Short Term Rentals (Airbnb) Buying vs Arbitrage

[Palmie Fernandez]

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?

[Joe Kim]

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.