Short Term Rentals (Airbnb) Buying vs Arbitrage
Queens, NY · Member since 2019 · 2 posts · 0 votes
Hello Everyone -here from NYC - My husband and I are considering the short term rental / vacation market as our new real estate venture after he retires (1-3 years from now).
In the meantime, we have our sights on a couple places - Tampa and Myrtle Beach, where we are considering relocating to.
however, I would like to get my feet wet and get started now on the arbitrage route, renting out apartments near by me in NYC to sublet via Airbnb/VRBO platforms.
Our plan is to become “Snowbirds” and keep a footprint in NYC, and we are also considering Airbnbing our current 3B/2B home when retirement comes. But with all the laws and taxes we’re not sure if that will be worth it.
Airbnb arbitrage vs Not? Does anyone in the short term rental market have any words of wisdom regarding the pros or cons of arbitrage vs rental of their actual/owned property in the NYC area? Or should we just scrap the whole NYC idea and get started on the South?
I have done both rental arbitrage and converted properties I own to STR.
I did arbitrage near where I live in California which was great for learning because I did everything myself. It helped to learn the skills I needed to then apply those skills/experiences to do STR in my properties I own thousands of miles away.
So I have 3 rental arbitrages and 3 owned homes.
If I had a choice, I would ONLY do STR on homes I own. Why? Better control, less headaches.
Why does rental arbitrage work? What are the pros?
#1 Better way to scale. You don't need a lot of money upfront. This is especially the case in places like California where the real estate is expensive. a $800,000 2 bedroom/2bath home will rent for $3000/month. You need $160,000 downpayment to buy the home plus startup costs(furniture). If you do arbitrage you need $3000 rent + deposit ($3000+) plus startup costs. compare $160,000 downpayment vs. $6000 (1st month rent+ deposit)
Other than that the biggest drawback is lack of control and risks
I've been doing arbitrage for 1.5 years now and so far I have shutdown TWO arbitrages
#1 HOA rules shut my first condo after 1 year. I made very good money ($3000/month positive cash flow) but no longer go operate and so I moved out.
#2 Shutdown my original rental arbitrage after 1.5 years. I made very good money ($3000/month positive cash flow!). A neighbor reported the home to city. The city had no regulations again Airbnb/STR. But they used old existing laws to say anything less than 30day rental is illegal. I tried to move towards the 30day rentals but found it too difficult and too much work. I work a full-time job so I don't have the time resources to do more of my own marketing outside of airbnb/VRBO. It takes time to adjust.
It depends on your current situation. Do you own homes that would work well for STR? Do you want to start in your own neighborhood but home prices are too high but still profitable for STR with arbitrage- then go for it. But I would not do too many arbitrage before you get a good handle on it.
@Luke Carl We've got another Arbitrage post.
Check recent posts on this exact topic.
I started a reasons I don't like Arbitrage thread several weeks ago. Read it carefully and the other Arbitrage threads here. For new person, I considered extremely terribly rotten idea.
Beware of those who paint it as easy and "works for them. "
thanks guys - i researched the nyc laws on these and will definitely look over your info, i'm obsessing in search of a loophole lol, i need a piece of the big apple pie, i'll keep you upto date. ;)
If you have read the recent Arbitrage threads, you obviously saw pros and cons. The problem is, people new to short-term rentals do not grasp all the various problems that can crop up.
Some have moved on to co-hosting instead, but again the problem is why should someone trust somebody else without experience to manage their own property?
The best path forward is it become very familiar with what is involved in short term rental, regulations, expenses, taxes, Etc.
Standard Arbitrage Theory is a very good way to get in over your head
The problems with the pro Arbitrage crowd here, is that some are lenders or agents or are in a market that might work better or not, and do not have the interests of newbies in mind.
I have done both rental arbitrage and converted properties I own to STR.
I did arbitrage near where I live in California which was great for learning because I did everything myself. It helped to learn the skills I needed to then apply those skills/experiences to do STR in my properties I own thousands of miles away.
So I have 3 rental arbitrages and 3 owned homes.
If I had a choice, I would ONLY do STR on homes I own. Why? Better control, less headaches.
Why does rental arbitrage work? What are the pros?
#1 Better way to scale. You don't need a lot of money upfront. This is especially the case in places like California where the real estate is expensive. a $800,000 2 bedroom/2bath home will rent for $3000/month. You need $160,000 downpayment to buy the home plus startup costs(furniture). If you do arbitrage you need $3000 rent + deposit ($3000+) plus startup costs. compare $160,000 downpayment vs. $6000 (1st month rent+ deposit)
Other than that the biggest drawback is lack of control and risks
I've been doing arbitrage for 1.5 years now and so far I have shutdown TWO arbitrages
#1 HOA rules shut my first condo after 1 year. I made very good money ($3000/month positive cash flow) but no longer go operate and so I moved out.
#2 Shutdown my original rental arbitrage after 1.5 years. I made very good money ($3000/month positive cash flow!). A neighbor reported the home to city. The city had no regulations again Airbnb/STR. But they used old existing laws to say anything less than 30day rental is illegal. I tried to move towards the 30day rentals but found it too difficult and too much work. I work a full-time job so I don't have the time resources to do more of my own marketing outside of airbnb/VRBO. It takes time to adjust.
It depends on your current situation. Do you own homes that would work well for STR? Do you want to start in your own neighborhood but home prices are too high but still profitable for STR with arbitrage- then go for it. But I would not do too many arbitrage before you get a good handle on it.
Well spoken. I have a different definition of Arbitrage. In real estate buying, people try to use other people's money such as a bank loan.
I consider buying a short-term rental property on the bank's dime as arbitrage.
My Arbitrage is the difference on purchasing a rental between renting out long-term vs renting out short-term.
In my Arbitrage, I get 100% of the benefit of management and other activity. I get 100% of the price of appreciation. I get all of the improvements I made rather than giving them to a landlord. I get all the equity payoff which in 15 years means I own the property. I don't have to deal with a landlord who change his/her mind or other things like that. And most landlords expect rent increases annually. My mortgage is fixed.
so if I buy a $200,000 property and pay it off in 15 years, and it appreciates $100,000, I am making $20,000 a year just in equity in addition to my rent.
Don't limit yourself to just one market. I know a guy that does STRs to refinery contractors. He lives in a hellhole refinery town, a decent bank foreclosed property sells between $6 and $10 a square foot. You know it's a decent house because a bank gave someone a loan on it, using the house as collateral. You can make your purchase price back in gross rent within 12 months.
You just have to put up with crooks, con artists, manipulators, the occasional prostitute, overdoses, break ins, riff raff, dead bodies, and every now and then the psychotic mutt renter.