Using AirBnB and Rental Arbitrage in Downtown Area
Investor · Minneapolis, MN · Member since 2020 · 10 posts · 2 votes
Using AirBnB and Rental Arbitrage in Downtown Area
Most Popular Reply
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
4y@Zach Gulbransen I find it interesting how opinionated persons NOT doing something can become about that thing, and certain they are of how horrible it is from there vast experience of zero. So how about some knowledge from someone with actual experience actually in the game of AirBnB- Arbitrage.
First thing to know is it's very difficult to talk a leasing agent into it because most are too dim-witted, it's true, they will struggle to grasp the very concept of it so it's best to have it written out on a 1 page paper AND to use an example for them to pitch the property owner with because they will never let you speak with owner directly, hence the paper because there going to forget half of what you tell them and screw-up the other half, so make it uber-simple.
The general rule of thumb is your looking at paying a 15-20% premium, that means 115-120% market rents, AND I find it best to add-on that for all non-mechanical/structural maintenance items that the tenant-host will coordinate and cover all of those, this answers the issue of what if guests damage things etc..
Now on you is making sure you know your numbers because your carrying the variable risks, so gotta make sure there is profit margin in things, and that is ample enough for the various variables so we are not talking a few hundred per month. Yes, $25k-$35k furnishing and launch budget is very reasonable and realistic. NO a $5k, $15k budget is NOT realistic or reasonable. Remember this is a NEW STR offering so you will need to do active advertising/marketing to pump the listing potential to build traffic and activity, just throwing on site will not do it alone.
Can a person make $ at this, absolutely.
30 Replies
- 4yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Zach Gulbransen, I had a rather snide comment but I will forgo that. So many people ask this question it is getting very redundant. Do a search as many, many, many people ask this question weekly.
The bottom line is you can do it, but be prepared to lose it all and go bankrupt. It is not investing but creating a job for yourself. Some do it here, but they are already in the game with quite a few assets that they can rely on to cover expenses if things go wrong.
Do you have the mega $$$ it will take to furnish a high end space? People will be expecting a super nice place in a super nice building. It can bring in the bucks, but I wouldn't be surprised if you were out 30k+ to furnish the place.
Is it even allowed in this building?
I can't help you with ways to convince the owners to do it. You will most likely have to pay above market rates for the space you are short term renting.
So, check with the building HOA itself to see if it is allowed or not before approaching owners.
- 4yJordan MoorheadBusiness MemberReal Estate Agent · Austin, TX · Member since 2015 · 5k+ posts · 3k+ votes
@Zach Gulbransen rather than renting just househack a duplex and run an Airbnb out of the other unit. That's what I do
The Moorhead Team5140 Reviews - Investor · Minneapolis, MN · Member since 2020 · 10 posts · 2 votes4y
Thanks for the feedback. The apartment would be a studio size (550 sqft). I have the capital to furnish the place to a high standard that would accommodate people looking to have a higher end experience.
It would be more of a short term play as the city is a place I would live for 1-2 years max which is why I don’t necessarily want to buy quite yet.
- 4yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Michael Baum:
Hey @Zach Gulbransen, I had a rather snide comment but I will forgo that. So many people ask this question it is getting very redundant. Do a search as many, many, many people ask this question weekly.
The bottom line is you can do it, but be prepared to lose it all and go bankrupt. It is not investing but creating a job for yourself. Some do it here, but they are already in the game with quite a few assets that they can rely on to cover expenses if things go wrong.
Do you have the mega $$$ it will take to furnish a high end space? People will be expecting a super nice place in a super nice building. It can bring in the bucks, but I wouldn't be surprised if you were out 30k+ to furnish the place.
Is it even allowed in this building?
I can't help you with ways to convince the owners to do it. You will most likely have to pay above market rates for the space you are short term renting.
So, check with the building HOA itself to see if it is allowed or not before approaching owners.
I fully agree!
Read through past post of why this is a bad idea.
- Property Manager · Nova Scotia · Member since 2021 · 78 posts · 52 votes4y
I've seen this explode. But, let's be optimistic.
Avoiding luxury (or buildings in general) would be my main piece of advice. Your instincts are correct, those locations/buildings will be the most attractive to STR guests. If you don't own the unit or building though it's a higher risk. Especially for a first-time outing. You have more neighbours, more costs out of your control, and more risk of the guests getting lost or locked out...it's a much much higher risk.
If you can't own, then look for the single-family or duplex rentals and appeal to owners of those types of buildings. If you can find a nice home close to parks or downtown THAT will be an actual premium STR.
In terms of the pitch to the owners/agent; you should tell them your plan before even viewing the space, and you may want to look at a profit share model to sweeten the deal (full rent and/or a % of monthly earnings (whichever is higher) complete with monthly reporting for the sake of transparency). Press on the fact that you would be an incredible "tenant" who would be cleaning the inspecting the rental every few days.
There's always going to be a risk if you don't own, but I assume you know that. Just be prepared to "pivot" (and it helps if you have a plan for how you'll move/store an STR worth of stuff if things change suddenly). STR arbitrage isn't easy money, but the people who do it well seem to be able to spin gold...so I'm not going to tell you to quit your dreams just because I'm cautious.
I have helped shut down arbitrage rentals at the last minute. It happens, frequently; but those folks just move on and set up shop somewhere else (and they take much nicer vacations than I do lol).
- Realtor · Minneapolis, MN · Member since 2021 · 4 posts · 3 votes4y
I second what @Jordan Moorhead said.
Specifically in Minneapolis most of the buildings have short term rental restrictions so that would be the biggest hurdle. There are still duplexes close to downtown that get good airbnb traffic for anyone coming to town for events in the city.
- Investor · Minneapolis, MN · Member since 2020 · 10 posts · 2 votes4y
@Dominic A. Thanks for playing along and for the valuable feedback! I will definitely take all things into consideration before moving forward.
- Realtor · Bloomington MN (bloomington, mn) · Member since 2016 · 451 posts · 263 votes4y
@Zach Gulbransen an apartment building is most likely not going to allow this, especially a high end apartment. Also Minneapolis only allows 1 Airbnb per person, so you can’t rent out multiple apartments
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
@Zach Gulbransen I find it interesting how opinionated persons NOT doing something can become about that thing, and certain they are of how horrible it is from there vast experience of zero. So how about some knowledge from someone with actual experience actually in the game of AirBnB- Arbitrage.
First thing to know is it's very difficult to talk a leasing agent into it because most are too dim-witted, it's true, they will struggle to grasp the very concept of it so it's best to have it written out on a 1 page paper AND to use an example for them to pitch the property owner with because they will never let you speak with owner directly, hence the paper because there going to forget half of what you tell them and screw-up the other half, so make it uber-simple.
The general rule of thumb is your looking at paying a 15-20% premium, that means 115-120% market rents, AND I find it best to add-on that for all non-mechanical/structural maintenance items that the tenant-host will coordinate and cover all of those, this answers the issue of what if guests damage things etc..
Now on you is making sure you know your numbers because your carrying the variable risks, so gotta make sure there is profit margin in things, and that is ample enough for the various variables so we are not talking a few hundred per month. Yes, $25k-$35k furnishing and launch budget is very reasonable and realistic. NO a $5k, $15k budget is NOT realistic or reasonable. Remember this is a NEW STR offering so you will need to do active advertising/marketing to pump the listing potential to build traffic and activity, just throwing on site will not do it alone.
Can a person make $ at this, absolutely.
- Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes4y
- 4yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
@James Hamling, I guess I am one of the ones with zero experience in arbitrage by voice an opinion. It's true, I have never done it. I have also not played Russian roulette. Nor have I wrestled a bear. I could be pretty successful in both of those, but the risk of defeat is too high. It is the same with arbitrage.
For most of us who invest, we try to mitigate risk as much as possible. Arbitrage is more risky vs return.
I base my opinion on what I have see with arbitrager's in the last 2 years. Many have gone bankrupt and lost it all. I know of 5 people who are in the hole due to various reasons. The pandemic, STR rules changes, landlords not renewing leases etc all take a toll.
Most of the folks asking about arbitrage are young and have low cash. It does look attractive, but there are risks that often outweigh the benefits. That is what we are saying.
I would have to assume that you have done a lot of arbitrage STR's. What is your experience? Is it the only investments you have? Most of the folks who advocate arbitrage are already invested in LTR's, wholesaling, commercial and have a decent portfolio. Arbitrage is a reasonable endeavor as they can absorb any losses with lower risk. New investors with low cash reserves just can't do that.
What most of us who don't do arbitrage recommend is you work hard and live cheap. Do a house hack on a duplex or 4 plex or a plain ol' house. Build up that equity and cash and start there.
All it takes is a ban on STR's in the area, HOA rules changes that prohibit STR's or the owner deciding he can make the bank doing STR's themselves and not renewing the lease. Those are realities now. There are other unforeseen things that can pop up as well.
I am not saying that REI is risk free but, as an owner, I can pivot to LTR or sell if I need to. With arbitrage all you can do is suck it up. You could get stuck with 9 months on a overpriced lease and no way to recoup that money.
I feel you can have an opinion on a topic even if you haven't done it yourself. I am pretty sure that most people have opinions on things they haven't done.
- Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes4y
Quote from @James Hamling:
@Zach Gulbransen First thing to know is it's very difficult to talk a leasing agent into it because most are too dim-witted, it's true, they will struggle to grasp the very concept of it so it's best to have it written out on a 1 page paper AND to use an example for them to pitch the property owner with because they will never let you speak with owner directly, hence the paper because there going to forget half of what you tell them and screw-up the other half, so make it uber-simple.
Funny hearing this from someone who works for a large property management company :)
- Investor · Minneapolis, MN · Member since 2020 · 10 posts · 2 votes4y
@James Hamling a lot of great info to unpack there James! Thanks for sharing. I will definitely look to incorporate these strategies and run the numbers carefully in the apartments that I look at.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @John Woodrich:
Quote from @James Hamling:
@Zach Gulbransen First thing to know is it's very difficult to talk a leasing agent into it because most are too dim-witted, it's true, they will struggle to grasp the very concept of it so it's best to have it written out on a 1 page paper AND to use an example for them to pitch the property owner with because they will never let you speak with owner directly, hence the paper because there going to forget half of what you tell them and screw-up the other half, so make it uber-simple.
Funny hearing this from someone who works for a large property management company :)
How so is it funny? It actually makes perfect sense to me.
AirBnB Arbitrage is all about RENTING a place, to then SUBLET it for profit. Who knows more about Renting places then the goliath of SFR? Who has more inventory to pick and choose from then the one managing thousands upon thousands of SFR? And who better to have the conversations with owners, to help walk them through how it can be safe and mutually beneficial to rent too a STR-Host, then the person entrusted for years in the renting of investment properties.
The only funny part to me is why other PM Professionals don't also do similar, that seems just goofy to me.
So far, every STR Arbitrage we have done is doing great for all sides, everyone is doing well, everyone is making $, property is in great condition, arguably the BEST condition any tenant has ever kept a property in.
BUT but but..... I don't do this anyone and everyone, we vet our STR Host thoroughly, make sure have head screwed on straight and are doing things right. As I pointed out, in launch budget and realistic furnishing costs. There is more to it but no interest in writing a "How To STR" guide here.
So yeah, I have the inventory of hundreds of investors and the confidence also, seems in my mind that makes me the gate-keeper of such. A person sells me to there ability to be a good STR Host and "pow" they get access to a whole world of properties and owners. If in there shoes, I'd much rather win a 1000 via winning 1. Actually I believe we manage closer too 47k SFR now.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @Zach Gulbransen:
@James Hamling a lot of great info to unpack there James! Thanks for sharing. I will definitely look to incorporate these strategies and run the numbers carefully in the apartments that I look at.
Keep in mind HOA impacts and assume a CIC(common interest community) are a no go. Those resident boards, I don't see it standing any chance of approval but feel free to try. HOA like one found in a townhome association that's got a large PM company and allows rental, much better success chance but still can be an impact.
- 4yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @James Hamling:
@Zach Gulbransen I find it interesting how opinionated persons NOT doing something can become about that thing, and certain they are of how horrible it is from there vast experience of zero. So how about some knowledge from someone with actual experience actually in the game of AirBnB- Arbitrage.
First thing to know is it's very difficult to talk a leasing agent into it because most are too dim-witted, it's true, they will struggle to grasp the very concept of it so it's best to have it written out on a 1 page paper AND to use an example for them to pitch the property owner with because they will never let you speak with owner directly, hence the paper because there going to forget half of what you tell them and screw-up the other half, so make it uber-simple.
The general rule of thumb is your looking at paying a 15-20% premium, that means 115-120% market rents, AND I find it best to add-on that for all non-mechanical/structural maintenance items that the tenant-host will coordinate and cover all of those, this answers the issue of what if guests damage things etc..
Now on you is making sure you know your numbers because your carrying the variable risks, so gotta make sure there is profit margin in things, and that is ample enough for the various variables so we are not talking a few hundred per month. Yes, $25k-$35k furnishing and launch budget is very reasonable and realistic. NO a $5k, $15k budget is NOT realistic or reasonable. Remember this is a NEW STR offering so you will need to do active advertising/marketing to pump the listing potential to build traffic and activity, just throwing on site will not do it alone.
Can a person make $ at this, absolutely.
I can tell you with absolute certainty that jumping off a high cliff is a bad idea. I don't have to do it to know this. I have zero experience in this.
I also am very experienced in Real Estate investing, so my experience can tell me when I see a bad idea without having to suffer through said bad idea.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @Michael Baum:
@James Hamling, I guess I am one of the ones with zero experience in arbitrage by voice an opinion. It's true, I have never done it. I have also not played Russian roulette. Nor have I wrestled a bear. I could be pretty successful in both of those, but the risk of defeat is too high. It is the same with arbitrage.
For most of us who invest, we try to mitigate risk as much as possible. Arbitrage is more risky vs return.
I base my opinion on what I have see with arbitrager's in the last 2 years. Many have gone bankrupt and lost it all. I know of 5 people who are in the hole due to various reasons. The pandemic, STR rules changes, landlords not renewing leases etc all take a toll.
Most of the folks asking about arbitrage are young and have low cash. It does look attractive, but there are risks that often outweigh the benefits. That is what we are saying.
I would have to assume that you have done a lot of arbitrage STR's. What is your experience? Is it the only investments you have? Most of the folks who advocate arbitrage are already invested in LTR's, wholesaling, commercial and have a decent portfolio. Arbitrage is a reasonable endeavor as they can absorb any losses with lower risk. New investors with low cash reserves just can't do that.
What most of us who don't do arbitrage recommend is you work hard and live cheap. Do a house hack on a duplex or 4 plex or a plain ol' house. Build up that equity and cash and start there.
All it takes is a ban on STR's in the area, HOA rules changes that prohibit STR's or the owner deciding he can make the bank doing STR's themselves and not renewing the lease. Those are realities now. There are other unforeseen things that can pop up as well.
I am not saying that REI is risk free but, as an owner, I can pivot to LTR or sell if I need to. With arbitrage all you can do is suck it up. You could get stuck with 9 months on a overpriced lease and no way to recoup that money.
I feel you can have an opinion on a topic even if you haven't done it yourself. I am pretty sure that most people have opinions on things they haven't done.
Michael, I see where your coming from and it has a basis of merit BUT your amplifying things to a level of creating a false, incorrect stereotype that STR-Arbitrage is a bad strategy, it is NOT, I speak form not theory but real world actions and activities.
What you cite as reasoning Michael is perfect examples of doing STR WRONG. Any and every strategy has immense failure potential when done wrong. I could list 100 ways to do a flip wrong, and more times I have seen such and the investors suffer the consequences of such, because I bought many out. If compiled the data I am willing to be MORE persons who attempted to flip homes failed and lost $ then those who profited, without a doubt. I say this as a veteran home flipper, so many doing it wrong, over building, over paying, wrong reno strategy, on and on.
As long as we have a free country and right to opportunity guess what, more will fail then succeed because people make mistakes, they reach too far, go too fast, act impulsively, the reasons go on, and that is just reality across the board.
You will notice in my post I spoke about CORRECT budget considerations. That's #1 problem I see people doing, they have $5k and think a STR-A is there ticket to wealth, and I stop them in there tracks with a hold hard dose of reality. I probably turn down 98% of upstart investors who want to work with me on STR-A because they did not meet criteria for viability. So I actually care, I care about people having a real shot at success vs pumping sunshine up tail-pipes for a buck. So in that I agree with all the ways people do it wrong and should not, although it's no different for any and every REI strategy.
As for the underlying premise of STR-A, it's WAYYyyy safer liability wise, big time, because the liability is SPLIT between 2 separate investors who individual actions coordinate for mutual benefit. It's about setting up this correct pairing, with correct property, and when do so it's like a perfect symphony. We have the property investor, who for whatever reasons would not be a proficient host in the STR realm. STR is NOT real estate investing, it is Hospitality, that's the fact, the only way it is REI is it's involvement of a property. The furnishing, the styling, layout, how it's marketed, the visitor packs, how turn-over services operate, these things have MAJOR impact. It is Hospitality FIRST and foremost, the REI segment is just one part of it all.
So with STR-A we split the operation to it's true focus components of a PROFICENT STR Host, and the Real Estate Investor. Each in there specialty, working in concert, makes a STR.
Does this clarification help?
I myself, I am great with numbers, projections, politics, analysis, strategy design, development and deployment, all that stuff, and absolute Horse Sh#t when it comes to coordinating what pillow to what couch to what window treatments. I'd rather get a prostate exam then have to sit through silverware selections and coordinate linens and what not! So I SUCK at that segment as Hospitality. Suck with a capital S. But I know talent when I see it, someone who is a natural talent at such. And how they figure fancy guide books for the property with little stamps here n there and foo-foo this an foo-foo that, THAT's a person with Host potential.
The #1 reason people fail in STR is thinking it just REI, or just Hospitality, and there good at one at sacrifice of the other. In this way STR-A is "THE" superior mode to go about it.
And again, if you do things wrong, you will fail, yeah, duh, that applies for literally everything in life so it's a hollow argument for saying STR-A is bad because "if" someone does it wrong and many do it wrong. How many try doing a food truck and fail, doe sit mean nobody eats at them or that they just sucked at it.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @John Underwood:
Quote from @James Hamling:
@Zach Gulbransen I find it interesting how opinionated persons NOT doing something can become about that thing, and certain they are of how horrible it is from there vast experience of zero. So how about some knowledge from someone with actual experience actually in the game of AirBnB- Arbitrage.
First thing to know is it's very difficult to talk a leasing agent into it because most are too dim-witted, it's true, they will struggle to grasp the very concept of it so it's best to have it written out on a 1 page paper AND to use an example for them to pitch the property owner with because they will never let you speak with owner directly, hence the paper because there going to forget half of what you tell them and screw-up the other half, so make it uber-simple.
The general rule of thumb is your looking at paying a 15-20% premium, that means 115-120% market rents, AND I find it best to add-on that for all non-mechanical/structural maintenance items that the tenant-host will coordinate and cover all of those, this answers the issue of what if guests damage things etc..
Now on you is making sure you know your numbers because your carrying the variable risks, so gotta make sure there is profit margin in things, and that is ample enough for the various variables so we are not talking a few hundred per month. Yes, $25k-$35k furnishing and launch budget is very reasonable and realistic. NO a $5k, $15k budget is NOT realistic or reasonable. Remember this is a NEW STR offering so you will need to do active advertising/marketing to pump the listing potential to build traffic and activity, just throwing on site will not do it alone.
Can a person make $ at this, absolutely.
I can tell you with absolute certainty that jumping off a high cliff is a bad idea. I don't have to do it to know this. I have zero experience in this.
I also am very experienced in Real Estate investing, so my experience can tell me when I see a bad idea without having to suffer through said bad idea.
That's exactly what countless people told me as I started flipping homes in late 2009, and in 2010...... Until around 2012 they all seemed to get real interested, and around '14' it turned into "huh, wish I got in on that", lol. AND EVEN THEN they said "but that's all done now and over, can't make $ at it now" lol.
It's ok because as said, I am doing it and doing very well at it, so I must be a master of the Impossible then, and I am A-ok with that title "Master of the Impossible REI".
- 4yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
@James Hamling, I get it. I just don't agree. You can do everything with a short term rental just right and still fail with the examples I stated. You generally can't control municipalities hellbent on restricting or banning short term rentals. Or and HOA that bans them after a few owner complain. Then they are stuck.
I appreciate you have a lot of SFR's, but how many are arbitrage short term rentals. I would be interested in see the percentage.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @Michael Baum:
@James Hamling, I get it. I just don't agree. You can do everything with a short term rental just right and still fail with the examples I stated. You generally can't control municipalities hellbent on restricting or banning short term rentals. Or and HOA that bans them after a few owner complain. Then they are stuck.
I appreciate you have a lot of SFR's, but how many are arbitrage short term rentals. I would be interested in see the percentage.
There is no accurate comparison to be had in looking at ratio of STR too LTR; STR is still an emerging item/industry just graduating out of it's first years of infancy, just 10 years ago didn't exist and go back 5yrs ago and people were mostly asking what it was. LTR has been around forever, so naturally vast majority is LTR vs STR. And again, I only operate in the STR-A side of things at this time so for my side the STR's are LTR's.
Again, your points are pointless because it applies to ANY investing strategy. If HOA ban's rentals, then your LTR is screwed. If a city changes it's policy to cap LTR's or ban them all together, for example Champlin MN and Maple Grove MN, that can have impact. Or if a city passes rent controls saying what you can lease your property for and nerfing your revenues down that LTR goes belly up fast, like what Saint Paul recently did.
Your reasonings don't hold Michael, your grasping at random straws saying "well what if", yeah, what-if, for literally EVERYTHING. That's a non-starter because anything and everything will be dog sh#t with a certain "what-if", welcome to investing, and life for that matter, "what-if" your car get's in a wreck tomorrow, so are you never going to drive again because "what-if"? Are you never going to fly anywhere because "what-if".
"What-if" is the basis for argument people make when they have no basis or backing to argue from, so pluck from realm of imagination and argue there is no guarantee a meteorite WON'T slam into that property and does your H.O. policy cover meteorites????
- Flipper/Rehabber · Minneapolis, MN · Member since 2016 · 1k+ posts · 1k+ votes4y
Quote from @James Hamling:
What is more likely in Mpls - where the OP is investing - that they ban LTRs or that they fully restrict STRs? MPLS has been pushing for density and STRs are not helping. That is why they added licensing requirements 2 years ago and now they are only allowing 1 per person. Regulation has been incresing, further restricting STRs. Sure - some cities are making changes but the OP is asking about Mpls and there is no way MPLS is going to get rid of LTRs. Let's look at LTRs in Mpls - the 2040 plan expanded zoning to allow for more rentals so they are encouraging LTRs! So bringing up the idea of the city banning LTRs in Mpls is stupid. And yes - I know the plan is currently on hold due to environmental concerns. Also a HOA/CIC is far more likely to ban STRs than LTRs. Most LTR restrictions on a HOA/CIC are drafted when the association is formed.
@Michael Baum is correct here. There is inherently more risk in STRs right now as you have outside forces looking to stop you. The OP would be taking on significant risk getting into an arrangement like this as a short-term investment strategy (1-1.5 years). The first year profit will hardly cover the startup costs.
- 4yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
@James Hamling whatever man. You do you. Whatever crazy stuff you want to point out is just fine. I will just keep on saying what I am saying. Pointing out the risks of arbitrage. What I have said (and many others) is valid whether or not you agree with it.
Also, STR's have been around for many years more than 10. VRBO opened it's doors in 1995 and people have been renting their extra spaces for years before that platform got rolling. AirBNB got its start in 2007. Maybe you just don't really know much about this section of the real estate market.
I don't really want to know the percentage. That was a misstatement on my part. What I wanted to know was how much experience you have with short term rentals. Which appears to be not too much.
Bottom line to others reading these posts - Arbitrage is a valid way to make some $$$. Just realize you are not building equity and you are at risk of losing everything as you don't have a solid hold on a rented property. Yes you can lose in any kind of real estate, but arbitrage is among the most risky. Just be aware before you get started.
- Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes4y
Quote from @Michael Baum:
@James Hamling, Nor have I wrestled a bear.
I boxed with a Division 3 linebacker a few years ago. His team went 11-1. If they would have won their last game, they would have played for the national championship. I was on the ground in 11 seconds. This was right after the Super Bowl game, and copious amounts of bourbon were involved.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @Michael Baum:
@James Hamling whatever man. You do you. Whatever crazy stuff you want to point out is just fine. I will just keep on saying what I am saying. Pointing out the risks of arbitrage. What I have said (and many others) is valid whether or not you agree with it.
Also, STR's have been around for many years more than 10. VRBO opened it's doors in 1995 and people have been renting their extra spaces for years before that platform got rolling. AirBNB got its start in 2007. Maybe you just don't really know much about this section of the real estate market.
I don't really want to know the percentage. That was a misstatement on my part. What I wanted to know was how much experience you have with short term rentals. Which appears to be not too much.
Bottom line to others reading these posts - Arbitrage is a valid way to make some $$$. Just realize you are not building equity and you are at risk of losing everything as you don't have a solid hold on a rented property. Yes you can lose in any kind of real estate, but arbitrage is among the most risky. Just be aware before you get started.
Michael, I suggest doing some actual research before making such statements, I ACTUALLY do STR-A, I am not speaking from theory or feelings I am speaking from ACTUAL RESULTS and activities. The entire point of STR Arbitrage is to MITIGATE risks and capital outlay. How the agreement between the two investors (one holding property ownership, one doing the hosting) is what dictates risk of loosing property and our deals are structured with a locked in 13yr right to property, I would say that lends considerable comfort zone.
Equity, yes, 100% correct, the STR Hosting investor is NOT building equity, BUT also has no risks of being stuck to a property that dosn't work out if it dosn't work out for STR, it's a simple termination of lease and moves on. Vs a person who BUYS a property with focus of STR, and it fails, then they have all that capital outlay to acquire property, and are now stuck thinking "SH#T, what do I do now?". And the VAST majority of STR properties are higher price, where standard rents WON'T cover hard-costs, so that's rarely an option, so they are truly stuck and up a brown-river without paddles. OR in STR Arbitrage, they terminate lease and move on to the next, moving furniture to next and are only out whatever leasing $ outlay they didn't have revenues to cover.
I get it, you have your feelings of it, what your not getting is it's ONLY your feelings of it, your not taking in the information from someone, myself, doing it successfully.
It slashes the capital expenditures per unit to market in half, that means DOUBLE the volume potential for same capital, I'd call that a pretty big benefit. And it mitigates risk exposure for STR operation.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes4y
Quote from @John Woodrich:
Quote from @James Hamling:
What is more likely in Mpls - where the OP is investing - that they ban LTRs or that they fully restrict STRs? MPLS has been pushing for density and STRs are not helping. That is why they added licensing requirements 2 years ago and now they are only allowing 1 per person. Regulation has been incresing, further restricting STRs. Sure - some cities are making changes but the OP is asking about Mpls and there is no way MPLS is going to get rid of LTRs. Let's look at LTRs in Mpls - the 2040 plan expanded zoning to allow for more rentals so they are encouraging LTRs! So bringing up the idea of the city banning LTRs in Mpls is stupid. And yes - I know the plan is currently on hold due to environmental concerns. Also a HOA/CIC is far more likely to ban STRs than LTRs. Most LTR restrictions on a HOA/CIC are drafted when the association is formed.
@Michael Baum is correct here. There is inherently more risk in STRs right now as you have outside forces looking to stop you. The OP would be taking on significant risk getting into an arrangement like this as a short-term investment strategy (1-1.5 years). The first year profit will hardly cover the startup costs.
In what REI does 1st year profits cover start-up costs 100% ???? I do not know of any, other then a flip, which is a 1 and done. Maybe C4D strategy, that one could, not for sure but could, and that's it for anything with a reoccurring rev. stream.
Governance shifting policies is a game changer, and it can go in a multitude of ways, take Saint Paul for example and how LTR's are being hit now with rent controls. I don't see Mpls banning STR's completely, first off they legally can't as long as other hotels etc. are allowed to operate, and they know that, it would be a mountain of lawsuits in a flash and i suspect that's why they placed it as close to that as possible, 1, which is still just a matter of time until it's challenged and struck down for targeting a specific segment of an industry to choose losers and winners.
Talk of local Gov. actions is honestly a whole other thread, and the predictions of what may or may not come next. If a person is to not invest due to POTENTIAL of a gov. action that could impact, then honestly the only thing to do now is NOT invest most anywhere expect those few certain markets that have 100% certainty for nothing happening for 10+yrs. The entire Twin Cities is at risk of gov. action for density caps and rental license moratoriums right now, or rent controls.
Join the conversationCreate a free account to reply, vote on answers and follow this thread.