San Diego Short Term Rental Arbitrage

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San Diego Short Term Rental Arbitrage

Andrew Ratterman
Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote

Hi I am looking to start a new business in San Diego doing Airbnb rental arbitrage. Is anybody in San Diego doing it? I am looking to set up an LLC and get started right away. Is there special laws I need to be aware of? Any advice would be very much appreciated. I also need to find funding from a private lender.

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Justin Ellis
Property Manager · Scottsdale, AZ · Member since 2015 · 113 posts · 77 votes
7y

@Andrew Ratterman nothing wrong with arbitrage, you won't just find inexperienced LL to lease to you, I lease all my properties from very experienced owners. Explain to them that their property is an Asset to you and to a standard renter it's a Liability. Explain you'll have eyes on the place about 1-2 times a week and have it cleaned top to bottom. Don't listen when people who have never done what you are trying to do tell you it won't work, especially @Ken Latchers, he never has anything positive or productive to say and talks as if he knows all, but truth is he's just a sad old guy that pleasures himself to the though of bashing people in online forums (it's sad really).

I would however beware of the changing regulatory climate in that market. If you do your research and you still decide to move forward, I would put an addendum in the lease that "should the regulations change, you can get out within 90 days" or something like that. If they refuse, on to the next one.

Good luck, go get em!

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

    Read the post on here why most everyone advises against arbitrage.

    1Reply
  • Kathy FettkePro Member
    Rental Property Investor · Los Angeles, CA · Member since 2014 · 104 posts · 180 votes
    7y

    I have close friends who Airbnb in Encinitas. They actually made quite a lot of money. But laws are getting stricter. In LA, you can only Airbnb rooms in a house you live in. Be sure the property makes sense as a longterm or 30 day rental in case you can't do short-term.

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    4Reply
  • Trevor Smith
    Real Estate Broker · Carlsbad, CA · Member since 2017 · 5 posts · 1 vote
    7y

    Hi there,

    With the new CA rent limit laws, we are considering taking some units out of long term and converting to short term.  Business licenses, permits, and insurance will all need to be updated and verified.

    Cheers

    Trevor

    1Reply
  • Thomas Jackson
    Specialist · San Diego, CA · Member since 2019 · 86 posts · 56 votes
    7y

    @Andrew Ratterman with the changing laws, sounds like a bad business for me. I guess it’s very low overhead so you can probably make some money doing it, but probably not a long term thing. I’d go for buy/holds in the midwest!!!!! Cash flow is King!

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    7y
    Hi. I am new to this, and I've absolutely no idea what I'm doing.. so I'm going to get started right away with both feet and I hear some other people try to scale as rapidly as possible.

    is there anything wrong with this absolutely insane plan?

    Originally posted by @Andrew Ratterman:

    Hi I am looking to start a new business in San Diego doing Airbnb arbitrage...

    I am looking to set up an LLC and get started right away...

    0Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y

    Most experience landlords’ lease prohibit subleasing.  Our lease calls for financial penalty and it being cause for eviction. 

    I suspect you can find some inexperienced LL that do not explicitly prohibit subleasing.  

    Then you have to be concerned about lease duration in the event of anti STR regulation. You would not want to cover the rent for the duration of a LL finding a new tenant in the event that STRs are prohibited.

    Also STRs are significantly more work than LTRs. We use professional PM for our duplex STR.

    There is a lot of risks in your plan.  

    0Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    @Dan

    Why do you think the only an inexperienced land lord would want to work with a Long Term Renter who's business is subleasing that specific apartment?

    You're right, it would totally suck if I was stuck with the lease if a new anti STR regulation came into play... I'm obviously betting against that.

    0Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    above was @Dan Heuschele

    0Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    @Thomas Jackson Hows it going in the midwest?   

    0Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    @John Underwood I looked for it and couldn't find it... Any chance you could send a link when you get a minute?

    0Reply
  • Justin Ellis
    Property Manager · Scottsdale, AZ · Member since 2015 · 113 posts · 77 votes
    7y

    @Andrew Ratterman nothing wrong with arbitrage, you won't just find inexperienced LL to lease to you, I lease all my properties from very experienced owners. Explain to them that their property is an Asset to you and to a standard renter it's a Liability. Explain you'll have eyes on the place about 1-2 times a week and have it cleaned top to bottom. Don't listen when people who have never done what you are trying to do tell you it won't work, especially @Ken Latchers, he never has anything positive or productive to say and talks as if he knows all, but truth is he's just a sad old guy that pleasures himself to the though of bashing people in online forums (it's sad really).

    I would however beware of the changing regulatory climate in that market. If you do your research and you still decide to move forward, I would put an addendum in the lease that "should the regulations change, you can get out within 90 days" or something like that. If they refuse, on to the next one.

    Good luck, go get em!

    4Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    7y

    "nothing wrong with arbitrage,"

    the advice of the clueless is enough of a retort

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    7y

    @Andrew Ratterman it’s highly doubtful that you’ll find funding from a private lender. Private lenders lend on hard assets, like real property, sometimes receivables, and rarely inventory. These are asset based loans.

    In the rental arbitrage business your only hard assets will be furnishings, which because of the nature of transferability and depreciation is a very unattractive asset to lend on.

    Angel investors will provide capital to businesses for equity in the business. Unfortunately your business idea wouldn’t be attractive to any angel investor because the idea isn’t unique, doesn’t have potential to scale, the business would be too small, the returns too meager, and you have no experience.

    What your left with is a personal loan based on your credit and income. I assume this is not a possibility as per your mention of needing a private lender.

    This above doesn't even address the issue of the viability of arbitrage STR. I have no opinion on that since I am not an expert in that field, so I leave that to others. However, quite frankly I don't see how you'd be able to create this business without initial capital for (1) rent deposit and first and last months rent (2) furniture and furnishings (3) licenses (4) working capital / capital reserves. Additionally, any landlord considering leasing their property to you would want to see a moderately strong and somewhat liquid personal financial statement. From the general drift of your post I fear that may not be your situation. To further the difficulties you can not point to any experience or success in this field when questioned by a potential landlord. Many people want to start a business. It takes experience/expertise, capital and credit/borrowing capacity. You need at least two of the three.

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    1Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    7y

    It's like leasing a car and finding 2 people to drive it for 12 hour shifts as an uber lift.  Maybe it'll work.  Maybe the company leasing the car to you sees what's going on.  Then cuts you out of the picture and leases the car directly to the people doing the driving.

    You'd be better off buying a property and then doing a STR with it. But make sure the property will work as a LTR if things change in the STR climate.

    Or find some crappy town with a lot of bank foreclosures that has a large industry.  I know one guy kicking it with 23 STRs in a small town with a refinery.  He can buy a house for $10k and rent it out for $600/week to refinery contractors.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    7y

    Hi Andrew. I think you get the gist of most our opinions.

    If you had 25 LTRs and was thinking of testing the waters, I think that would be an acceptable risk seeing as you had a lot of experience and cash reserves.

    As a first investment, I personally see that as a way to lose everything you put into it and more if laws change.

    I don’t think California is considered to be a landlord friendly state so be prepared to have the rug yanked out from underneath you. It seems any time someone tries to get ahead there they pass a law making it next to impossible to succeed.

    0Reply
  • Michael BaumPro Member
    Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
    7y

    I think you are in for a rough road...

    https://www.sandiegouniontribu...

    0Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    @John Underwood

    0Reply
  • Bruce May
    Lender · San Diego, CA · Member since 2011 · 664 posts · 231 votes
    7y

    I have an acquaintance doing it in San Diego. She currently has 7 of them and clears about $2k each month on each one. She's upfront with the owner, pays above their asking rent and covers all maintenance items up to $500/mo. She uses a VA for bookings, and has everything automated once the unit is set up. I don't know her exit plan should the STR laws change.

    2Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    @Bruce May 🙏🙏🙏

    0Reply
  • Andrew Ratterman
    OP
    Rental Property Investor · San Diego, CA · Member since 2019 · 10 posts · 1 vote
    7y

    @Trevor Smith 👍👍👍

    0Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    7y
    Which is why some of us pour cold water on the Arbitrage theory. Everything has to go right and when it doesn't you can be in enormous trouble.

    Originally posted by @Bruce May:

    I have an acquaintance doing it in San Diego. She currently has 7 of them and clears about $2k each month on each one. She's upfront with the owner, pays above their asking rent and covers all maintenance items up to $500/mo. She uses a VA for bookings, and has everything automated once the unit is set up. I don't know her exit plan should the STR laws change.

    0Reply
  • Tanner Marsey
    Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
    7y

    Is it for me? Not at all.

    Is it doable.... 100%. Especially in coastal San Diego county. Find a mom and pop landlord. Explain what you’re wanting to do. Pay above asking on monthly rent/security deposit. Be ready to fork over money for maintenance. Have your PM or whatever you’re going to use to manage lined up and ready to go if the landlord wants to vet them. You need to make it attractive and worth it for the landlord. Explain why it’s beneficial to them. And like someone else said.... that short/early exit clause is a great idea. But honestly..... laws like this usually don’t change over night so it probably won’t be a huge issue when it arises.... and it will arise eventually....

    1Reply
  • Dan H.Pro Member
    Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
    7y
    Originally posted by @Andrew Ratterman:

    @Dan

    Why do you think the only an inexperienced land lord would want to work with a Long Term Renter who's business is subleasing that specific apartment?

    You're right, it would totally suck if I was stuck with the lease if a new anti STR regulation came into play... I'm obviously betting against that.

    As you may be aware, we have both STR and LTR in San Diego county.

    Why would an experienced LL choose an unlicensed person without training to run their STR over a professional PM that is associated with a brokers license. Add in that the upside for the LL is greater with the professional PM than it is with the arbitrage manager.

    So The experienced LL should know they can hire a professional PM to manage their unit.  In the event they are not satisfied with that PM, they can replace them with another PM. If something goes real wrong, the LL has more options dealing with a professional PM than dealing with the amateur that wants to arbitrage someone else’s asset.  

    So let’s reverse the question: why would an experienced LL chose to let someone arbitrage their valuable asset over hiring a professional PM to professionally manage that valuable asset?

    I am not saying you cannot find LL that will allow it, but those LL likely are unaware of better options.  

    Good luck

    1Reply
  • Ken Latchers
    Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes
    7y

    It requires finding the uninformed landlord.

    1Reply
  • Benjamin Vail
    Real Estate Broker · Columbus, OH · Member since 2016 · 181 posts · 244 votes
    7y

    @Andrew Ratterman 

    The STR laws in San Diego are changing as we speak. There are professional operators doing arbitrage and have for years, and they will probably always be some opportunities to do that even though the laws change. However, I just want to caution you that there are lots of professional operators doing this in San Diego. Unfortunately, you are a bit late to start this game. Not that you won't have any success, but be wary of saturation, and also be wary of your competition.

    @Ken Latchers this STR forum, and the world, would be a better place without you constantly dragging it down. In my opinion, your comments provide zero value, and usually sound more like the drunk grandpa in the back of the room that nobody pays attention to.

    0Reply
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