What to charge STR arbitrageurs?
Real Estate Agent · San Diego, CA · Member since 2018 · 29 posts · 9 votes
What to charge STR arbitrageurs?
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Rental Property Investor · Oklahoma City · Member since 2021 · 108 posts · 103 votes
3yQuote from @Emery Jensen:
I’m looking at some options to bring in more rental income for some clients while reducing some risk. What are some typical rates one would charge an arbitrageur looking to rent a space out for AirBnb. Let’s say for example a 3/1 bath in a desirable area of San Diego.
I’d love to hear your thoughts/suggestions.
Don’t listen to these other guys they know nothing about arbitrage, and they often just bring negatively and useless comments to the forums speaking on anything and everything in stuff they’ve never done. It totally depends on the operator. So I would screen them and take a look at some of the other work they’re doing. A good operator that is experienced you have no need to charge a premium on rent above what you’d normally charge a long term tenant.
Think about some of these benefits. The STR operator is going to keep your home in immaculate condition at all times. They have to in order to keep renting it out. Whereas a normal tenant doesn't always do so. The STR operator will also typically handle all minor repairs whereas a normal tenant wouldn't, they'd be calling you up. The STR operator will have your property professionally cleaned on a weekly basis.
So think of it this way, why would an STR operator be more prone to risk than a LTR? You literally have a professional renting from you as opposed to who knows who.
Also don’t just assume that there’s tons of cash flow involved for this arbitrager. A lot of us do deals with only $1000k profit per month. Arbitragers have their own expenses to worry about such as thousands of dollars for furniture.
Worst case if you have concerns take 2x the deposit from them, but there’s no need to charge a premium rent.
64 Replies
- 3yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
There are no rules. Think what you would want as a property owner.....
I would say 20-30% would be adequate......
- 3yDave StokleyBusiness MemberProperty Manager · Cleveland, OH · Member since 2015 · 699 posts · 799 votes
Totally depends upon the arbitrage spread of the property. You can do research on potential STR income on sites like Airdna and come up with an offer that's a win for both parties.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
I would charge at the high end of normal LTR rents, then 30 to 40% of profits.
After all owner has the prized STR property and is taking the risk if things go south.
I (the owner) would provide the more expensive STR insurance.
- Rental Property Investor · Oklahoma City · Member since 2021 · 108 posts · 103 votes3y
Quote from @Emery Jensen:
I’m looking at some options to bring in more rental income for some clients while reducing some risk. What are some typical rates one would charge an arbitrageur looking to rent a space out for AirBnb. Let’s say for example a 3/1 bath in a desirable area of San Diego.
I’d love to hear your thoughts/suggestions.
Don’t listen to these other guys they know nothing about arbitrage, and they often just bring negatively and useless comments to the forums speaking on anything and everything in stuff they’ve never done. It totally depends on the operator. So I would screen them and take a look at some of the other work they’re doing. A good operator that is experienced you have no need to charge a premium on rent above what you’d normally charge a long term tenant.
Think about some of these benefits. The STR operator is going to keep your home in immaculate condition at all times. They have to in order to keep renting it out. Whereas a normal tenant doesn't always do so. The STR operator will also typically handle all minor repairs whereas a normal tenant wouldn't, they'd be calling you up. The STR operator will have your property professionally cleaned on a weekly basis.
So think of it this way, why would an STR operator be more prone to risk than a LTR? You literally have a professional renting from you as opposed to who knows who.Also don’t just assume that there’s tons of cash flow involved for this arbitrager. A lot of us do deals with only $1000k profit per month. Arbitragers have their own expenses to worry about such as thousands of dollars for furniture.
Worst case if you have concerns take 2x the deposit from them, but there’s no need to charge a premium rent.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes3y
The STR operator as mentioned is a huge risk for the landlord. If they get pinched for money or the local laws change outlawing STR, or requiring owner occupied. That operator will bail. You'll be collecting zero additional rent.
Are you going to bother to screen that operator? After all they aren’t going to be there and the people who are there you don’t have the right to screen. Maybe if you had a low end property and couldn’t find any decent LTR tenants. If you could collect a double deposit and 50-100% additional rent to cover your additional risk. Especially if you were a new landlord with nothing to lose.
Remember, thee are people without the financial wherewithal to buy their own properties so you’re not getting reimbursed when things go wrong. Especially in San Diego? You need a HUGE upside.
- Rental Property Investor · Oklahoma City · Member since 2021 · 108 posts · 103 votes3y
Quote from @Bill B.:
The STR operator as mentioned is a huge risk for the landlord. If they get pinched for money or the local laws change outlawing STR, or requiring owner occupied. That operator will bail. You'll be collecting zero additional rent.
Are you going to bother to screen that operator? After all they aren’t going to be there and the people who are there you don’t have the right to screen. Maybe if you had a low end property and couldn’t find any decent LTR tenants. If you could collect a double deposit and 50-100% additional rent to cover your additional risk. Especially if you were a new landlord with nothing to lose.
Remember, thee are people without the financial wherewithal to buy their own properties so you’re not getting reimbursed when things go wrong. Especially in San Diego? You need a HUGE upside.
So the way to keep these people that aren't in the financial position to buy their own properties from missing rent is to charge them 2x the rent? Why are they an additional risk? If they get pinched for money they won't make their payments you say, but you're acting like this doesn't happen ALL THE TIME with missed rents for LTR tenants. Of course there will always be some sort of risk for people not making their rent, but it isn't increased with STR operators.
Just need to screen the arbitrager and see their previous work. Ask them a lot of questions and see how knowledgable they are. I'm not saying let any random person come do arbitrage, but somebody qualified I see 0 issue and in fact I'd take them over a normal tenant any day.
- Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes3y
That's my point. LTR SFR tenants don't miss rents payments. And they don't stop making payments because of a code/law/business change. They have good credit they don't want ruined and families they don't want to let down.
True, I only have a dozen properties left but I go years between late payments. And exempting twice during the heights of the pandemic they never miss a rent payment. Not in more than 20 years.
My point is barring an exceptional return it’s a horrible idea for the property owner. People say you can get 50% more than LTR with MTR. So certainly you don’t want the hassle and risk for less than that. So shoot for 2x or skip it. I’d say your only advantage is after a year you should be able to raise rents 30-50%. Their option will be to pay it or shutdown the business. Maybe that sneak attack works better?
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
I had a whole thing but what's the point. It would only be information from what I have learned from others who arbitrage. People I have talked to who lost it all doing it. Owner who have lost a years worth of rent due to problems. But I have never done it myself.
So I guess I am just bringing negativity.
Good luck @Emery Jensen. I hope you can make it work out.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Bill B.:
That's my point. LTR SFR tenants don't miss rents payments. And they don't stop making payments because of a code/law/business change. They have good credit they don't want ruined and families they don't want to let down.
True, I only have a dozen properties left but I go years between late payments. And exempting twice during the heights of the pandemic they never miss a rent payment. Not in more than 20 years.
My point is barring an exceptional return it’s a horrible idea for the property owner. People say you can get 50% more than LTR with MTR. So certainly you don’t want the hassle and risk for less than that. So shoot for 2x or skip it. I’d say your only advantage is after a year you should be able to raise rents 30-50%. Their option will be to pay it or shutdown the business. Maybe that sneak attack works better?
Or if they are sucessful the owner just takes back his property and does it himself.
- 3yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
@Wilson Vanhook I see zero reason as a property owner to let someone else STR my property. I'll either rent it long-term or do STR myself..... Except maybe with a boutique property and a super experienced arbitrager that I knew really well....
- Rental Property Investor · Phoenix, AZ and Rehoboth Beach DE · Member since 2019 · 1k+ posts · 1k+ votes3y
As someone who has both a LTR and an STR, I don't see why an arbitrageur should pay much more in rent, as long as specific short term rental insurance is required and you're covered along those lines. They are taking care of the place much better than the average renter will, inside and out. And as previously said, many do small repairs themselves, so the landlord isn't changing flapper valves, fixing a leaky faucet, changing light bulbs, touching up paint, fixing screens, etc. Any renter can stop making payments for a variety of reasons, so that's no more likely. I pay a landscaper to take care of the yard of my LTR, because I know renters are horrible at it, and it would look like hell if I didn't. That's an expense I wouldn't have with arbitrage.
- Rental Property Investor · Oklahoma City · Member since 2021 · 108 posts · 103 votes3y
Quote from @Bruce Woodruff:
@Wilson Vanhook I see zero reason as a property owner to let someone else STR my property. I'll either rent it long-term or do STR myself..... Except maybe with a boutique property and a super experienced arbitrager that I knew really well....
Not everybody is like you though? Tons of owners out there that just want the steady income without running a STR themselves. This comment literally means nothing it's just you stating you prefer to run STR's.
@John Underwood some owners could definitely take their property back and attempt themselves. But if you run STR's you know there's a lot that goes into running one to actually be successful. It isn't as simple as any old owner can just "do it themselves." Design, SEO, listing optimization, pricing strategy, marketing, so many things involved.
- Rental Property Investor · Oklahoma City · Member since 2021 · 108 posts · 103 votes3y
Quote from @Lauren Kormylo:
As someone who has both a LTR and an STR, I don't see why an arbitrageur should pay much more in rent, as long as specific short term rental insurance is required and you're covered along those lines. They are taking care of the place much better than the average renter will, inside and out. And as previously said, many do small repairs themselves, so the landlord isn't changing flapper valves, fixing a leaky faucet, changing light bulbs, touching up paint, fixing screens, etc. Any renter can stop making payments for a variety of reasons, so that's no more likely. I pay a landscaper to take care of the yard of my LTR, because I know renters are horrible at it, and it would look like hell if I didn't. That's an expense I wouldn't have with arbitrage.
Very well said and I agree completely. What could possibly happen in damages that wouldn't be covered under the proper insurance policies between things like AirCover combined with an arbitrage policy through Proper Insurance.
- 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votesIt's not rocket science. Many people decide to buy a house or convert a LTR and are very sucessful. They have a vested interest in their own sucess and are much less likely to walk away when things get tough.
Quote from @Wilson Vanhook:
Quote from @Bruce Woodruff:
@Wilson Vanhook I see zero reason as a property owner to let someone else STR my property. I'll either rent it long-term or do STR myself..... Except maybe with a boutique property and a super experienced arbitrager that I knew really well....
Not everybody is like you though? Tons of owners out there that just want the steady income without running a STR themselves. This comment literally means nothing it's just you stating you prefer to run STR's.
@John Underwood some owners could definitely take their property back and attempt themselves. But if you run STR's you know there's a lot that goes into running one to actually be successful. It isn't as simple as any old owner can just "do it themselves." Design, SEO, listing optimization, pricing strategy, marketing, so many things involved.
- Rental Property Investor · Oklahoma City · Member since 2021 · 108 posts · 103 votes3y
Quote from @John Underwood:
It's not rocket science. Many people decide to buy a house or convert a LTR and are very sucessful. They have a vested interest in their own sucess and are much less likely to walk away when things get tough.Quote from @Wilson Vanhook:
Quote from @Bruce Woodruff:
@Wilson Vanhook I see zero reason as a property owner to let someone else STR my property. I'll either rent it long-term or do STR myself..... Except maybe with a boutique property and a super experienced arbitrager that I knew really well....
Not everybody is like you though? Tons of owners out there that just want the steady income without running a STR themselves. This comment literally means nothing it's just you stating you prefer to run STR's.
@John Underwood some owners could definitely take their property back and attempt themselves. But if you run STR's you know there's a lot that goes into running one to actually be successful. It isn't as simple as any old owner can just "do it themselves." Design, SEO, listing optimization, pricing strategy, marketing, so many things involved.
It's just oh so easy ehh? You're totally right every single person that runs an STR is successful! There totally aren't tons of operators failing, converting back to LTR, and selling what turned out to be a poor investment. Just toss some furniture in, snap a few photos and BOOM money in your pocket. John I am actually concerned for your utter unawareness of what's going on in this industry. Your operation does not equal everybody else's.
Like I said, it's not for everybody, not everybody can be successful running an STR, and not everybody WANTS to run one anyways so they'd rather rent their place out for the long term rent.
- Real Estate Broker · Cody, WY · Member since 2010 · 28k+ posts · 41k+ votes3y
Quote from @Emery Jensen:
I’m looking at some options to bring in more rental income for some clients while reducing some risk. What are some typical rates one would charge an arbitrageur looking to rent a space out for AirBnb. Let’s say for example a 3/1 bath in a desirable area of San Diego.
I’d love to hear your thoughts/suggestions.
If you are working on behalf of clients, what you should do is investigate the cost/benefit of them operating the rental as a short-term rental with professional property management. They'll maintain control of the house and make more money.
Arbitrage operators may sell themselves as professionals, but most of them have only done it for a couple years when things were good. Most of them are young with little experience running a successful business, whereas an established short-term rental management company may have decades of experience, licenses, insurance, and more. You have no idea how the arbitrageur would handle a swing in the market. A recent study showed nearly half of all short-term rentals in LA County are operating illegally and I'm willing to bet a large percentage of those are arbitrageurs because they have nothing to lose by violating the law. If they get caught, they close up shop and leave. If the money flow dries up, they close up shop and leave.
If you can find Landlords willing to participate, arbitrage is a good opportunity to generate a lot of money without investing in real estate. I would never recommend it to a Landlord.
The DIY Landlord Book4.7248 Reviews - 3yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Quote from @Wilson Vanhook:
Quote from @John Underwood:
It's not rocket science. Many people decide to buy a house or convert a LTR and are very sucessful. They have a vested interest in their own sucess and are much less likely to walk away when things get tough.Quote from @Wilson Vanhook:
Quote from @Bruce Woodruff:
@Wilson Vanhook I see zero reason as a property owner to let someone else STR my property. I'll either rent it long-term or do STR myself..... Except maybe with a boutique property and a super experienced arbitrager that I knew really well....
Not everybody is like you though? Tons of owners out there that just want the steady income without running a STR themselves. This comment literally means nothing it's just you stating you prefer to run STR's.
@John Underwood some owners could definitely take their property back and attempt themselves. But if you run STR's you know there's a lot that goes into running one to actually be successful. It isn't as simple as any old owner can just "do it themselves." Design, SEO, listing optimization, pricing strategy, marketing, so many things involved.
It's just oh so easy ehh? You're totally right every single person that runs an STR is successful! There totally aren't tons of operators failing, converting back to LTR, and selling what turned out to be a poor investment. Just toss some furniture in, snap a few photos and BOOM money in your pocket. John I am actually concerned for your utter unawareness of what's going on in this industry. Your operation does not equal everybody else's.
Like I said, it's not for everybody, not everybody can be successful running an STR, and not everybody WANTS to run one anyways so they'd rather rent their place out for the long term rent.
No one said everyone is sucessful.
I am very sucessful at many aspects of Real Estate including STR'S.
Your insults do not bother me it just goes to your character and I will not stoop to your level.
You have a good day.
- 3yBruce WoodruffPro MemberContractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
- 3yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Hey @Wilson Vanhook, so what experience do you have in the STR arbitrage area? Your comments would lead us to believe that you have more than 10 units you are renting to arbitragers and units you STR and manage yourself. Maybe less, maybe more.
So where are the units you own and allow arbitrage folks to run STRs. You said you have a deal in place where you clear $1000 a month. What are the details on that and how long has it been working?
Just asking as you seem to think we are all ignorant and you have a lot of good answers. What stuff have you accomplished in this space that gives you the knowledge and experience?
- 3yJoe S.Pro MemberInvestor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
My question is why would somebody be willing to spend thousands upon thousands of dollars to furnish somebody else’s house? I have a big nice house I would consider doing a short term rental on, but furnishing it has given me cold feet.
- Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes3y
Higher than market rent, you are accumulating a lot more wear and tear and risk.
- Rental Property Investor · Wilmington, NC · Member since 2020 · 22 posts · 20 votes3y
@Emery Jensen
I think any one who arbitrages, would suggest charging what you would normally charge a ltr. But the owner should be compensated for the increased risk and higher damage because it’s being treated as a hotel.
Many of us put in our leases no subletting or str or running a business out of the home for a reason. So you can screen who will be inside the home and reduce wear and tear from increased traffic. The owner is taking 95 percent of the risk with the home, liability and pissed off neighbors, where the arbitrager only has their lease and furniture. I
- USA · Member since 2022 · 879 posts · 109 votes3y
Take a look at comparable Airbnb's on the market - just google Awning airbnb estimator for a free tool.
Then take the annual take and subtract a property management fee of 15%, that should be your annual income. Otherwise you're better off just getting a property manager and making it an Airbnb yourself. - Investor · Nortnern Colorado · Member since 2020 · 157 posts · 131 votes3y
@Emery Jensen Short answer: pay as little as possible; charge as much as possible.
Question is, what’s possible?
Disclosure: I'm only an LTR owner and manager of 13 years and STR owner and operator and manager of 7 years. I don't arbitrage, but I have been offered $100,000 per year net rent for one of my doors from an arbitrage brand, an offer I declined. As an owner, here's why:
1. The deal & contract was one-sided. They could bail with two week’s notice. I had to pay $20,000 and give longer notice to end.
2. Their offer was well under what we anticipated for income (and as we end 2022, we were right).
3. The risk/ benefit wasn’t there for us. We would have been better off hiring our own PM (which would work for us) rather than turn over the keys.In short, the benefits to risk were not there for us. So we passed. YMMV of course. But look for WHY an owner would want to take an offer. Figure that out and provide it, and you (and other arbitragers) have a much better shot.
- Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes3y
@Emery Jensen seems like your getting a whole lot of opinions, and not much for ANSWERS.
As a person who CREATES STR-A, is actually actively doing this, I will share some of my operation.
First point, I NEVER do anything on a % basis. I find that an idiotic notion, to be blunt about it.
First item is a STR-A Operator MUST make it worth our while, it's just that simple. So (a) they must exceed what we can expect in Standard LTR Rents, because that's our existing option. And while WIlson is working hard to "sell" that SubTo pitch that a LTR tenant will mess the place up oh-so-bad, reality is thats 2% occurrence risk, meaning 98% the other way.
So most often I expect 120% market rents. Now, here is the important stuff, TERMS.
I give a 3yr lease to start, with right to renew up to 10yr if all goes good. This is for the STR Operator benefit because they need time to profit because as mentioned, there big investment is upfront with furnishings and getting the ad built, marketed, building a following and interest in the property. What I require is strict terms that STR Operator (corporate tenant) is liable for all standard maintenance to include appliances. Also, must carry an umbrella insurance policy covering full replacement cost value of entire property. That STR Operator (corporate tenant) is liable for all there sublet tenants actions and activities.
Terms are a very important aspect so many miss focusing on the $$$$. In short things are written like a quazi NNN lease. Also, a very important aspect, I need to see the STR-A Operator has something of risk to us, as in something I can take, attach, etc. if things go south. If a person has no $, thinks this is there "golden ticket" sorry bud, not gonna happen with me. I need to see you have $, a business, other properties, things I can sick my legion of atty's after to securitize and make myself whole if need be. Yup, welcome to reality, it's not all hugs and fairy farts.
Now, for when things go bad.......
Yes, I have lot's of teeth in my lease, big, razor sharp, nasty teeth to it. Yeah, in any default, I do have power to eviscerate that corporate tenant. The point is I don't want to have to, so they best reach out and do all the gymnastics possible to keep things friendly, or I will use it, it's just that simple.
I tell all, I can be your best friend or worst nightmare, the choice is yours.
There IS risk in doing STR-A. Risk is how will that specific operator operate, and not just for this month or year but years to come. So yes, I expect ABOVE market rents, because your getting the property AND the sublet right to, ideally, sublet for profit. BOTH have $ value, so yes I expect compensation for BOTH.
I also place an annual rent increase right into the lease. Property taxes, insurance etc., all of that keep going up so static means losses. Again think NNN Lease.
When i got into leasing STR-A I didn't reinvent the wheel, I looked to who's doing something most similar and successfully and that was how every Walgreens operates. I took a page from that book and adapted it for this.
As for my "opinions" on STR-A, I have none. I am a REI Professional, it's how I pay my bills, put food on the table, pay kids lunch money etc., failure is not an option. So that phases over to my tenants, failure-is-not-an-option. I quantify risk into an equation, I quantify opportunity into an equation, I quantify EVERYTHING into a math equation.
Real Estate Investment is, at it's core, a math game. Stick to the math, it's when people get lost into emotion that things go bad.
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