Success in Rental Arbitrage

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Success in Rental Arbitrage

Member since 2023 · 19 posts · 10 votes

Hi all,

I am curious about how people are successfully operating rental arbitrage businesses. I own multiple rentals in the south/mid west and recently I was approached by an aspiring arbitrager to lease out one of my duplexes. They have furnished the unit as well as complied with my annual rent increases and its been a great long term relationship - they've always paid on time or early, I collect my rent, they maintain their "place of business" keeping my property running tight, and they in turn profit by doing STRs.

Myself coming from the ownership side, I am not looking to get into the businesses but I am just curious what successful arbitragers are doing and possibly what horror stories people have. Simply looking to gather some insight on:

Who has been successful in rental arbitraging and what leads to that success? Is it property managers who have quality systems in place already who are just diversifying their business model? How are leads being generated for this, there really isn't a "Zillow" where people can go to find arbitrage opportunities, its all market research and cold calling it seems. I have seen very mixed reviews scouring through the BP forums and am curious.

Does anyone have horror stories or major problems faced that stopped them from success in this business? What would make this method more attractive?

Thanks all for sharing insights!

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John UnderwoodPro Member

Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes

It sounds like it is working well for you. You are the investor you benefit from mortgage paydown, equity build up and tax deductions.

The Arbitrage person just has a job, but they are making money at their job.

I have heard of unsuccessful Arbitrage people just walking away from leases, especially during the pandemic.

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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
3y
2 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Questions: How long have they been doing this? Do you know what they gross per month? Are you charging them more than market rent?
1 Reply
Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
3y
I'd love to hear some stories too. All the time horror stories on the landlord and arbitrager side have been referenced to, but never a here's what happened. If you want in-depth info on arbitrage, the ins and outs, and hang ups landlords have, check out Michael and Elizabeth Chang and I know Tj Tijani has done it as well.
[email protected]330-557-3021
1 Reply
Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
3y
It can be ok OK but I doubt it. They will be making a spread that you could yourself make, or they will not be making a spread and they will not pay you, or will terminate lease etc. If I were you I would look at the numbers and see that you can either do it yourself, or hire a management company, or just rent long term.
[email protected]813-563-0877
Vacation Rentals of Florida53 Reviews
Website View Page
2 Reply
Alexander Knox
OP
Member since 2023 · 19 posts · 10 votes
3y
Quote from @Bruce Woodruff:

Questions: How long have they been doing this? Do you know what they gross per month? Are you charging them more than market rent?

Hey Bruce, I am not too sure how long they've been in business for but they are seemingly doing well enough to take two cycles of 8% rental rate increases. I do know that his businesses is just him and I believe hes got a few of these that he manages full time I believe. I am not charging more than market rents however as part of our agreement, he is taking responsibility and addressing any damages in the unit as a result of his tenants. It is his 'place of businesses' so there is accountability to keep my place well kept on his end. On the flip side, in my other units, I am the one footing the cost for things like paint scuffs, lights out, etc. so in a way he is 'managing' the property and covering costs and has been paying me so its proven to be a mutually beneficial business relationship so far. I'll speak to him to get some insight on his experience. Curious to hear success/horror stories of this model. Its intriguing to me that people are doing this and Im curious how popular it is/why its unpopular.
0 Reply
Alexander Knox
OP
Member since 2023 · 19 posts · 10 votes
3y
Quote from @Andrew Steffens:

It can be ok OK but I doubt it. They will be making a spread that you could yourself make, or they will not be making a spread and they will not pay you, or will terminate lease etc. If I were you I would look at the numbers and see that you can either do it yourself, or hire a management company, or just rent long term.
I don't want to do it myself, I am happy collecting long term rents and letting my rentals be passive but so far things have been consistent with this 'tenant' - I've even had him sign a guarantor for rent payments AND had him pay 2 months rents in advance to protect myself as much as I felt necessary. Im interested what makes him (and others in the BP community) able to succeed where I've heard/read so many posts of people failing or talking down on the arbitrage model. I am going to try and chat with him on this but curious to just hear everyones experience!
0 Reply
Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 3k+ posts · 3k+ votes
3y
Quote from @Alexander Knox:

Quote from @Andrew Steffens:

It can be ok OK but I doubt it. They will be making a spread that you could yourself make, or they will not be making a spread and they will not pay you, or will terminate lease etc. If I were you I would look at the numbers and see that you can either do it yourself, or hire a management company, or just rent long term.
I don't want to do it myself, I am happy collecting long term rents and letting my rentals be passive but so far things have been consistent with this 'tenant' - I've even had him sign a guarantor for rent payments AND had him pay 2 months rents in advance to protect myself as much as I felt necessary. Im interested what makes him (and others in the BP community) able to succeed where I've heard/read so many posts of people failing or talking down on the arbitrage model. I am going to try and chat with him on this but curious to just hear everyones experience!

Understood. I did a few successful arbitrages in 2016/17 personally that did well but there was a big spread ($5500 rent beachfront mansion that brought in $30k +/- per month, $4500 rent beach adjacent triplex that brought in around $15k and came furnished already). However I have not seen anything remotely close (at least in FL). Most decent STR potential properties rent for $3500 a month for a 4/2 pool house here 5 mins or so from beach. Add in utilities and maintenance and you are at $4500 per month. These properties would bring in annual average $7,000 best case. $84,000 minus $54,000 in cost brings you to an annual profit of $30,000. Not to mention the furniture. Typical outfitting costs costs about $20 per foot and the houses are about 1,800 sqft making this a loss. If they do it super on the cheap, the income will go down as it will not compete well. The only way this works is with a long term lease IMO.
[email protected]813-563-0877
Vacation Rentals of Florida53 Reviews
Website View Page
2 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @Alexander Knox:

Quote from @Bruce Woodruff:

Questions: How long have they been doing this? Do you know what they gross per month? Are you charging them more than market rent?

Hey Bruce, I am not too sure how long they've been in business for but they are seemingly doing well enough to take two cycles of 8% rental rate increases. I do know that his businesses is just him and I believe hes got a few of these that he manages full time I believe. I am not charging more than market rents however as part of our agreement, he is taking responsibility and addressing any damages in the unit as a result of his tenants. It is his 'place of businesses' so there is accountability to keep my place well kept on his end. On the flip side, in my other units, I am the one footing the cost for things like paint scuffs, lights out, etc. so in a way he is 'managing' the property and covering costs and has been paying me so its proven to be a mutually beneficial business relationship so far. I'll speak to him to get some insight on his experience. Curious to hear success/horror stories of this model. Its intriguing to me that people are doing this and Im curious how popular it is/why its unpopular.

Seems like you have a keeper there then. There are a lot of ways for arbitrage to go bad for a LL....but theoretically it can work, and it does for you!
2 Reply
John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
3y
It sounds like it is working well for you. You are the investor you benefit from mortgage paydown, equity build up and tax deductions.
The Arbitrage person just has a job, but they are making money at their job.
I have heard of unsuccessful Arbitrage people just walking away from leases, especially during the pandemic.
3 Reply
Lauren Lockett
New to Real Estate · Grand Prairie, TX · Member since 2023 · 54 posts · 30 votes
3y
Quote from @Alexander Knox:

Hi all,

I am curious about how people are successfully operating rental arbitrage businesses. I own multiple rentals in the south/mid west and recently I was approached by an aspiring arbitrager to lease out one of my duplexes. They have furnished the unit as well as complied with my annual rent increases and its been a great long term relationship - they've always paid on time or early, I collect my rent, they maintain their "place of business" keeping my property running tight, and they in turn profit by doing STRs.

Myself coming from the ownership side, I am not looking to get into the businesses but I am just curious what successful arbitragers are doing and possibly what horror stories people have. Simply looking to gather some insight on:

Who has been successful in rental arbitraging and what leads to that success? Is it property managers who have quality systems in place already who are just diversifying their business model? How are leads being generated for this, there really isn't a "Zillow" where people can go to find arbitrage opportunities, its all market research and cold calling it seems. I have seen very mixed reviews scouring through the BP forums and am curious.

Does anyone have horror stories or major problems faced that stopped them from success in this business? What would make this method more attractive?

Thanks all for sharing insights!

WOW! Happy to hear how successfully it's working out for you! Kudos to you to staying open to an investor wanting to do that! I'm curious, what made you say yes?
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.
3 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Well, I would happily change my opinion if all arbitrage could go as well as it does for @James Hamling ....but he is obviously way smarter at his than the average REI knucklehead. But that's the road map that he laid out right there. Most Mom and Pop investors will not have such results though, I'm afraid....
0 Reply
Joe S.Pro Member
Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
3y
Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

I had serval houses that probably could have made good short term rentals. I never been approached by someone wanting to do an arbitrage in them though.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Bruce Woodruff:

Well, I would happily change my opinion if all arbitrage could go as well as it does for @James Hamling ....but he is obviously way smarter at his than the average REI knucklehead. But that's the road map that he laid out right there. Most Mom and Pop investors will not have such results though, I'm afraid....

I did have a couple decades in R.E. before "selling" my 1st STR-Arbitrage, and with background in contract law. So yeah, I arguable had one heck of an advantage at start, I designed the whole thing, contracts, and hand-held the Hosts through the process.
Now I hear all kinds of insanity being pitched, such as arbitrage for a % of profits, lol, no thanks. I have done rental ramp-ups but there is a set basis rent, host's feet are held to a fire to perform. The sub-to pitch is the dumbest thing I've ever received. Oh will I hold debt but sign over deed, lol, ah-hell-no. Not sure what moron claps there hands thinking that's a good deal.
My contracts are about 28pages at this time, so, that should be an indicator of how thorough they are. Nothing is left to guess work, it's all mapped out and detailed.
I think my years as GC lent to this because the whole existence as a GC is via doing many JV's, every build and all sub's are in function JV's on the project. As GC we don't do the actual work of things but we direct exactly how it can and can-not be done, for profitable win-win of all involved.
1 Reply
Bruce WoodruffPro Member
Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
3y
Quote from @James Hamling:

Quote from @Bruce Woodruff:

Well, I would happily change my opinion if all arbitrage could go as well as it does for @James Hamling ....but he is obviously way smarter at his than the average REI knucklehead. But that's the road map that he laid out right there. Most Mom and Pop investors will not have such results though, I'm afraid....

I did have a couple decades in R.E. before "selling" my 1st STR-Arbitrage, and with background in contract law. So yeah, I arguable had one heck of an advantage at start, I designed the whole thing, contracts, and hand-held the Hosts through the process.
My contracts are about 28pages at this time, so, that should be an indicator of how thorough they are. Nothing is left to guess work, it's all mapped out and detailed.
I think my years as GC lent to this because the whole existence as a GC is via doing many JV's, every build and all sub's are in function JV's on the project. As GC we don't do the actual work of things but we direct exactly how it can and can-not be done, for profitable win-win of all involved.
The length of your contract is a tell about your success rate. My GC contract and included Docs was about 15 - 20 pages as well. Whereas most of the competition would have a single page contract with no exhibits/attachments at all.

We would agree that clarity is the key to success in all things. You must be clear in your goals and path, and your JVs (as you so wisely call them :-) must know them as well....otherwise whatever the project is, it is destined for, if not failure, at least a tough path to the end...

This may be (or is probably) the reason most investors fail at arbitrage, while those like you do succeed...
1 Reply
Alexander Knox
OP
Member since 2023 · 19 posts · 10 votes
3y
Quote from @Lauren Lockett:

Quote from @Alexander Knox:

Hi all,

I am curious about how people are successfully operating rental arbitrage businesses. I own multiple rentals in the south/mid west and recently I was approached by an aspiring arbitrager to lease out one of my duplexes. They have furnished the unit as well as complied with my annual rent increases and its been a great long term relationship - they've always paid on time or early, I collect my rent, they maintain their "place of business" keeping my property running tight, and they in turn profit by doing STRs.

Myself coming from the ownership side, I am not looking to get into the businesses but I am just curious what successful arbitragers are doing and possibly what horror stories people have. Simply looking to gather some insight on:

Who has been successful in rental arbitraging and what leads to that success? Is it property managers who have quality systems in place already who are just diversifying their business model? How are leads being generated for this, there really isn't a "Zillow" where people can go to find arbitrage opportunities, its all market research and cold calling it seems. I have seen very mixed reviews scouring through the BP forums and am curious.

Does anyone have horror stories or major problems faced that stopped them from success in this business? What would make this method more attractive?

Thanks all for sharing insights!

WOW! Happy to hear how successfully it's working out for you! Kudos to you to staying open to an investor wanting to do that! I'm curious, what made you say yes?

I think what made me agree to it was the lengths he was willing to go in order to make this a good deal for me: paying 2 months in advance, agreeing to take care of incidentals/management/maintenance of the unit, as well as signing on a guarantor. In exchange he was also looking to have first right of renewal but again, he's been paying on time and has agreed to rent increases so for me, having a consistent occupancy from a seemingly creditworthy tenant who's paid two months in advance gave me some comfort to say yes. The property is targeted towards student rentals otherwise, so believe it or not, the maintenance I have to do is actually more with the student renters than with the rental arbitrager. If I could rent both units to him, I probably would!
1 Reply
Alexander Knox
OP
Member since 2023 · 19 posts · 10 votes
3y
Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

James, this is an awesome post!! Thanks so much for sharing and going into so much detail, extremely helpful to hear your success story. This concept of hosting partners seems like a potentially fruitful relationship. Im not sure if you've seen what Airbnb is doing but it sound like a similar platform for this. AirBnb partnering with asset owners, then "renting" those units out to arbitragers, then the arbitragers use the units for STRs: https://www.airbnb.co.nz/airbnb-friendly?_set_bev_on_new_dom.... Curious to hear any thoughts on this.. Im not sure I fully understand the mechanics of it but with your experience, it'd be great to hear your perspective.
0 Reply
Alexander Knox
OP
Member since 2023 · 19 posts · 10 votes
3y
Quote from @Joe S.:

Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

I had serval houses that probably could have made good short term rentals. I never been approached by someone wanting to do an arbitrage in them though.

If you could list your properties for arbitragers specifically, would you be inclined to rent to them? What might make you say "yes" or "no"? How would you do the due diligence on those tenants?
1 Reply
Joe S.Pro Member
Investor · San Antonio · Member since 2020 · 3k+ posts · 3k+ votes
3y
Quote from @Alexander Knox:

Quote from @Joe S.:

Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

I had serval houses that probably could have made good short term rentals. I never been approached by someone wanting to do an arbitrage in them though.

If you could list your properties for arbitragers specifically, would you be inclined to rent to them? What might make you say "yes" or "no"? How would you do the due diligence on those tenants?

Well, I’m sure if everybody had success of James, then it would be OK. Lol.
1 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Alexander Knox:

Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

James, this is an awesome post!! Thanks so much for sharing and going into so much detail, extremely helpful to hear your success story. This concept of hosting partners seems like a potentially fruitful relationship. Im not sure if you've seen what Airbnb is doing but it sound like a similar platform for this. AirBnb partnering with asset owners, then "renting" those units out to arbitragers, then the arbitragers use the units for STRs: https://www.airbnb.co.nz/airbnb-friendly?_set_bev_on_new_dom.... Curious to hear any thoughts on this.. Im not sure I fully understand the mechanics of it but with your experience, it'd be great to hear your perspective.

So first thing to know about me is I am a "Cardinal" in the Church of "Big Corp needs to DIE". I could write volume on how perverse, corrupt, damaging and deranged big-corp. has become in the U.S. and the solution is kill big-corp, empower small business.
So what do i think about big-corp-tech swooping in to gobble up market share of such.... It's smart, it's savvy, and I would cheers those who kill it.
What's going to happen is what always happens. People will be mislead, the ignorant will flock to it, run forward blindly, shout how genius they all are, as it foments havoc in various degrees, and nobody will be accountable for any of it. And when it all burns to the ground, it will be a parade of excuses.
STR is HOSPITALITY. I keep saying this over and over and over again. When you flood a local market with offerings, like say taking an entire apartment building and plunking 80 STR's ran by 65 different hosts, it will be a race to the bottom. The only question is how long will it take until it's charging by the hour, and getting flooded with that element attracted by such.
How long until the building operator decides it's a horrible mess and time to shut-it-down. And than, all those doing STR-A are left with a non-performing liability.
It only highlights how callous big corp. is, it's simple mathematics exactly what will happen. Flooding a market with supply has never ended well.
So I'd love to know where these are so I can stay far-FAR away from them, it's a ticking time-bomb of descending rents and a great action plan on how to drop tenant class as far into basement as possible.
1 Reply
Alexander Knox
OP
Member since 2023 · 19 posts · 10 votes
3y
Quote from @James Hamling:

Quote from @Alexander Knox:

Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

James, this is an awesome post!! Thanks so much for sharing and going into so much detail, extremely helpful to hear your success story. This concept of hosting partners seems like a potentially fruitful relationship. Im not sure if you've seen what Airbnb is doing but it sound like a similar platform for this. AirBnb partnering with asset owners, then "renting" those units out to arbitragers, then the arbitragers use the units for STRs: https://www.airbnb.co.nz/airbnb-friendly?_set_bev_on_new_dom.... Curious to hear any thoughts on this.. Im not sure I fully understand the mechanics of it but with your experience, it'd be great to hear your perspective.

So first thing to know about me is I am a "Cardinal" in the Church of "Big Corp needs to DIE". I could write volume on how perverse, corrupt, damaging and deranged big-corp. has become in the U.S. and the solution is kill big-corp, empower small business.
So what do i think about big-corp-tech swooping in to gobble up market share of such.... It's smart, it's savvy, and I would cheers those who kill it.
What's going to happen is what always happens. People will be mislead, the ignorant will flock to it, run forward blindly, shout how genius they all are, as it foments havoc in various degrees, and nobody will be accountable for any of it. And when it all burns to the ground, it will be a parade of excuses.
STR is HOSPITALITY. I keep saying this over and over and over again. When you flood a local market with offerings, like say taking an entire apartment building and plunking 80 STR's ran by 65 different hosts, it will be a race to the bottom. The only question is how long will it take until it's charging by the hour, and getting flooded with that element attracted by such.
How long until the building operator decides it's a horrible mess and time to shut-it-down. And than, all those doing STR-A are left with a non-performing liability.
It only highlights how callous big corp. is, it's simple mathematics exactly what will happen. Flooding a market with supply has never ended well.
So I'd love to know where these are so I can stay far-FAR away from them, it's a ticking time-bomb of descending rents and a great action plan on how to drop tenant class as far into basement as possible.

You bring up some great points on this which I agree with. My personal take is that rental arbitrage doesn't work for most people because the research needed to find quality opportunities is half baked, whether it's comps not being analyzed thoroughly enough, liability/insurance/contracts not being properly assessed, risks not taken to full account/assuming best case scenario will be the only scenario, and due diligence not taken seriously enough. This in addition to finding the quality property owners who take the same precautions when vetting arbitragers seems to be the gap that needs to be filled in the market.

Fortunately, I have had the luck of working as a landlord, renting to a quality tenant who participates in rental arbitrage seemingly successfully. My take aways: as a landlord, I have done what I've felt necessary to protect myself with this "riskier" tenant. My tenant has built out a quality system of management that allows him to earn a margin (seemingly having done his due diligence). This model can be successful if all parties have the proper tools they need in order to succeed. It is clear its not for everyone, especially those who want a "passive" opportunity.
0 Reply
James Hamling
Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
3y
Quote from @Alexander Knox:

Quote from @Joe S.:

Quote from @James Hamling:

If you could list your properties for arbitragers specifically, would you be inclined to rent to them? What might make you say "yes" or "no"? How would you do the due diligence on those tenants?

IMO due diligence should start as simply as: "show me what you've done thus far".
I want to see an actively listed STR. I want to read the reviews, soo how they market, how they furnish, price etc.. Does what they have done thus far lend to this property instance?
If they have never done one ever, yeah, not sure if a "noob" could convince me to let them experiment with our properties. Not to say it's impossible, but there gonna have to be really could at convincing they are coming into it with the skills and know-how, and more importantly a realistic plan. As well as capital to make it all happen.
Who, What, When, Where, Why and How. I need to have all these answered. I need to not have any of these questions remaining. Not a 1.
Than I go into the Q&A segment, pitching those 1-off horror stories and asking what they would do. It's the "Kobayashi Maru" test for real estate. I'm looking for how they react to trouble, that there response is dedication, action and effort to the end. It's a character test.
1 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Sarah Kensinger:

I'd love to hear some stories too. All the time horror stories on the landlord and arbitrager side have been referenced to, but never a here's what happened. If you want in-depth info on arbitrage, the ins and outs, and hang ups landlords have, check out Michael and Elizabeth Chang and I know Tj Tijani has done it as well.

In my San Diego market, I know no STR arbitrager that did not break lease during the Covid lockdown (I.e. had a lease before Covid and maintained it a full year later). I do not know exactly how many I am aware of, but my guess is about a dozen. I do know a MTR arbitrager that did not bail (she has quite a few MTR units she is arbitraging) and another MTR arbitrager who started as Covid was still a significant issue that did not bail (she has 2 and is looking for a 3rd).

in my market we had full lockdown (no STR stays allowed) from March to July and again from before thanksgiving through the new year. Note in the time that STR stays were allowed, occupancy sucked because all attractions including the beach were shutdown.

is there any San Diego STR arbitragers on this site that was arbitraging before Covid and still had same San Diego unit as arbitraged unit in march 2021? Someone show me that there was a single STR arbitrager in my market that did not bail when the going got tough.

this is a single risk of STR arbitrage, but in my market this one risk was significant enough to warrant not to consider it.

1 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @James Hamling:

@Alexander Knox as a person who has very happily "sold" several STR-Arbitrages, I have long wondered if I am the only one with great results loving it because by the way people bad-mouth it, I don't get it.
I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things. Same reason Sam Walton didn't stand at a check-out register.
My #1 problem with "selling" STR-Arbitrage is that I don't advertise I do this, so I don't know how a Host-Partner would find me and that I do this, and that I'd love to do, a LOT more of it.
It's been a hell of a win-win.
Now yes, I vet the hell out of a Hosting-partner, but that doesn't mean I only take people with giant volume of experience. I took on one who had 1 property of experience, but they did everything right on that, and let me grill the heck out of em, fully understanding my position. They showed the most important traits I could ask for; Understanding and Effort. And, they've done great.
So far, the only issue I had is with 1 hosting partner getting greedy. Read some post or book or whatever somewhere and wanted to press to expand his net $4k monthly too $5k+, which no, pigs get fat and hog's get slaughtered.
Now, I don't do a standard lease. The hosting partner covers all gen. maintenance on everything but infrastructure, we cover that. And it works out very well for both sides. And yes, I get above market rents but so far every one of my STR Hosting partners is clearing on average $3k+net per month, per unit. I'd call that a hell of a win for them.
I know a ton on STR's, I "could" do one myself, but it's a time-suck I don't want to take on. I am happy taking my side and letting someone else thrive in the hosting side of things. What people don't get is this affords me more time and energy to scale, to dig up the next great property, and it affords the hosting partner more scalability in their side of things as their up-front costs are mitigated greatly. It's a win-win.
For example, I got a new one today I am looking to "sell" arbitrage. It was $1.2m acquisition. It comp's out $7-$10k monthly on STR and it could double even triple that with some adjustments to site. What STR person can dump a couple hundred K into just acquiring, than outfitting, launching, marketing a place? maybe a handful of people. But on arbitrage, it's now ten's of thousands vs hundreds of thousands. The site is with acreage for future development, so it's a win-win to have someone operating the existing property for profit, on both sides, while we crawl-forward on land side of things.
I feel like those saying it's dumb, don't do it instead do it all yourself, are just arm-chair-quarterbacks who simply don't know what there speaking of, yelling from the nose-bleed section on how to play a game there never playing themselves.
The concerns of vet your people and strategy, heck yeah but that's universal for any/every business partnership. It is a JV and needs to be approached and entered as such.
But far as issues, my only one is more, I'd like more hosting-partners because I have plenty of properties that come through pipe-line as viable, no shortage there. Maybe I just got a horse-shoe up my wazoo but so far, batting 1000 after a few years into it.

>I HATE the ignorant response of "well, why not just do it yourself". Well, for the exact same reason I have someone else do my oil changes, roof my properties, fix the a/c, and the countless other things. Because my time is not best served doing all the things.

this response makes it seem like there are only 2 options but you could use a licensed, insured PM to run the STR. The upside is yours and someone else is doing the work. Most arbitragers have no business license, no business insurance, low net worth (few assets).

I may have a tainted view because every STR arbitrager in my market bailed in the local Covid lockdowns. Some of the LL had the foresight to get first and last month’s rent and deposit. Most were getting slightly above market rent for additional risk. Most LL got $crewed, but my view is they took on a risk and it did not work out.

I also do not understand it from the arbitrager perspective (even though one of my friends is an MTR arbitrage - she started when Covid was still high risk). They have a job but no upside of appreciation, equity pay down, tax benefits, etc. At the end of lease the LL can in effect take away all the effort they have put in building the STR business by not renewing the lease. Can they find another unit to arbitrage? Will the furnishings work elsewhere?

2 Reply
Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
3y
Quote from @Dan H.:

Quote from @Sarah Kensinger:

I'd love to hear some stories too. All the time horror stories on the landlord and arbitrager side have been referenced to, but never a here's what happened. If you want in-depth info on arbitrage, the ins and outs, and hang ups landlords have, check out Michael and Elizabeth Chang and I know Tj Tijani has done it as well.

In my San Diego market, I know no STR arbitrager that did not break lease during the Covid lockdown (I.e. had a lease before Covid and maintained it a full year later). I do not know exactly how many I am aware of, but my guess is about a dozen. I do know a MTR arbitrager that did not bail (she has quite a few MTR units she is arbitraging) and another MTR arbitrager who started as Covid was still a significant issue that did not bail (she has 2 and is looking for a 3rd).

in my market we had full lockdown (no STR stays allowed) from March to July and again from before thanksgiving through the new year. Note in the time that STR stays were allowed, occupancy sucked because all attractions including the beach were shutdown.

is there any San Diego STR arbitragers on this site that was arbitraging before Covid and still had same San Diego unit as arbitraged unit in march 2021? Someone show me that there was a single STR arbitrager in my market that did not bail when the going got tough.

this is a single risk of STR arbitrage, but in my market this one risk was significant enough to warrant not to consider it.

Yeah, that was tough year for the STR market, forget the arbitragers it was everyone that hosted a STR. You either quickly changed strategies or you lost big time! Those that offered their properties to essential workers for longer stays pulled through just fine, but not everyone was willing to do that or even thought of it. San Diego only allows one STR license per person (homeowner), so I'm surprised arbitragers were able to get more than one. But maybe if they're an operator and not the owner it's a little different.

Unfortunately, the large cities and metropolitan areas that went on lockdown complicated things for the arbitragers...and other hosts. But there were many cases where the landlord requested the property back from the arbitrager, because they had so many calls for a LTR as the lockdowns started coming. From the stories I heard the arbitrager had made their profit, so it was ok and a bit of a relief even though most had plenty of traveling nurses that needing housing. But I'm sure there were cases where an arbitrager lost money since the lease wasn't entirely finished as planned.

[email protected]330-557-3021
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