Airbnb Rental Arbitrage

61 Replies

My buddy and I are looking to get into rental arbitrage with Airbnb. I've heard a lot specifically about leasing properties through an LLC and then using it on Airbnb. I know you can do it but unsure how exactly to go about it. I think dealing with single family or even MF property owners would be a little easier as we can sell them on the idea in a sense but what about with the large apartment complexes. Were we live, downtown would be the best place however there are a lot of higher end apartments that I think would go really well on airbnb surrounding the city as well. Summer is coming up and we have two sports stadiums down town. Anyone have any experience with this? Theres a guy on youtube I've been watching who is apparently very successful doing the same thing but hes never gone exactly into the details on how to acquire properties from big developments. TIA!

Most long term leases have some clause that prohibit subleasing.  Be upront with the property owner and tell them what you plan on doing.  You might get shot down.  Move on to the next and try again.

Or do what I do.  Buy bank foreclosures in a distressed town with a big industry.  I rent my STRs to contractors.  The guys that work on the large erections of steel at a refinery.

@Asan Dixon - I run a rental arbitrage business in the SF Bay Area. @Paul Sandhu is right--pitch to your landlords' "pain points" and tell them exactly what you're doing. And look for landlords/property managers/HOAs who are open to sub-leasing. I have had very good results signing leases with mom & pop landlords. They love that I have a great credit score and offer free property maintenance and early rent auto-payment every month. After 15 months in this business, all of my new units are coming as referrals from the landlords who are my partners already. I also have friends who have built a whole rental arbitrage business based on a relationship with a single landlord who has multi-unit buildings. 

I have not had good luck trying to work with property managers. I recommend that you connect directly with building owners and build your business from there. Good luck!

@Asan Dixon I cant comment on the steps to take, but I will say that you need to have a solid plan to bring to property owners.

Since you've never done this before, you have no track record of success, which will make it difficult.

Make sure you are accounting for the slow times, and not just this coming summer, because if you sell property owners a bill of goods, and then cant come through, you'll be finished. Landlords will talk and you'll be the subject of a BP rant.... you'll have one shot at this, make sure you're prepared.

@Ethan Cooke

Up to what amount per month do you spend on property maintenance?

I just started my first rental arbitrage and offered to spend up to $300/ month on maintenance if needed, as well as $100/ month extra rent.  After the first month, I am projected to profit only $300 over the rent in April, and I have done all the cleanings myself, I’m thinking that offer was too high. Oh well!  My next one won’t be so generous!

@Asan Dixon

It’s better to talk to the owner of a single family home rather than trying to convince a property manager that you will manage the property for them.  You can talk to owners about the benefits that Ethan mentioned above about you providing free property management for them and early auto payments.  Emphasize how you will make their rental easier for them.

You might have heard of it already, but I will look for the YouTube channel I listened to a while ago about rental arbitrage, and send it to you.

Have you looked up rent rates in your area and Airbnb rates in that same area for the same sized house?  That’s a good place to start to see what the profit potential is.  AirDNA is a good website to use for pricing. 

@Cheryl Vargas Yeah I think that's going to be Our first course of action. Single family Will be Easier to target But the real challenge will be With The big Apartment buildings. we both have a background in sales and marketing So I know if we come to them With some main points about how it will benefit them, we should be able to make it work And it sounds like you have as well so There is some proof in the pudding !

Good luck with getting big apartment building managers to let you manage their properties. I’m a bit skeptical, but I’d like to hear how it goes for you.  What fees would you pay to them to take over management?

Also, are there other apartments in your area that are being rented out short term on Airbnb?  It would be good to see what rates other people are charging  

Here is a link for a good YouTube channel

https://youtu.be/OcsjWvaiMK8

@Asan Dixon

 What a great idea! 

This is literally one of the best business models for people who have no capital or experience in business or real estate. You can make 6+ figures in this business in the first 12-24 months is you really know what you're doing and you scale it properly. This might exactly what you should do but it also might not be for you, if you have any questions send me a message.

Check this out: https://www.biggerpockets.com/member-blogs/11961/8...

Good luck!

 @Cheryl Vargas ive seen him before. if im not mistaken he buys most of his properties right? Actually the guy i took inspiration from does it, I'm not sure if it's a management type thing How you were doing it I think what he does is open up an llc As a corporate apartment For employees.  Im still trying to figure it out and I actually plan on getting on a call with him. As far as i can tell it works, in one of hid videos he talks about how he got 8 units in the same complex. Think he said he has a million or two in rent every year and is scaling into new cities. Here is his youtube, he seems legit. I have no reason to doubt what hes saying just gotta figure out how he does it lol. https://www.youtube.com/watch?v=_xRoEXcVDow Check him out let me know what you think!

@Jason Allen Exactly! Thank you and i will! I see You're in Atlanta And I'm actually planning on going there next month for a few days, if you have any airbnbs let me know.

@Cheryl Vargas - I tell my landlord partners that I will fix anything that costs less than $200 and 2 hours of my time. So 90% of the time they don't have to get involved in repairs at all. I spend approximately 2 hours every 3 months doing repairs and/or maintenance on each property. I also find places where the landlord is asking below-market rent so I can offer another $100 or $150 per month if necessary to land the lease and still be below-market. (This is rarely necessary.) All of my landlords have renewed our leases because they love that they get free up-front property improvements (e.g. paint, new light fixtures, shelving, etc.), free minor repairs, free maintenance to keep the property nice for the corporate renters who stay there and early auto-payment on rent each month. Most landlords don't like dealing with maintenance issues, noise complaints and other headaches from tenants. As long as they can accept the idea of having professional business travelers staying in their property, it's a great value proposition for them!

@Jason Allen - What percentage of rental arbitragers make six figures of net profit a year after 1-2 years? What cities are they doing this in? Can you PM me with their contact info? This sounds like it might apply to the top 1% in the field, like a real estate agent who makes over $1 million in year 1.

I am part of a community of 200 rental arbitragers, and don't know anyone who has achieved six figures of annual profit in year 1 or year 2, including 2 mentors who are among the best and have been doing this for 5-10 years. I have noticed that my colleagues who run truly "passive" arbitrage businesses typically pay out 25-50% of their potential profits to Team Managers, Virtual Assistants, Property Managers, handymen, automated pricing and messaging tools, etc. Other folks truly "self-manage" their business and spend about 30 minutes to 3 hours per week managing each unit (depending mostly on average length of stay/turnover). It also costs $5K-$20K to launch each unit and typically takes 6-12 months to make back the start-up costs for a unit. Even the most successful arbitragers I know are spending $50K of start-up funds in year 1 to make $30K in profit (or $100K to make $80K) and are putting a lot of work into it.  (This is a combination of savings/loan start-up money plus initial profits).

I LOVE rental arbitrage and the opportunity we all have as hard-working entrepreneurs to build cash flow and scale a good business. But I also think it's important that folks looking to get into the business understand the work required and what typical returns look like.

Originally posted by:

@Ethan Cooke

@Jason Allen - What percentage of rental arbitragers make six figures of net profit a year after 1-2 years? What cities are they doing this in? Can you PM me with their contact info? This sounds like it might apply to the top 1% in the field, like a real estate agent who makes over $1 million in year 1.

I am part of a community of 200 rental arbitragers, and don't know anyone who has achieved six figures of annual profit in year 1 or year 2, including 2 mentors who are among the best and have been doing this for 5-10 years. I have noticed that my colleagues who run truly "passive" arbitrage businesses typically pay out 25-50% of their potential profits to Team Managers, Virtual Assistants, Property Managers, handymen, automated pricing and messaging tools, etc. Other folks truly "self-manage" their business and spend about 30 minutes to 3 hours per week managing each unit (depending mostly on average length of stay/turnover). It also costs $5K-$20K to launch each unit and typically takes 6-12 months to make back the start-up costs for a unit. Even the most successful arbitragers I know are spending $50K of start-up funds in year 1 to make $30K in profit (or $100K to make $80K) and are putting a lot of work into it.  (This is a combination of savings/loan start-up money plus initial profits).

Ethan,

I do not know what percentage of people have this level of success in Airbnb Arbitrage, however I know the average is far less because people don't have the right knowledge of how to do so. The folks I associate with do make this and much more in cities all across the United States and the world...

Though you may be in a community of people who have Airbnb businesses this does not mean that they are good at running their businesses. The number of people in a group has nothing to do with their success. This is why I never go to REIA meetings. Sure there are lots of people there with "businesses" but most of them are flat broke. You also mentioned years in the business which again does not equate to success. I know plenty of people who are 50-65 years old who have been in sales, entrepreneurship or just investing and they still have no money. It's all about having the right knowledge and then acting on it. The truth is most people don't have the right knowledge and they don't take the right actions to create success in their lives.

As for startup costs and automation. I don't know who on earth is spending 20K to get a unit up and running but they could seriously use a lesson in resourcefulness. I know how to get free furniture, free decor, cheap labor, and sometimes even free rent with a future net percentage sales agreement on future potential revenue with an escape clause. The problem is people have 50K in their bank and they throw it at their business thinking that it will make it more successful when in fact it's unnecessary. $5K would be the absolute maximum to get a property set up if it were a luxury class and needed everything top to bottom. 

As for automation costs those numbers you projected are extremely high. Again people probably read "The 4 Hour Work Week" and are spending a ton of their revenue hiring everything out and throwing money at people just so they don't have to do the work. Now if they took the time to set up effective standard operating procedures, learned leadership concepts, negotiation and had the right software they could easily automate their portfolio for around 15% on top of regular expenses. Here's a little secret... it's all about leverage and economic alignment which are private equity concepts. I guess I have an advantage being in that field. 

So, here's a good way to look at it. Years ago I used to to manual labor for 14 hours a day to earn an income. I worked very hard every day for 6 days a week doing that job. Now I work much less and make much more. I didn't have the right knowledge, mindset, attitude and engineered systems in place to be successful then. Remember... leverage and economic alignment, that's what it's all about. 

Good luck!

@Ethan Cooke Yeah man to be honest what your saying is completely contrary to what I’ve heard. I’ve whole saled properties and people don’t even spend 20k rehabbing units (at least not where I live) I don’t see how furnishing an apartment would be that much. 

I’m not sure if we’re talking about the exact same thing. The few people that I’ve heard talk about this day their start up cost are in the 5-10k to acquire a unit and furnish it. 

Obviously you guys have more experience than me so I’m not doubting you at all but that’s completely contrary to anything I’ve heard. So I’m curious on your insight or to see if we’re even talking about the same thing lol. 

@Asan Dixon - Thanks for asking. It depends what market you’re operating in and the size/rent of the unit, hence the range I mentioned of $5k-$20k start-up costs. In the Bay Area where I operate, $4k/mo for a 3BR/2BA is below market rent. So deposit and first month’s rent alone are $8k. Pet deposit is $500. Then if you need to paint, add light fixtures, new hardware, etc. to modernize an outdated place you’ll spend another $1k-$3k (depending on if you hire help or not). Furniture, kitchen wares, linens etc. to make the whole place “turn-key hotel room ready” will run you about $6K-$9k. So there’s a startup bill of $15k. I have also spent $20K on a 4/3 place that had 2 kitchens, and it’s my most profitable property.

If you surf Craigslist and eBay buying used furniture for a 3BR home (which I have done before), you might spend $3-$4K less and two weeks of extra time. So there is definitely a time vs. money equation. 

@Jason Allen - That’s awesome that you have a whole network of folks who have spent less than $5k setting up each unit including luxury units and making over $100k in annual net profit in the first 1-2 years. Can you please put me in touch with a few of them? Especially if you know anyone in the SF Bay Area. I am being genuine when I say I would love to gain the knowledge to do this. I enjoy being open and transparent with other entrepreneurs, and I’m always looking for actionable ways to be more successful. 

@Ethan Cooke So you primarily target sf owner or mf owners then? 

Do they always require a full rent deposit? For example the apartments I live in now had a deposit of about $400, although my rent is higher than most rents. I wonder if there is anyway to negotiate this. That would save so much money. I mean considering your offering to pay early and also keeping up with maintenance and small repairs and even updating then the deposit seems kind of unnecessary. 

Thanks for the insight though, sounds like your market is a little higher in general but I’d love to hear more. 

Do you do all of your work through Airbnb? 

@Asan Dixon - I work with owners of single-family homes, apartments and duplexes. A few of my units are in San Francisco and most are just south in San Mateo County. SF is tougher since there is a 30-day minimum rental. I focus on long-term rentals since they are much less work than STRs. My occupancy rate is 90-95% depending on the unit and the season.

Good idea about negotiating the rent deposit. I usually focus on negotiating terms for pets, parking spaces and number of guests allowed (usually 2 per bedroom +1 who can stay on a sofa bed in the living room). Most of the landlords I work with really like the security of the deposit, and I’m happy to pay it since they are flexible with the terms I am looking for. 

About 70% of my bookings come from AirBnB which is very popular for folks coming to the Bay Area. Also 15% are repeat customers (long-term corporate renters), and about 15% long-term bookings through Zillow, Trulia, HotPads and Craigslist. 

Yes the Bay Area is an expensive market. But in some ways I like this since the dollar profitability per unit is higher than many other places. For example you can profit $1000/mo for a long-term furnished rental requiring very little work after the set-up period, or $2500/mo for doing short-term rentals if you are willing to manage all the marketing, pricing, communications and guest turnover. As you mentioned, the trade-off in the Bay Area is higher start-up costs.

Let me know if you have other questions or want to jump on a quick call. Happy to help if I can. Thanks!

@Asan Dixon @Jason Allen

What @Ethan Cooke is doing is perfectly managed to his market. 

What I do is perfectly managed to my market.  

If Ethan or I tried to run our business plan in the other persons market, it would fail.  

I buy bank foreclosures, furnish them from estate auctions, then rent them to refinery contractors.

Ethan has a completely different strategy.

You two numbskulls need to come up with your own strategy for your own market.   Don't try to copy someone else's strategy.  I have tits and asses on the walls of every bedroom with no complaints.  Would that work with your clientele?


@Ethan Cooke

@Jason Allen - That’s awesome that you have a whole network of folks who have spent less than $5k setting up each unit including luxury units and making over $100k in annual net profit in the first 1-2 years. Can you please put me in touch with a few of them? Especially if you know anyone in the SF Bay Area. I am being genuine when I say I would love to gain the knowledge to do this. I enjoy being open and transparent with other entrepreneurs, and I’m always looking for actionable ways to be more successful. 

I can ask if someone would be willing to talk with you but most of them don't teach it or anything so I can't promise they will get around to it. I however am willing to answer some more questions if you want to PM me. 

Most aren't luxury units, most are regular apartments, single family homes, lofts, villas, studios, etc. Some are luxury if the financials make sense. 

I personally don't know anyone in the SF Bay Area. I will say however that area is one of the most expensive and restrictive areas in the entire United States which may be why this seems impossible. I operate in the South East U.S. which is growing and cheap compared to CA. If you want to do what I've been talking about you may want to expand your business to TX, AZ, NV which are great markets close by. 

Thanks!

@Asan Dixon @Ethan Cooke @Jason D. @Cheryl Vargas    Currently I own and manage  a number of short term rentals in and and around the Orlando Tampa, St Pete  & Sarasota Fl markets. From Studios, 1 Bedroom 1 bath to 2 Bedroom 2 bath. I am Cash flowing  double to triple a standard lease or what I would make with a standard rental.

I built a process to manage and turn the rooms while maintaining Super Host status. 

Depending on unit size to furnish , decorate and prep for STVR units will cost between $1500 to $3500.. ( including used or economical appliances, furniture, linens , towels , etc..) Since I own the property I also include outdoor furniture and for beach properties beach chairs etc.. 

As I am in the process of acquiring additional properties I would WELCOME and Encourage people on this forum and elsewhere to rent first ( if possible )  - and as an owner who already runs STVR  -- I would be happy to rent a unit to you before you spend hundreds of thousands of dollars on  a home or an Apt -  Walk before you Run.

You can self manage and furnish your units or I can include everything needed and even manage the units for you , My listings  are close to  75 % occupancy rate, which as per AirBnb  stats is very good.  

The units I purchased took about 30-75 days to update and get online.. Consider you likely will need to paint , update bathrooms and kitchens , decorate -- aside from any fundamental repairs that may have been required. Consider even gathering Beds, Sofas, Chairs, Dinning table , Utensils , Appliances, Linen, Toiletries , Towels , Decorations  etc,,  wether ordering online , finding them locally or on Craigslist  it still takes time ( weeks ) to setup and stage before you can even shoot the pictures..

 Some people may consider that a lot of fun ,,which it certainly can be ,, But if you prefer a turnkey rental that can start earning you money within the first 2-3 days ,, message me ..  

For general questions I would be happy reply to any questions  in this posting  ..

Keith 

Originally posted by @Keith C. :

@Asan Dixon @Ethan Cooke @Jason D. @Cheryl Vargas    Currently I own and manage  a number of short term rentals in and and around the Orlando Tampa, St Pete  & Sarasota Fl markets. From Studios, 1 Bedroom 1 bath to 2 Bedroom 2 bath. I am Cash flowing  double to triple a standard lease or what I would make with a standard rental.

I built a process to manage and turn the rooms while maintaining Super Host status. 

Depending on unit size to furnish , decorate and prep for STVR units will cost between $1500 to $3500.. ( including used or economical appliances, furniture, linens , towels , etc..) Since I own the property I also include outdoor furniture and for beach properties beach chairs etc.. 

As I am in the process of acquiring additional properties I would WELCOME and Encourage people on this forum and elsewhere to rent first ( if possible )  - and as an owner who already runs STVR  -- I would be happy to rent a unit to you before you spend hundreds of thousands of dollars on  a home or an Apt -  Walk before you Run.

You can self manage and furnish your units or I can include everything needed and even manage the units for you , My listings  are close to  75 % occupancy rate, which as per AirBnb  stats is very good.  

The units I purchased took about 30-75 days to update and get online.. Consider you likely will need to paint , update bathrooms and kitchens , decorate -- aside from any fundamental repairs that may have been required. Consider even gathering Beds, Sofas, Chairs, Dinning table , Utensils , Appliances, Linen, Toiletries , Towels , Decorations  etc,,  wether ordering online , finding them locally or on Craigslist  it still takes time ( weeks ) to setup and stage before you can even shoot the pictures..

 Some people may consider that a lot of fun ,,which it certainly can be ,, But if you prefer a turnkey rental that can start earning you money within the first 2-3 days ,, message me ..  

For general questions I would be happy reply to any questions  in this posting  ..

Keith 

1) This pitch belongs in the marketplace, you cant advertise your business in the forums. This post will likely be removed.

2) What are you advertising? A place to rent or someone to manage?

3) No thanks, I'm not interested.

@Jason D.    based on your response to @Asan Dixon   you were negative and demeaning - you sound like the grinch that stole " rental arbitrage " which was brought up a number  times on BP. You commented and I quote " you'll be the subject of a BP rant.... you'll have one shot at this, make sure you're prepared."   Sounds pretty negative and nasty  ,, I on the other-hand  was positive , upbeat while  offering solid advice and a solution that they were exactly looking for .  Wishing you safe travels wherever you go .. 

Originally posted by @Keith C. :

@Jason D.   based on your response to @Asan Dixon   you were negative and demeaning - you sound like the grinch that stole " rental arbitrage " which was brought up a number  times on BP. You commented and I quote " you'll be the subject of a BP rant.... you'll have one shot at this, make sure you're prepared."   Sounds pretty negative and nasty  ,, I on the other-hand  was positive , upbeat while  offering solid advice and a solution that they were exactly looking for .  Wishing you safe travels wherever you go .. 

Not negative, realistic. No where did I say he couldnt do it, or it cant be done. I say to be prepared and have a plan. Know what you're getting into or it can turn bad. Theres no room for rose colored glasses in this business, you need to be prepared. 

I didn't see any advice in your comment, just some sales pitch

@Jason D.

I thought that @Keith C. was being helpful with this comment “Depending on unit size to furnish , decorate and prep for STVR units will cost between $1500 to $3500.. ( including used or economical appliances, furniture, linens , towels , etc..) Since I own the property I also include outdoor furniture and for beach properties beach chairs etc..”

I also found the 30-75 days time frame to get a rental ready was good to know. 

"Depending on unit size to furnish , decorate and prep for STVR units will cost between $1500 to $3500"

This is complete fantasy. Among other things, good guests are not looking for a goodwill bachelor pad