Real Estate Agent · San Diego, CA · Member since 2018 · 29 posts · 9 votes
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’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.
New to Real Estate · Scottsdale, AZ · Member since 2020 · 7 posts · 3 votes
3y
As someone new looking to get into STR arbitrage, would you be more willing to welcome an STR if I were to 1) pay the year in advance for say a 5% discount on overall rent and 2) carry additional liability insurance?
As someone new to this space I would appreciate any insight. I am looking to get started in San Diego Mission Beach area and Scottsdale, Arizona.
As someone new looking to get into STR arbitrage, would you be more willing to welcome an STR if I were to 1) pay the year in advance for say a 5% discount on overall rent and 2) carry additional liability insurance?
As someone new to this space I would appreciate any insight. I am looking to get started in San Diego Mission Beach area and Scottsdale, Arizona.
Mission beach STR quota has been hit. Therefore you would need to go on a waitlist to get an STR. It is my belief that your wait would be many years as I do not expect those with STR permits to be giving them up.
For me I do not believe that any arbitrager would pay me rent sufficient that I would choose to use them over a professional PM. The increased risk of law suit for an amateur mistake (professional PMs have insurance). The not having the upside but providing the valuable asset. The issue of not being legally allowed to keep that up front rent if you bail when there is a slowdown for whatever reason (such as Covid: my Mission Beach STRs’ rent fell from $160k to less than $80k the first year of Covid due to state mandated restricted periods and low demand when not restricted).
I suspect the up front rent may convince someone that does not have an understanding of tenant liability for breaking the lease.
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
Hey @William Betteridge, that is an interesting proposition and might make people more amenable to it. I would charge you above market rates first of all so that discount wouldn't mean too much to you.
You would have to carry a STR policy AND a significant umbrella.
Like @Dan H. said, Mission Beach is done tom turkey for at least 2 years from what I have heard. The 2023 quota was hit really quickly and 2024 is also done from things I have read.
New to Real Estate · Scottsdale, AZ · Member since 2020 · 7 posts · 3 votes
3y
@Dan H. - Thank you so much for taking the time to reply and share your knowledge.
The risk exposure from liability makes sense and is something I have not thought about. I will need to look into the possibilities of alternative solutions that would resolve that insurance barrier.
I would not want to be in the position of targeting people who are unaware of liability and would prefer to do the right thing. All of this is extremely helpful. Thank you again
Realtor · Northeast TN and Central VA · Member since 2021 · 52 posts · 38 votes
3y
I personally do not allow sublets for my LTR properties, due to potential liability issues and wanting to know whois in my property. If you were to explore this I would suggest:
1) requiring a larger security deposit.
2) Asking to be included as a Co-Host on Airbnb so you have a pulse on what is going on.
3) Ask for a percentage of rents (maybe 10-20%). Being a cohost will allow you to keep tabs on the income and have them add you for direct deposits.
Sounds like I may need to look at alternative markets and start stoking coals in others proactively from feedback so far.
lol if charging above market rates that would be a net return cancellation depending on how I could deploy capital otherwise so also may not be the best use.
I will take the feedback and look further into the development of STR policies and what umbrellas would look like as well from cost and coverage perspectives.
I really appreciate the help from the community here, thank you
Real Estate Agent · San Diego, CA · Member since 2015 · 190 posts · 77 votes
3y
@Emery Jensen don't these arbitrageur's need a STR licnese since they won't be owner occupying the home? If within city of SD then a license would be needed, link below for reference, last thing you want is for your clients to get hit with fines from the city because they are operating without a license.
Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
3y
@Michael Baum@Wilson Vanhook, what’s wrong with bringing to light the fact that Wilson is successful as a property owner receiving $1,000 from someone leasing or arbitraging his property.
If you are unaware of contracts allowing property owners who are passive investors to receive fixed income of 18%+, then it’s true you are ignorant about the returns passive investor property owners are receiving.
@Michael Baum@Wilson Vanhook, what’s wrong with bringing to light the fact that Wilson is successful as a property owner receiving $1,000 from someone leasing or arbitraging his property.
If you are unaware of contracts allowing property owners who are passive investors to receive fixed income of 18%+, then it’s true you are ignorant about the returns passive investor property owners are receiving.
So I am not sure why you felt the need to resurrect this thread. There is nothing wrong with being a successful arbitrager. They are out there.
On the 18%, is that a guaranteed return contract? How is that established? Who is offering that on any property? How many places do you have under that contract where you are receiving the 18% return? What's the name of the company?
If someone came to me with a guaranteed return of 18% on my property, I would look at it but I would be very skeptical. I would be giving up some profit but it could be worth it. I just don't see that being a thing on all properties in all markets.
As someone new looking to get into STR arbitrage, would you be more willing to welcome an STR if I were to 1) pay the year in advance for say a 5% discount on overall rent and 2) carry additional liability insurance?
As someone new to this space I would appreciate any insight. I am looking to get started in San Diego Mission Beach area and Scottsdale, Arizona.
Mission beach STR quota has been hit. Therefore you would need to go on a waitlist to get an STR. It is my belief that your wait would be many years as I do not expect those with STR permits to be giving them up.
For me I do not believe that any arbitrager would pay me rent sufficient that I would choose to use them over a professional PM. The increased risk of law suit for an amateur mistake (professional PMs have insurance). The not having the upside but providing the valuable asset. The issue of not being legally allowed to keep that up front rent if you bail when there is a slowdown for whatever reason (such as Covid: my Mission Beach STRs’ rent fell from $160k to less than $80k the first year of Covid due to state mandated restricted periods and low demand when not restricted).
I suspect the up front rent may convince someone that does not have an understanding of tenant liability for breaking the lease.
Good luck
I agree with Dan, just like anything in life the less experience have more of a RISK due to the lack of experience. Just owning and managing real estate long term there can be risky. My wife and I managed 1500 units, at that level you learn real quickly about risk/reward, with that many tenants to deal with, evictions, unit turns, non-payers, problem tenants, lawsuits, etc., you start to really understand how to run your properties. It is fun to try to make more money BUT at what risk and until you have actually gone through the BS you wont know. Books, podcast, blogs are great, real life real estate investor stories that you have lived through is REAL.
I have learned lots of stuff the hard way and hopefully NOT everyone will have the same experience.
Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes
3y
@William Betteridge believe it or not arbitrage and business RE are not a new concept. It's been known for years as a triple net lease(NNN) or master lease. Many professional managers including hotel and motel managers lease the property from the owner. Using the term arbitrage does not make a manager an amateur nor a professional. Expertise in the field of STVR management including marketing , communication and operation determines the level of professional ability.
The ability to purchase an excessive amount of liability insurance does not increase or decrease the probability of loss for a property owner. Requiring a leasee to include the property owner as an additional insured lowers risk for the property owner.