Is STR Arbitrage still a good opportunity?

Specialist · Los Angeles, CA · Member since 2020 · 91 posts · 53 votes

For those doing it or who have already started, is AirBnB arbitrage still something worth pursuing? Is the opportunity still there for new people?

I used to see AirBnB arbitrage on social media a lot. At one point, I saw more of it than wholesaling. I just did a quick google search and I saw A LOT of opinions about it. Both from the property owner and the actual arbitrager. Good and bad opinions. I thought I'd better go to a source I trust more, the Bigger Pockets community.

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Ethan Cooke

Rental Property Investor · San Francisco, CA · Member since 2016 · 227 posts · 365 votes

@Anibal Mijangos - Rental arbitrage is a great business wherever you can find below-market rental units and favorable STR regulations in strong Airbnb markets. It takes work but it can be lucrative. @Monica Mejia, @Christian Ehlers and @Eric Yu offer balanced perspectives here.

I have built a successful 30+ unit rental arbitrage business between San Francisco and San Jose over 5 years. I walked away from a successul 20-year career as an HR Director in Silicon Valley to do this full fime and I have nearly replaced my corporate income. I work hard but I spend twice as much time with my daughters every day. I can increase my income when I need to by renting another unit, or increase my free time by hiring out more of the on-site property set-up and maintenance work.

Here‘s what has made my business successful in addition to finding below-market rents in strong Airbnb markets: 1. Add value to the landlord and the unit. 1A. Find outdated units and add great rental value with paint, new light fixtures, smart locks, etc. 1B. Offer mom and pop landlords a headache-free tenancy including Free Maintenance for all minor repairs. In 5 years, I have secured leases with 30-40% of the landlords I have offered this to.

2. If you are in an expensive market like the Bay Area, target units in cheaper (but still safe) areas. Most out of town renters don’t know the difference between Palo Alto (Stanford/expensive!) and San Bruno (SFO Airport/reasonable rents). I have kept my rental costs and risk down and margins higher by doing this.
3. Bonus: Find homes that can be easily divided into 2 units (e.g. main house upstairs with separate downstairs area including bedroom, bathoom, wet bar and separate entrance). These places are gold mines!

Good luck!

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
3y
It's never been anything more than a job if you can even convince an owner to let you use their property.
1 Reply
Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
So @Anibal Mijangos, most of us are of the opinion that it was never a good thing overall. It is a job not investing. You should have a lot of backup cash if things go south. There were a lot of bankrupt arbitragers over the last 2 years. I know of 2 of them.
You would be better off doing a house hack with a duplex or 4 plex. At least you have an asset and can start building the cash to buy a STR for yourself and then roll on.
2 Reply
Joshua MessingerBusiness Member
Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
3y
Hey @Anibal Mijangos!
It really depends... Given how many gurus are marketing and pushing consumers to get into Airbnb arbitrage it has created a massive amount of saturation across many markets. That doesn't mean there aren't good deals out there, but nowhere near as many as there used to be. I would also consider that market rents had just increased and usually when getting into Airbnb arbitrage you are signing leases for 2 years at a time which could be the difference between you making or losing money.
I hope this helps and if you have any more questions please don't hesitate to DM me!
-
Josh
[email protected]484-986-5012
2 Reply
Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
3y
I think it is market dependent.
Our first STR was a beachfront mansion in foreclosure and the owner was happy to oblige and rented us the house for $5,500. It brought in over $30k every month for over a year. Ive since always looked for a similar opportunity for 6 years and have never found one. Does not mean they do not exist but it feels a bit like looking for unicorns.
The more likely scenario is finding a 3/2 for $2,500 a month that bring in $5,000 a month in revenue. After expenses and utilities you net $1,000 profit but it cost you $15,000 to furnish the house and you only have a 1 or 2 year lease. Hardly worth it.
[email protected]813-563-0877
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3 Reply
Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Forget the opinions, look at the supply and demand in your area. See if it works for yourself
3 Reply
Anibal Mijangos
OP
Specialist · Los Angeles, CA · Member since 2020 · 91 posts · 53 votes
3y
Quote from @Joshua Messinger:

Hey @Anibal Mijangos!
It really depends... Given how many gurus are marketing and pushing consumers to get into Airbnb arbitrage it has created a massive amount of saturation across many markets. That doesn't mean there aren't good deals out there, but nowhere near as many as there used to be. I would also consider that market rents had just increased and usually when getting into Airbnb arbitrage you are signing leases for 2 years at a time which could be the difference between you making or losing money.
I hope this helps and if you have any more questions please don't hesitate to DM me!
-
Josh

Thanks Josh! Makes a lot of sense, especially about rent increasing. Signing a 1-2 year lease sounds like a huge risk for arbitrage. I'd have to plan around that in case I have to front the rent due to poor performing rentals.
3 Reply
Anibal Mijangos
OP
Specialist · Los Angeles, CA · Member since 2020 · 91 posts · 53 votes
3y
Quote from @Eliott Elias:

Forget the opinions, look at the supply and demand in your area. See if it works for yourself

100%! I'm in the Los Angeles County area so saturation is a real concern. But I also know there's lots of travel here so if I can find a great deal, it could turn into something big.
0 Reply
Anibal Mijangos
OP
Specialist · Los Angeles, CA · Member since 2020 · 91 posts · 53 votes
3y
Quote from @Andrew Steffens:

I think it is market dependent.
Our first STR was a beachfront mansion in foreclosure and the owner was happy to oblige and rented us the house for $5,500. It brought in over $30k every month for over a year.
Wow! Incredible find. I can see how it's like looking for a unicorn. That's why I'm thinking I would have to spend a good amount of money on lead gen. Even then it would most likely be a lot of leads but not every one is worth pursuing.

I'm thinking I'd find a lot of these. Crunching the numbers is going to be huge.

Thanks for the input Andrew!

0 Reply
Anibal Mijangos
OP
Specialist · Los Angeles, CA · Member since 2020 · 91 posts · 53 votes
3y
Quote from @John Underwood:

It's never been anything more than a job if you can even convince an owner to let you use their property.

Yeah, I figured it's more of a "business" than an investing strategy. From what I've seen though it could be a great way to generate solid cashflow which could fuel an investment strategy.
0 Reply
Monica Mejia
Real Estate Agent · Denver, CO · Member since 2022 · 20 posts · 18 votes
3y
Hi Anibal! I believe it really depends on the market you're looking to arbitrage in. This is a great opportunity to cash flow and get you on the real estate investing path, if that is your goal. It took me about 10 landlord conversations to find one that was on board with this model. I actually ended up working with a DFY arbitrage program that finds the right property, negotiates the least terms with the landlord, and even has an interior design department to set up your listing. It ended up being very minimal work on my end, which I truly didn't have time for. My arbitrage in Colorado is now generating about $7k - $12k in revenue with $2,700 in monthly rent.
4 Reply
Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Anibal Mijangos:

Quote from @Andrew Steffens:

I think it is market dependent.
Our first STR was a beachfront mansion in foreclosure and the owner was happy to oblige and rented us the house for $5,500. It brought in over $30k every month for over a year.
Wow! Incredible find. I can see how it's like looking for a unicorn. That's why I'm thinking I would have to spend a good amount of money on lead gen. Even then it would most likely be a lot of leads but not every one is worth pursuing.

I'm thinking I'd find a lot of these. Crunching the numbers is going to be huge.

Thanks for the input Andrew!

Anytime! If you find something interesting Im happy to look at it for you to make sure you do not miss something.
[email protected]813-563-0877
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0 Reply
Christian EhlersBusiness Member
Real Estate Agent · NH & MA · Member since 2021 · 457 posts · 291 votes
3y
It's definitely gotten really popular over the past few years and some people have built very successful businesses off of it, but if you aren't looking to do that full time then I would recommend buying a property instead as your margins will be far better and you have more options to get out of it if the market or your rentals go south. If you can run a successful arbitrage business you can make a lot of money, and if you hedge your bets and put that money back into owning more assets then why not?
[email protected]978-396-9939
2 Reply
Joshua MessingerBusiness Member
Property Manager · Poconos, PA · Member since 2020 · 443 posts · 264 votes
3y
Smart thinking @Anibal Mijangos!
Please feel free to reach out if you'd like to talk more on this subject! I wish you the best of luck!
[email protected]484-986-5012
0 Reply
Eric Yu
Real Estate Agent · Seattle, WA · Member since 2019 · 243 posts · 246 votes
3y
@Anibal Mijangos, there's a good friend of mine down in the SoCal area (Calvin Tran) that doesn't do arbitrage for STR specifically, but does it for corporate / mid-term rentals instead. By focusing on 30+ day stays, you don't run the same regulatory risks as well.
As in any industry, there's opportunities with rental arbitrage, but you'll just need to spend time with deal finding. I personally hate rental arbitrage (no appreciation or depreciation), but it's a great way to get started if you don't have much capital to work with.
2 Reply
Allen DuanPro Member
Property Manager · Los Angeles, CA · Member since 2022 · 590 posts · 463 votes
3y
Quote from @Christian Ehlers:

It's definitely gotten really popular over the past few years and some people have built very successful businesses off of it, but if you aren't looking to do that full time then I would recommend buying a property instead as your margins will be far better and you have more options to get out of it if the market or your rentals go south. If you can run a successful arbitrage business you can make a lot of money, and if you hedge your bets and put that money back into owning more assets then why not?

Totally agree with Christian here. We started off doing rental arbitrage and now do a mix of arbitrage and property management. The big question is are you looking to create a business or invest in real estate. Could be both, but answering that will bring some clarity.
3 Reply
Drew SygitBusiness Member
Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
3y
You guys mean Tick-Tock is wrong about how great this latest get rich quick scheme is?
[email protected]248-209-6824
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0 Reply
Ethan Cooke
Rental Property Investor · San Francisco, CA · Member since 2016 · 227 posts · 365 votes
3y
@Anibal Mijangos - Rental arbitrage is a great business wherever you can find below-market rental units and favorable STR regulations in strong Airbnb markets. It takes work but it can be lucrative. @Monica Mejia, @Christian Ehlers and @Eric Yu offer balanced perspectives here.

I have built a successful 30+ unit rental arbitrage business between San Francisco and San Jose over 5 years. I walked away from a successul 20-year career as an HR Director in Silicon Valley to do this full fime and I have nearly replaced my corporate income. I work hard but I spend twice as much time with my daughters every day. I can increase my income when I need to by renting another unit, or increase my free time by hiring out more of the on-site property set-up and maintenance work.

Here‘s what has made my business successful in addition to finding below-market rents in strong Airbnb markets: 1. Add value to the landlord and the unit. 1A. Find outdated units and add great rental value with paint, new light fixtures, smart locks, etc. 1B. Offer mom and pop landlords a headache-free tenancy including Free Maintenance for all minor repairs. In 5 years, I have secured leases with 30-40% of the landlords I have offered this to.
2. If you are in an expensive market like the Bay Area, target units in cheaper (but still safe) areas. Most out of town renters don’t know the difference between Palo Alto (Stanford/expensive!) and San Bruno (SFO Airport/reasonable rents). I have kept my rental costs and risk down and margins higher by doing this.
3. Bonus: Find homes that can be easily divided into 2 units (e.g. main house upstairs with separate downstairs area including bedroom, bathoom, wet bar and separate entrance). These places are gold mines!

Good luck!
10 Reply
Allen DuanPro Member
Property Manager · Los Angeles, CA · Member since 2022 · 590 posts · 463 votes
3y
Quote from @Ethan Cooke:

@Anibal Mijangos - Rental arbitrage is a great business wherever you can find below-market rental units and favorable STR regulations in strong Airbnb markets. It takes work but it can be lucrative. @Monica Mejia, @Christian Ehlers and @Eric Yu offer balanced perspectives here.

I have built a successful 30+ unit rental arbitrage business between San Francisco and San Jose over 5 years. I walked away from a successul 20-year career as an HR Director in Silicon Valley to do this full fime and I have nearly replaced my corporate income. I work hard but I spend twice as much time with my daughters every day. I can increase my income when I need to by renting another unit, or increase my free time by hiring out more of the on-site property set-up and maintenance work.

Here‘s what has made my business successful in addition to finding below-market rents in strong Airbnb markets: 1. Add value to the landlord and the unit. 1A. Find outdated units and add great rental value with paint, new light fixtures, smart locks, etc. 1B. Offer mom and pop landlords a headache-free tenancy including Free Maintenance for all minor repairs. In 5 years, I have secured leases with 30-40% of the landlords I have offered this to.
2. If you are in an expensive market like the Bay Area, target units in cheaper (but still safe) areas. Most out of town renters don’t know the difference between Palo Alto (Stanford/expensive!) and San Bruno (SFO Airport/reasonable rents). I have kept my rental costs and risk down and margins higher by doing this.
3. Bonus: Find homes that can be easily divided into 2 units (e.g. main house upstairs with separate downstairs area including bedroom, bathoom, wet bar and separate entrance). These places are gold mines!

Good luck!

This is one of the best posts about rental arbitrage I've read on BP forums. Like anything else, there are pros and cons and focusing on only one side is only half of the picture. I've been in this business for 4 years now and learned some new things from Ethan.
2 Reply
Ethan Cooke
Rental Property Investor · San Francisco, CA · Member since 2016 · 227 posts · 365 votes
3y
@Allen Duan I am glad my post is helpful. Kudos for a successful arbitrage business! There’s a lot of hype about Rental Arbitrage good and bad. I always seek and provide concrete, actionable steps to be successful in this business.
All real estate is fundamentally about adding value. I have reaped huge rewards from investing in the red hot Bay Area real estate market. But for resourceful, hard-working folks who do Not have a lot of capital to invest, rental arbitrage can be a great way to add value to rental properties with cosmetic improvements, furniture and great photos. Create cash flow and THEN buy a property.
Keep killing it in LA!
2 Reply
Karina Beloblotski
Member since 2023 · 1 post · 0 votes
3y
Hi Monica can you please let me know with which DFY Program you worked
0 Reply
Pablo Flores
Rental Property Investor · Palm Springs, CA · Member since 2016 · 138 posts · 38 votes
3y
@Anibal Mijangos
Seems more hype then anything unless you can lock down a luxury home like @Andrew Steffens did where the cash flow truly becomes significant. Remember there are 4 main avenues to make money in real estate: appreciation, debt pay down, tax benefits and of course cash flow. With arbitrage you only capitalize off one of those. If you don't have the money to buy your own deal, then I see how arbitrage could be an attractive option. My recommendation is if you don't have the means to get your first deal, find a commission based sales job where your income is tied to your production. That is the fastest way to make money in a short amount of time and then funnel all that into your first owned STR.
0 Reply
Krys Frost
Member since 2024 · 1 post · 1 vote
2y
@Monica Mejia Hi there, can you please share the name of the DFY arbitrage program you worked with? Would be so helpful to see a real-life recommendation, I'm having lots of trouble getting good feedback elsewhere online. Thanks
1 Reply
Jeremy Jareckyj
Real Estate Agent · Salt Lake City, UT · Member since 2020 · 490 posts · 205 votes
2y
Ultimately I think it is very area dependent but I personally prefer to use the funds that you would use towards arbitrage in buying a property that you own so that you can start building long term wealth. Utilizing a low down payment loan would be your best bet. This is all totally area dependent but arbitrage is just too risky for my personally.
0 Reply
Monica Mejia
Real Estate Agent · Denver, CO · Member since 2022 · 20 posts · 18 votes
2y
Quote from @Krys Frost:

@Monica Mejia Hi there, can you please share the name of the DFY arbitrage program you worked with? Would be so helpful to see a real-life recommendation, I'm having lots of trouble getting good feedback elsewhere online. Thanks

@Karina Beloblotski Hi! I went through a program called BNB Leverage! Feel free to send me a message if you have any questions!
0 Reply
Jennifer FeldsteinPro Member
Member since 2019 · 6 posts · 6 votes
2y
Quote from @Ethan Cooke:

@Anibal Mijangos - Rental arbitrage is a great business wherever you can find below-market rental units and favorable STR regulations in strong Airbnb markets. It takes work but it can be lucrative. @Monica Mejia, @Christian Ehlers and @Eric Yu offer balanced perspectives here.

I have built a successful 30+ unit rental arbitrage business between San Francisco and San Jose over 5 years. I walked away from a successul 20-year career as an HR Director in Silicon Valley to do this full fime and I have nearly replaced my corporate income. I work hard but I spend twice as much time with my daughters every day. I can increase my income when I need to by renting another unit, or increase my free time by hiring out more of the on-site property set-up and maintenance work.

Here‘s what has made my business successful in addition to finding below-market rents in strong Airbnb markets: 1. Add value to the landlord and the unit. 1A. Find outdated units and add great rental value with paint, new light fixtures, smart locks, etc. 1B. Offer mom and pop landlords a headache-free tenancy including Free Maintenance for all minor repairs. In 5 years, I have secured leases with 30-40% of the landlords I have offered this to.
2. If you are in an expensive market like the Bay Area, target units in cheaper (but still safe) areas. Most out of town renters don’t know the difference between Palo Alto (Stanford/expensive!) and San Bruno (SFO Airport/reasonable rents). I have kept my rental costs and risk down and margins higher by doing this.
3. Bonus: Find homes that can be easily divided into 2 units (e.g. main house upstairs with separate downstairs area including bedroom, bathoom, wet bar and separate entrance). These places are gold mines!

Good luck!
Such a great breakdown, Thanks Ethan for sharing. We're in the SF Bay Area with a few rentals, then other parts of CA and out of state. We're just thinking about a rental arbitrage opportunity in the same building where we own a unit of our own. Not sure how to approach the owner who has it listed for a great LTR rental price. But we do have a track record of success in the area and a unit that is completely remodeled and modern. If the owner has a PM handling the renting any suggestions on approaching them with the opportunity for a 2-3 year lease?
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