Airbnb arbitrage advice needed!

[Mike Reitz]

Hello,

I have an Airbnb arbitrage opportunity in Nashville, TN. I’ve looked over the Airdna info and it seems like a good opportunity.

Are there any Airbnb arbitrage pros on here that would be willing to take a second look for me and offer any advice they may have on the opportunity?

Thanks in advance!

-Mike

[John Underwood]

My advice would be to read the Arbitrage horror stories on here before going any further.

[Bruce Woodruff]

I was going to suggest this as well. Have you searched the Forum using 'arbitrage' as your keyword?

There was just a long discussion on the merits (or lack thereof) concerning arbitrage...

[Alex Scattareggia]

Reduce your income by 20% and increase your expenses by 20%.  Does it still pencil out?  

If it´s not the most obvious deal using ultra conservative #´s, you are taking on a huge amount of risk/liability in the form of a job, and not capturing any of the REI upside.

[Sarah Kensinger]

This question right now, after the last two weeks is golden! 

First you need to make sure you can operate a STR since Nashville has many regulations. Second you must be able to recoup all startup costs (rent deposit, furnishing expenses, etc.) within 6 months of starting the lease for it to be a good property for rental arbitrage. And lastly, you would be better off checking out all the arbitrage info Michael and Elizabeth Chang provide on their YouTube channel, social media, website, etc.

Best of luck on your endeavors!

[Alex Scattareggia]

If it seems like everyone's really down on arbitrage it´s because there are more negative experiences than success stories. There are definitely opportunities out there, but I would just caution you to:

1. use really conservative numbers, whatever data you gather shave some significant % off the top

2. completely throw out late 2020 and all of 2021 data, especially for a market like Nashville.  That post Covid boom is skewing a lot of peoples idea of what is normal. 

3. again, using conservative numbers, figure out what your hourly would be over the course of a year. Because this is a job, not investing, look at it like that.  If you end up making 25$/hour is that worth it to you?  You might very well say yes to that proposition + the experience you gain. This is going to be different for everyone based on goals and earning potential at their primary job etc. but at least objectively look at it like a job and determine if your time is worth it. 

Cheers, good luck!

[Michael Baum]

[Andrew Steffens]

Are you using the free version of AirDNA or the paid version?

Other than that question I second everything above ^

[Chai Xiong]

If it was me, drop the arbitrage and just buy the asset.  Arbitrage folks had no assistance during covid, it was the folks who held assets.

[Allen Wright]

If you still need a second set of eyes on the deal you can message me and I'll check it out. Arbitrage or not, if the numbers work they work. If everything pencils out I would definitely go for it. (Assuming regulations allow you to do so)

[John Underwood]

Quote from @Chai Xiong:

If it was me, drop the arbitrage and just buy the asset.  Arbitrage folks had no assistance during covid, it was the folks who held assets.

 Excellent Advice!

[Luka Milicevic]

Quote from @Mike Reitz:

Hello,

I have an Airbnb arbitrage opportunity in Nashville, TN. I’ve looked over the Airdna info and it seems like a good opportunity.

Are there any Airbnb arbitrage pros on here that would be willing to take a second look for me and offer any advice they may have on the opportunity?

Thanks in advance!

-Mike

 I would not recommend the arbitrage route, especially not in Nashville. 

Either buy the STR yourself and run it as the owner, or look into other opportunites.

This worked extremely well up until about the end of 2016

[Mike Reitz]

Quote from @Sarah Kensinger:

This question right now, after the last two weeks is golden! 

First you need to make sure you can operate a STR since Nashville has many regulations. Second you must be able to recoup all startup costs (rent deposit, furnishing expenses, etc.) within 6 months of starting the lease for it to be a good property for rental arbitrage. And lastly, you would be better off checking out all the arbitrage info Michael and Elizabeth Chang provide on their YouTube channel, social media, website, etc.

Best of luck on your endeavors!

Here's some more info! The property is already fully furnished with West Elm furniture. I can lease the space for $3,300/month and that includes all utilities. STR permit is already in place from the property owner. Below is what the Airdna data is telling me for this specific address. It seems like a no brainer to me, but I'm still unsure to pull the trigger because all of the nay-sayers out there lol.

[Mike Reitz]

Quote from @Luka Milicevic:

Quote from @Mike Reitz:

Hello,

I have an Airbnb arbitrage opportunity in Nashville, TN. I’ve looked over the Airdna info and it seems like a good opportunity.

Are there any Airbnb arbitrage pros on here that would be willing to take a second look for me and offer any advice they may have on the opportunity?

Thanks in advance!

-Mike

 I would not recommend the arbitrage route, especially not in Nashville. 

Either buy the STR yourself and run it as the owner, or look into other opportunites.

This worked extremely well up until about the end of 2016

 Totally understand where you're coming from. I am just short on cash on hand right now to buy a property. Here's some more info about the deal. Does that change your thoughts on this? I appreciate everyone's input! I feel like I'm crowdsourcing knowledge here :).

Here's some more info! The property is already fully furnished with West Elm furniture. I can lease the space for $3,300/month and that includes all utilities. STR permit is already in place from the property owner. Below is what the Airdna data is telling me for this specific address. It seems like a no brainer to me, but I'm still unsure to pull the trigger because all of the nay-sayers out there lol.

[Mike Reitz]

Quote from @John Underwood:

My advice would be to read the Arbitrage horror stories on here before going any further.

Below are some numbers on the deal. I know arbitrage can be risky... but this deal seems unique and a great opportunity to me. Obviously nothing is without risk, though! 

The property is already fully furnished with West Elm furniture. I can lease the space for $3,300/month and that includes all utilities. STR permit is already in place from the property owner. Below is what the Airdna data is telling me for this specific address. It seems like a no brainer to me, but I'm still unsure to pull the trigger because all of the nay-sayers out there lol.

[Luka Milicevic]

@Mike Reitz Just curious - have you seen the actual STR permit or did the owner just tell you they have one?

Have you read the lease - does it say anything about subleasing/ using as an STR? Anything along those lines?

[Michael Baum]

Hey @Mike Reitz, you already have made up your mind. You don't need any of us to approve. Just move forward with your eyes open and hopefully it will do well.

Good luck!

[Mike Reitz]

Quote from @Luka Milicevic:

@Mike Reitz Just curious - have you seen the actual STR permit or did the owner just tell you they have one?

Have you read the lease - does it say anything about subleasing/ using as an STR? Anything along those lines?

I have seen the actual permit in person. The lease we would write would allow for subleasing/STR. More backstory - the property owner has been burned by a previous PM company and just wants steady, long-term monthly income. That's why this deal seems so good to me. It seems like there is a lot of flexibility here in my favor. Very unique situation from what it seems like. I actually got current revenue numbers from the current owner - Gross revenue from Jan-Aug 2023 is only $17k. Based off all the data I've seen, this property is WAY underperforming it seems like. So while it seems risky, it also seems like a huge opportunity if I can increase revenue. It's a beautiful property built in 2019.

[Bruce Woodruff]

Quote from @Mike Reitz:

Quote from @Luka Milicevic:

@Mike Reitz Just curious - have you seen the actual STR permit or did the owner just tell you they have one?

Have you read the lease - does it say anything about subleasing/ using as an STR? Anything along those lines?

I have seen the actual permit in person. The lease we would write would allow for subleasing/STR. More backstory - the property owner has been burned by a previous PM company and just wants steady, long-term monthly income. That's why this deal seems so good to me. It seems like there is a lot of flexibility here in my favor. Very unique situation from what it seems like. I actually got current revenue numbers from the current owner - Gross revenue from Jan-Aug 2023 is only $17k. Based off all the data I've seen, this property is WAY underperforming it seems like. So while it seems risky, it also seems like a huge opportunity if I can increase revenue. It's a beautiful property built in 2019.

You need to figure out why it is  underperforming. And what makes you think you can do better? Specifically.....

Everything sounds easy until you're actually doing it yourself..

[Bruce Woodruff]

Quote from @Mike ReitzBelow is what the Airdna data is telling me for this specific address. It seems like a no brainer to me, but I'm still unsure to pull the trigger because all of the nay-sayers out there lol.

 You keep mentioning AirDNA like it's 100% factual or something. Bear in mind that it's just a computer algorithm. If I were you I would be looking directly at the competition on VRBO and Airbnb sites. You need the real numbers on this not an algorithmic guess....

[Luka Milicevic]

Quote from @Bruce Woodruff:

Quote from @Mike ReitzBelow is what the Airdna data is telling me for this specific address. It seems like a no brainer to me, but I'm still unsure to pull the trigger because all of the nay-sayers out there lol.

 You keep mentioning AirDNA like it's 100% factual or something. Bear in mind that it's just a computer algorithm. If I were you I would be looking directly at the competition on VRBO and Airbnb sites. You need the real numbers on this not an algorithmic guess....

 I have found that AirDNA is WAY low on revenue. Just the pro formas they have generated compared with property managers running pro formas and Airbnb estimates. I've run their numbers on properties with actual historical data and it's still low on revenue. 

You're spot on about don't trust algorithms....

I mean I sold a house to Zillow based on their zestimate and boy did they pay me.

[Chad McMahan]

Quote from @Bruce Woodruff:

Quote from @Mike ReitzBelow is what the Airdna data is telling me for this specific address. It seems like a no brainer to me, but I'm still unsure to pull the trigger because all of the nay-sayers out there lol.

 You keep mentioning AirDNA like it's 100% factual or something. Bear in mind that it's just a computer algorithm. If I were you I would be looking directly at the competition on VRBO and Airbnb sites. You need the real numbers on this not an algorithmic guess....

Agreed. I actually created a podcast episode about how our clients (and my own properties) are getting 20%-60% more revenue than airdna projected, and states, even now.

It's financially very risky for investors to be depending on this data. Unfortunately, there is not a great website source, airdna or otherwise. I find that the only way to get more accurate data, is go directly to super savvy STR PM's and STR secialized agents.

Recently, I learned my new Sedona clients have been getting proformas from a lousy local PM that gets horrible revenue numbers on their rentals. Once I helped them understand that and connected them with a better PM and I started providing them with accurate data (from the STR PM, and from myself), it was a game changer for that client.

[Sarah Kensinger]

Airdna is the most reliable source for STR data, and with the new roll out they just did a couple weeks ago it catapulted them to another level! There are some "rules and guidelines" when the product is used, and someone that isn't aware of those could be pulling numbers that are off. There is a process to underwrite a STR, unfortunately many don't know how to underwrite or how to use the software to get approximate numbers for a property. Lastly for the most part Airdna pulls data just from Airbnb and VRBO. So, if you have a direct booking site, those bookings and revenue would not be counted which would lead to lower numbers on their software.

[Bruce Woodruff]

Quote from @Sarah Kensinger:

Airdna is the most reliable source for STR data, and with the new roll out they just did a couple weeks ago it catapulted them to another level! There are some "rules and guidelines" when the product is used, and someone that isn't aware of those could be pulling numbers that are off. There is a process to underwrite a STR, unfortunately many don't know how to underwrite or how to use the software to get approximate numbers for a property. Lastly for the most part Airdna pulls data just from Airbnb and VRBO. So, if you have a direct booking site, those bookings and revenue would not be counted which would lead to lower numbers on their software.

Air DNA is absolutely not the most reliable source for data. You keep missing the fact that it is only a computer algorithm, and as such is reliant on only whatever data is out there and how it is programmed to analyze it. There is no excuse for not going on sites oneself and checking the data real data with your own eyes. It is just too easy . Then use AirDNA as just another source for info.which is all it is.

[Teonia Riley]

Quote from @Chai Xiong:

If it was me, drop the arbitrage and just buy the asset.  Arbitrage folks had no assistance during covid, it was the folks who held assets.

 This one right here! Currently taking this advice because leasing the property holds no control in the long run for financial gain. Its cool momentarily if your looking to rack up some cashflow but after a while - BUY THAT PROPERTY. Renting it should be VERY short term. Leasing will only get you so far. PS. 3year Short Term Rental Experience - Started off Leasing thru Arbitrage.

[Chad McMahan]

Quote from @Bruce Woodruff:

Quote from @Sarah Kensinger:

Airdna is the most reliable source for STR data, and with the new roll out they just did a couple weeks ago it catapulted them to another level! There are some "rules and guidelines" when the product is used, and someone that isn't aware of those could be pulling numbers that are off. There is a process to underwrite a STR, unfortunately many don't know how to underwrite or how to use the software to get approximate numbers for a property. Lastly for the most part Airdna pulls data just from Airbnb and VRBO. So, if you have a direct booking site, those bookings and revenue would not be counted which would lead to lower numbers on their software.

Air DNA is absolutely not the most reliable source for data. You keep missing the fact that it is only a computer algorithm, and as such is reliant on only whatever data is out there and how it is programmed to analyze it. There is no excuse for not going on sites oneself and checking the data real data with your own eyes. It is just too easy . Then use AirDNA as just another source for info.which is all it is.

Nailed it, Bruce.
On one hand, I wish there was a great 1 stop shop for easy and highly accurate estimates for revenue, occupancy rates, etc. On the other hand, if it was really that easy, the STR business would no longer be profitable; The numbers would get much tighter and more competitive, and the 10%-20% of STR owners using successful STR strategies that are making good money would no longer be performing as well.

When I'm unsure about revenue (If a property is quirky), I spend significant time cross checking STR websites (airbnb, vrbo, and local STR PM websites) AND seasons AND comparable properties/areas to determine a tight revenue range, assuming little to no renovation, and then a revenue range if the home is effectively upgraded and beautified. For buyers that don't go through highly knowledgeable/experienced STR agents, they should do this for every property, if they want accurate data.