New Member looking for opprtunities / strategies to start out STR - Rental Arbitrage

[David Jean-Georges]

Hello Everyone,

I am new to BiggerPockets and the real estate Industry. We bought a single family home in Deltona Florida in July 2022, but honestly we were really blind and ignorants through the whole process. A few months after moving into the house things get tough with the mortgage and all the utility bills and day to day expenses.

At that time I started looking for how can I make money using our house, and found biggerpockets on youtube... I realized we did the wrong thing because we should be buying a multi-family house instead of a single one. What we can do? What are our options?

1. We were thinking of doing airbnb in one of the rooms (3 bedrooms, 2 bathrooms), but one of the bathrooms is out of service. It doesn't make sense to me to have guests now and let them use the only available bathroom (in the master bedroom).

2. About getting money from the house (equity, refinance, etc.). I don't think it's really possible because we got it at the end of July 2022 and we started the monthly mortgage payment in September (only 5 months of payment)

3. I kept looking to see how to have another source of income, how to have cash flow and I heard about short term rentals, specifically "Rental Arbitrage". Over the past 2 weeks I have listened to several youtube videos (Biggerpocket podcast with Avery Karl, Tony Robenson and so on) and Avery Karl's book.

I think the least complicated way for us to start "investing" in real estate MIGHT be rental arbitrage.. So, I'm looking for opportunities, and as you can imagine... I'm out of money. I am not to far from Orlando Florida, this us why I want to do tbe Rental Arbitrage around Orlando

I've heard of the DSCR loan which would be great because (as I understand) it doesn't depend on your income or credit score but on the expected income from the property. II wonder if it is possible to have a DSCR with no down payment or with a really low down payment (<10%)

Any comments or advice from the community will be helpful.

[Michael Baum]

First thing @David Jean-Georges, arbitrage is not investing. It is a job.

We get this question/idea weekly from folks looking to get started. Like you, most don't have 2 nickles to rub together but still want to get started.

Frankly, you don't have the money to get started on any kind of investing. Arbitrage will cost you at a bare minimum: first, last and deposit. Any owner who thinks about this will want a premium for the rent and maybe a larger deposit.

Then you have to furnish it which could cost 15-25k. That all depends on the size and area.

Then it comes down to being in one of the most competitive markets in the US. There are a ton of STRs in Orlando. I have a pretty good feeling you will lose money hand over fist on something like this. The Orlando scene is great if you have a 9bed/10bath fully themed out. They bring in the cashola.

What you should do is live cheap. Save every dime. Put money into fixing that bathroom. Then you can think of renting a room. It won't bring in much. Save all that comes in from that to get to a decent down. Then start looking for a place.

Maybe turn your current home into a LTR, use FHA to buy a 4 plex. Live in one, rent the others. Continue to save. Then move, rent that final unit after refinancing out of the FHA.

There are a lot of ways to get started in investing. Maybe try wholesaling? 

Do a search on arbitrage and you will find a ton of info on here.

[Shawn McCormick]

@David Jean-Georges

Sorry about your situation. I totally agree with @Michael Baum, you really don't have options unless you could do a HELOC, depending on if you have any equity or if you 'overpaid' for the house last year. Unfortunately, Deltona isn't close enough to Disney to really do well with Airbnb. I do have friends that are successful in Sanford, Deland etc, but it is harder.

If you are really in a bind, maybe consider selling your house subject to the current mortgage (this will only be attractive to a buyer if your interest rate is 4% or below since the mortgage is still so new AND you have equity. IF...that is the case, you might get enough cash to go buy a multi family and have a better shot. 

As far as DSCR, they are higher interest rate and generally 20-25% down payment (some exceptions could get you in with 15%), so that is definitely not an option for you. If you are a Veteran, you could use your entitlements for a VA loan (0% down) Parts of Deland are eligible for a 0% down USDA loan, but the requirements for you are higher (credit score/income limits).

Hope this helps, best of luck.

[David Jean-Georges]

Quote from @Michael Baum:

First thing @David Jean-Georges, arbitrage is not investing. It is a job.

We get this question/idea weekly from folks looking to get started. Like you, most don't have 2 nickles to rub together but still want to get started.

Frankly, you don't have the money to get started on any kind of investing. Arbitrage will cost you at a bare minimum: first, last and deposit. Any owner who thinks about this will want a premium for the rent and maybe a larger deposit.

Then you have to furnish it which could cost 15-25k. That all depends on the size and area.

Then it comes down to being in one of the most competitive markets in the US. There are a ton of STRs in Orlando. I have a pretty good feeling you will lose money hand over fist on something like this. The Orlando scene is great if you have a 9bed/10bath fully themed out. They bring in the cashola.

What you should do is live cheap. Save every dime. Put money into fixing that bathroom. Then you can think of renting a room. It won't bring in much. Save all that comes in from that to get to a decent down. Then start looking for a place.

Maybe turn your current home into a LTR, use FHA to buy a 4 plex. Live in one, rent the others. Continue to save. Then move, rent that final unit after refinancing out of the FHA.

There are a lot of ways to get started in investing. Maybe try wholesaling? 

Do a search on arbitrage and you will find a ton of info on here.

 Thank yo @Michael. And I understand. we have a saving plan in place and We keep looking for other ways to get some money (Partnership, Private money). We probably we will be able to reach 10K.

[David Jean-Georges]

Quote from @Shawn McCormick:

@David Jean-Georges

Sorry about your situation. I totally agree with @Michael Baum, you really don't have options unless you could do a HELOC, depending on if you have any equity or if you 'overpaid' for the house last year. Unfortunately, Deltona isn't close enough to Disney to really do well with Airbnb. I do have friends that are successful in Sanford, Deland etc, but it is harder.

If you are really in a bind, maybe consider selling your house subject to the current mortgage (this will only be attractive to a buyer if your interest rate is 4% or below since the mortgage is still so new AND you have equity. IF...that is the case, you might get enough cash to go buy a multi family and have a better shot. 

As far as DSCR, they are higher interest rate and generally 20-25% down payment (some exceptions could get you in with 15%), so that is definitely not an option for you. If you are a Veteran, you could use your entitlements for a VA loan (0% down) Parts of Deland are eligible for a 0% down USDA loan, but the requirements for you are higher (credit score/income limits).

Hope this helps, best of luck.

Thank you @Shawn McCormick. As you said, unfortunately Deltona is not close enough to Disney Orlando. No, I am not a Veteran.