Rental Arbitrage Proposal

Rental Arbitrage Proposal

Member since 2019 · 29 posts · 22 votes

My partner and I are just about ready to get into Airbnb through rental arbitrage. 
Does anyone have a script they use when talking to land lords?  Or can give pointers/ideas on what to say?

My main selling points I have in my head right now are as follows;

Property always in ready to sell condition, as it is in our best interest anyway.
Willingness to follow special rules or guidelines they may want to put in place to keep their other residences happy.
Willing to sign an extended lease.
Willing to pay a small premium on top of rent to increase their cash flow. (although this will be a card I keep in my pocket initially)

In my market we have to get insurance and be self certify that we are up to code and these are things I would bring up as well, but are there any major selling points you guys have used to secure properties, especially starting out?

We want to get into apartment buildings which are professionally managed as well, and I have a general understanding of how to do it, but is it the same process? Do we just ask the property managers if its something they will be willing to do and show our income, etc.? Or is there more to it?

Thanks in advance!

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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
7y

Buy your own properties to rent STR. If you rent someone elses property you have no control and they can take them back after you have spent time, effort and money getting them up and running. You are also paying down the principal on properties that you don't own.

Maybe find people to owner finance properties if you can't get a bank loan.

See this reply in the discussion

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  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    7y

    Buy your own properties to rent STR. If you rent someone elses property you have no control and they can take them back after you have spent time, effort and money getting them up and running. You are also paying down the principal on properties that you don't own.

    Maybe find people to owner finance properties if you can't get a bank loan.

  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    7y

    I have to agree with @John Underwood. Just imagine working hard to make it successful only to have the owner take it back and do it themselves. Too risky IMHO.

  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    7y

    Yes. What @John Underwood said. What you’re looking to do is a dead end job. Most of the regulars on this forum will agree with John and I. 

  • Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    7y

    What the above 3 posters say ^.

    I'm sure @Ken Latchers will have something similar to say.

  • Flipper · Huntington Beach, CA · Member since 2016 · 83 posts · 40 votes
    7y

    Also most cities are enacting regulation that specifically stop rental arbitrage, most of the regs that cities are passing are ones that dont allow you to STR properties that aren't your primary residence. So if you are thinking if doing it, which i dont suggest doing then keep in mind where the regs are going for your place of operation.

  • Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @John Underwood @Michael Baum @Luke Carl @Paul Sandhu are correct.  

    Also, PMs are not going to let you do this, don't even waste your time.  

  • Jason BottPro Member
    Insurance Agent · Nationwide · Member since 2014 · 2k+ posts · 1k+ votes
    7y
    Originally posted by @Asan Dixon:

    My partner and I are just about ready to get into Airbnb through rental arbitrage. 
    Does anyone have a script they use when talking to land lords?  Or can give pointers/ideas on what to say?

    My main selling points I have in my head right now are as follows;

    Property always in ready to sell condition, as it is in our best interest anyway.
    Willingness to follow special rules or guidelines they may want to put in place to keep their other residences happy.
    Willing to sign an extended lease.
    Willing to pay a small premium on top of rent to increase their cash flow. (although this will be a card I keep in my pocket initially)

    In my market we have to get insurance and be self certify that we are up to code and these are things I would bring up as well, but are there any major selling points you guys have used to secure properties, especially starting out?

    We want to get into apartment buildings which are professionally managed as well, and I have a general understanding of how to do it, but is it the same process? Do we just ask the property managers if its something they will be willing to do and show our income, etc.? Or is there more to it?

    Thanks in advance!

     Please keep in mind most insurance policies do not offer coverage for Airbnb.  Each landlord would need to  adjust their insurance policy to be properly covered, which is easier said than done.  

    These policies would be above average in cost.

  • Luke CarlPro Member
    Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votes
    7y

    The word “partner” also worries me in this scenario. It just sounds like 2 people with no experience and no money. Which is GREAT! There are ways to get experience and money. This is not one of them.

  • Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    7y

    I wonder what this guy will have to say....

  • Member since 2019 · 29 posts · 22 votes
    7y

    @Lucas Carl why would you assume that?

  • Member since 2019 · 29 posts · 22 votes
    7y

    @John Underwood I understand that. It’s a trade off. Even if I did own property I wouldn’t be able to use every unit on Airbnb. We do have regulation regarding that. That also limits my ability to get units in specific areas unless I have quite a bit of money for down payments and that doesn’t include furnishing.

    I do see the pros of owning the property but arbitrage seems like a good way to go as well. They can back out and I’ve heard of people getting kicked out. However, I’d rather lose a unit than default on a loan.

    This also provides a service to the property owner, I’m filling space in their portfolio and almost guaranties them rent and that I’m taking care of their property.

    Another way people do this is through Airbnb management, the owner sets up the Airbnb, I just get paid a large percentage to manage the unit.

  • Member since 2019 · 29 posts · 22 votes
    7y

    @Michael Baum A risk, yes. But there are also benefits to it.

  • Member since 2019 · 29 posts · 22 votes
    7y

    @Jake Miller regulations are fairly lose in my market. I wouldn’t be asking questions if didn’t research everything I could possibly know. Especially regulations.

  • Member since 2019 · 29 posts · 22 votes
    7y

    @Julie McCoy so how are people doing it then? Are they lying?

  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    7y
    Originally posted by @Paul Sandhu:

    I wonder what this guy will have to say....

     That is hilarious!

  • Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    7y
    Originally posted by @Asan Dixon:

    @Jake Miller regulations are fairly lose in my market.

    There is some irony in that sentence.  Lose instead of loose.

  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    7y

    Hey @Asan Dixon. You are your own person and have to decide for yourself. It sounds like you are ready to move forward.

    Most of us here don't think arbitrage is the way to go, and there is a wealth of experience here. I assume that is why you asked, to take advantage of the people who are doing it and succeeding. I would love to read some success stories in the arbitrage area, but the only ones I have heard are those who are sub-letting LTR just to keep the lease active.

    If you can make it work, then more power to ya.

  • Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    7y
    Originally posted by @Asan Dixon:

    @Julie McCoy so how are people doing it then? Are they lying?

     You'd have to ask them, but in all likelihood they've either developed relationships with independent landlords, or they're doing it on the sly in big developments.  

    If you can find a PM willing to even discuss the matter, more power to you, but don't hold your breath. Most standard leases forbid commercial use, which STR activity is generally considered, and they have to protect their client's best interests. If they changed a lease for you and didn't clear it with their client, and the client found out, they could lose their contract.

  • Member since 2019 · 29 posts · 22 votes
    7y
    Originally posted by @Julie McCoy:
    Originally posted by @Asan Dixon:

    @Julie McCoy so how are people doing it then? Are they lying?

     You'd have to ask them, but in all likelihood they've either developed relationships with independent landlords, or they're doing it on the sly in big developments.  

    If you can find a PM willing to even discuss the matter, more power to you, but don't hold your breath. Most standard leases forbid commercial use, which STR activity is generally considered, and they have to protect their client's best interests. If they changed a lease for you and didn't clear it with their client, and the client found out, they could lose their contract.

    That makes sense. Im not looking to do anything slyly or under the nose of anyone nor do I think I can. I think i would have to be up front and it wouldn't be a residential lease it would be a corporate lease under our LLC. I would imagine id be under the chopping block at most times, meaning if someone is staying and throws a party or disturbs neighbors I could be kicked out. However, I think I would acknowledge that in the inital conversations and do what I had to to thwart that from happening as much as I could.

  • Real Estate Agent · Sevierville, TN · Member since 2015 · 1k+ posts · 1k+ votes
    7y

    @Asan Dixon Or you find people like in this thread: https://www.biggerpockets.com/forums/530/topics/72...

    The opportunities exist, whether they're worth taking is a different question.

  • Member since 2019 · 29 posts · 22 votes
    7y
    Originally posted by @Michael Baum:

    Hey @Asan Dixon. You are your own person and have to decide for yourself. It sounds like you are ready to move forward.

    Most of us here don't think arbitrage is the way to go, and there is a wealth of experience here. I assume that is why you asked, to take advantage of the people who are doing it and succeeding. I would love to read some success stories in the arbitrage area, but the only ones I have heard are those who are sub-letting LTR just to keep the lease active.

    If you can make it work, then more power to ya.

     You should definitely look into it! Just type in rental arbitrage on youtube. Airbnb Automated has a wealth of information. Its definitely not as long term as OWNING rentals but it can be a tool to get there. Im not sure if you guys have only heard the perspective of other owners whove had bad experiences with tenants subletting, which as far as i know is a no no, but I read about success quite often and a lot of that success comes from having relationships and transparency with owners.

  • Member since 2019 · 29 posts · 22 votes
    7y
    Originally posted by @Paul Sandhu:
    Originally posted by @Asan Dixon:

    @Jake Miller regulations are fairly lose in my market.

    There is some irony in that sentence.  Lose instead of loose.

     Ha! Loose*

  • Member since 2019 · 29 posts · 22 votes
    7y
    Originally posted by @John Underwood:
    Originally posted by @Paul Sandhu:

    I wonder what this guy will have to say....

     That is hilarious!

     I mean to be honest that has been my experience with the two posts ive made! Lol, but I respect the opinions of veterans and look at it as advice instead of discouragement. Even if I dont agree with whats being said there is sure to be some valuable information I can pull from it. Also, getting the perspective from the other side is a plus.

  • Member since 2019 · 29 posts · 22 votes
    7y
    Originally posted by @Julie McCoy:

    @Asan Dixon Or you find people like in this thread: https://www.biggerpockets.com/forums/530/topics/72...

    The opportunities exist, whether they're worth taking is a different question.

     Wow that's perfect. To bad I'm not in that market. I was wondering if there are people out there like that, but id imagine its few and far between and wouldnt want that to be my only source of acquisition. 

  • Northern California · Member since 2019 · 32 posts · 18 votes
    7y

    I think you may be better off discussing this in an entrepreneur forum.  It can be argued that investors are entrepreneurs but I would make a distinction in this case.

    You came here asking for assistance with establishing supply for a business proposition.  You got responses recommending you be an investor instead.  I have high respect for the success held by the people responding, but matters of partnership or ownership of property are rather irrelevant to your inquiry.

    I would recommend that you start by thinking like a landlord and establishing a list of objections they might have.  Then consider how you might overcome the objections (this is just a practice in sales).  By doing this instead of making a script you create footholds in an organic conversation so when the question comes up, you are prepared and calm about it.  Avoiding a script will also make you a better listener.  Consider studying Chris Voss.

    To tether into the responses on this thread, you might consider taking several precautions before starting to talk to landlords.  Heavy research in regulation and competitive analysis is strongly recommended.  I would also put a spreadsheet together with an honest representation of your initial costs to start this business.  If you already hold a full time job, consider if it is flexible enough to give you a reasonable chance of getting this thing off the ground.

    You're risk tolerance is likely different than mine or anyone else's on the thread.  I've worked myself into a lucrative career by taking monetary risks that guaranteed personal development.  If you can weather the worst of this business model, you can come out the other side with a strong understanding of short term rentals, stronger interpersonal skills, and regional mastery of the real estate market.  When offering advice, it is wise to discourage partnerships by default.  That being said, there are many many successful partnerships in the world.  You will come out of this experience better able to vet partners in the future.

    If you can afford the furniture and other start up costs, consider what it would take to handle a down payment on top of it.  But if you are looking for a job and prepared for the risks, I say take action if you can manage the worst case scenario.

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