't attest to the programs you are referring to, but most likely your money can be better spent elsewhere. I would also highly recommend researching Airbnb arbitrage more before you purchase a course. Hope this helps! 

     Hi Micah, 

    I'm also following this discussion and potentially looking to invest in AirBnb arbitrage. I'm curious as to why you say this model takes on "an enormous amount of risk"? It seems to me that in many cases, it might be LESS risk than buying a SFH in most markets and might be a better way for people to get started.

    At the end of the day, you are only worried about your monthly rent and are not committing hundreds of thousands of dollars to an investment. Yes, OWNING real estate has tremendous upsides and advantages but to say arbitrage is an enormous amount of risk is perhaps a bit exaggerated. 

    Again, I'm simply trying to understand your point of view. Any insight is much welcomed! Thanks. 

     Hey @Michael Smythies! That point was actually made by @Michael Dumler in response to the original post - maybe he can expand on his thought process there. 

    I general - I would tend to agree with you. In my mind since the total amount invested is less, and you are only on the hook for the length of the lease, your risk actually seems much lower. Another common objection is that the city will pass regulation prohibiting AirBNB and your business will be sidelined. I'm new so I could definitely be missing something - but my understanding is when AirBNB Arbitrage is done right, you are selecting cities with favorable AirBNB laws (or that have passed laws actually prohibiting laws against AirBNB). From there you are entering into an agreement with a landlord who is fully aware of your intention, as well as adding an addendum to the lease that leaves you the ability to break the lease should an unforeseen event sideline your business (not to mention that you could just sublease it to someone else if it really came to it). There are a number of people doing this successfully. Often times I see them lean on a corporate housing niche as well as running negotiations for 20+ units out of a single building. 

    That being said, from what I've learned recently - I do think the whole approach is still much harder than it seems and that it would take full-time effort in order to build and scale an arbitrage business.

    0Reply
  • Michael Dumler
    Real Estate Agent · Atlanta, GA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Michael Smythies, sure, not an enormous amount of risk, but still risky nonetheless. The model is based on the premise that you are entering into a fixed lease agreement with the landlord. First, while ethically you should be informing your landlord of the intention and use you have with the property, the reality is most do not. The majority who Airbnb arbitrage will hide the fact that they are subletting the property which in most cases is a breach of contract. So, once your landlord comes to fruition that you are in breach of the lease, you will be evicted. Second, I have never met a landlord that has agreed to let their tenant Airbnb arbitrage (sublet). Any experienced investor/landlord will most likely not allow the tenant to add new covenants or make provisions to the existing lease. I've never pursued the strategy so take everything I say with a grain of salt, however, this is what I have heard time and again. The main point I wanted to make is the fact that Airbnb arbitrage is indeed a business and not a resourceful way to generate wealth such as owning actual real estate. Hope this makes sense!  

    0Reply
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