San Diego Short Term Rental Arbitrage
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.
@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!
Read the post on here why most everyone advises against arbitrage.
"everyone is against arbitrage". Not sure that's true. Maybe in San Diego where the laws are working against you. But it's not a bad model. Hell, some big companies make a lot of money with that model (Sonder, Stay Alfred, etc.). I lease about 100 units to a small handful of people that rent them out via STR. They do pretty well (at least I assume as they're able to pay me my rent and have taken more units)
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.
"I suspect you can find some inexperienced LL that do not explicitly prohibit subleasing. "
Or better yet, you find landlords that are okay with you doing it. While I think it can be profitable if you're doing it at scale, have the capital to get started and survive the first few lean months, if you're trying to be sneaky about it and do it one-off in random places, my guess is you won't last long.
It requires finding the uninformed landlord.
You're a pretty negative guy. And that's absolutely untrue. As someone with ~1000 units leased to people who STR them, I find myself a pretty "informed" LL/owner.
It requires finding the uninformed landlord.
You're a pretty negative guy. And that's absolutely untrue. As someone with ~1000 units leased to people who STR them, I find myself a pretty "informed" LL/owner.
@Cody L. I have a lot of respect for what you have accomplished in RE and know you already have a PM that seems very good (maybe better than very good). So why don't you use your support staff to STR units yourself?
The reason I think experienced LLs like yourself are unlikely to go for subleased STR is you could easily do it yourself. Our STRs (our STRs have professional PM that does a good job) require little of our time. We benefit from the units being STR versus someone with little stake in the endeavor that is simply subleasing our valuable asset. If there is an issue with our PM, I feel we have more options than we would have with someone (who typically has minimal assets, no license, etc.) who is subleasing our units.
I see little benefit to the LL having someone else profit from subleasing the valuable RE asset. As the owner/LL, I want to maximize the return and would chose to use a professional PM on units that I want to STR over someone with no license, possibly no experience and training, likely minimal assets that desires to sublease our asset for their financial gain.
It requires finding the uninformed landlord.
You're a pretty negative guy. And that's absolutely untrue. As someone with ~1000 units leased to people who STR them, I find myself a pretty "informed" LL/owner.
@Cody L. I have a lot of respect for what you have accomplished in RE and know you already have a PM that seems very good (maybe better than very good). So why don't you use your support staff to STR units yourself?
The reason I think experienced LLs like yourself are unlikely to go for subleased STR is you could easily do it yourself. Our STRs (our STRs have professional PM that does a good job) require little of our time. We benefit from the units being STR versus someone with little stake in the endeavor that is simply subleasing our valuable asset. If there is an issue with our PM, I feel we have more options than we would have with someone (who typically has minimal assets, no license, etc.) who is subleasing our units.
I see little benefit to the LL having someone else profit from subleasing the valuable RE asset. As the owner/LL, I want to maximize the return and would chose to use a professional PM on units that I want to STR over someone with no license, possibly no experience and training, likely minimal assets that desires to sublease our asset for their financial gain.
Good question. The reason is I don't think they'd do a good job. They're not trained to do that, and I don't feel like training them. Or setting up all the systems. I'd have to setup the whole operation for that, and hope the training I gave them on it 'stuck'. I already introduce new tech and process to help work flow with mixed results.
I'm happy to lease out a group of apartments to someone for our market rent (say, $1000/month). And if they average $1500+/month, more power to them. But yeah, my trying to do that would totally fail unless I was 1) heavily involved, and 2) hired people specifically to oversee that
@Dan Heuschele I see what your saying, the ideal customer would be someone who’s priority would be to get the unit rented out.
Hey Andrew,
I am recently looking into this because I use to run STRs for a property manager "testing the waters out" on STR returns and knew that there is money to be made in this market!
As far as the latest law states, unless you are the full time occupant for the property (must occupy property for 270 days +) then using someone else's home, apartment, and/or more is illegal by the city of San Diego.
Even if the property manager tries to tell you/write in your agreement otherwise.
Basically, you must by a property management company (so LLC) with ownership of the property or some kind of ownership to turn LTRs/homes into STRS.
This is purely the main points I got from this law. I am not any kind of professional lawyer nor plan to be. If someone out thinks otherwise, please correct me!
Hope this helps and good luck!
- Caleb Ransom