Anyone doing the rental arbitrage model?
Real Estate Agent · Atlanta, GA · Member since 2014 · 683 posts · 317 votes
Anyone doing the rental arbitrage model?
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Luke CarlPro Member
Rental Property Investor · Tennessee Florida · Member since 2016 · 4k+ posts · 5k+ votesOh lord
90 Replies
- Real Estate Agent · Atlanta, GA · Member since 2014 · 683 posts · 317 votes6y
Originally posted by @Michael Baum:
Hey @Jingru Sui. I wasn’t trying to be rude. I read how you currently do things and the key word I took from it is BUY.
You own the units you are renting. You have control. You decide. You build equity.
With arbitrage you have none of that. What you are is beholden to the landlord. If they decide not to lease it to you again you are out the investment of setup. That is a best case.
Worst case is the municipality decides to ban them a month in. You are stuck with a long term lease at market rates plus all the stuff you bought to set it up.
Unlike most who come in and ask about this, you have a ton of rentals already. You are making plenty of money so you probably could cover the potential big downside if you get nailed to the wall.
Most who want to do arbitrage have no money and have never done anything in real estate before. They are very vulnerable to losing it all and having to take years to get out of that hole.
So, bottom line is in your rare case, you could take the hit if/when it goes south.
What I would do it take a look at cities that have setup solid regulations already. Those that have fees, policies to limit the number of STRs per neighborhood, charge a specific tax etc.
By choosing an area like that, that can support a STR model, you mitigate a lot of the risk. The areas have already taken steps to work with rather than ban STRs.
That still doesn’t mean things can change overnight. It will be a risk, but you could probably take the hit if you don’t go big on the first try.
Good luck!
That's some solid advise Michael especially look into market that already work with STRs. ! I appreciate you spend the time to explain. It's a learning experience for sure and I really appreciate all the input. :)
- 6yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
Thanks @Jingru Sui. Another thing, your places you listed in the previous post look pretty great! You look like you know what you are doing. Clean, bright and stylish. I really liked all I took a look at.
You should do a post about your markets and strategies you are using in those markets. I am curious about Columbus OH and those are doing. Atlanta looks solid!
Also, you own each one of those units? It seems like you have a ton of leverage you can use. Of course I have no idea, but with that many quality properties in your portfolio, it makes much more sense to stay your current course with the business model you are using.
If I ever come to Atlanta (my charity does an event there) then I will give you a buzz for a place!
- Real Estate Agent · Atlanta, GA · Member since 2014 · 683 posts · 317 votes6y
Originally posted by @BJ Everson:
@Jingru Sui Through my profession, I have a stake in a 88-unit apartment building in downtown Cleveland OH where the developer had problems renting out most of the 2 BD units. So he hired Stay Alfred which is a company that does what you're asking (not sure if that's your company). They got 18 units on a 2 year lease, furnishes them and posts them to AirBnB and the like. As part of the ownership, it helped the building reach its full occupancy with tenants we do not need staff to manage. I would look into Stay Alfred's business model if you are looking for some help.
Hi BJ! Thanks for your feedback! We are not Star Alfred but we have talked to them. That's kind of why we start looking into this modal. I think i'm trying to do what they are trying to do which is contacting large apartment owners and help them with vacant units. (That's also the reason why I post here to see if there're any building owner who doesn't want to deal with the daily operation of STR but still benefit from some of our profit sharing) They also work directly with developers as well. If you know of any owner/investor/developer who need help leasing up their units the same time open to STRs please let me know! Thanks again!
- Real Estate Agent · Atlanta, GA · Member since 2014 · 683 posts · 317 votes6y
Originally posted by @Michael Baum:
Thanks @Jingru Sui. Another thing, your places you listed in the previous post look pretty great! You look like you know what you are doing. Clean, bright and stylish. I really liked all I took a look at.
You should do a post about your markets and strategies you are using in those markets. I am curious about Columbus OH and those are doing. Atlanta looks solid!
Also, you own each one of those units? It seems like you have a ton of leverage you can use. Of course I have no idea, but with that many quality properties in your portfolio, it makes much more sense to stay your current course with the business model you are using.
If I ever come to Atlanta (my charity does an event there) then I will give you a buzz for a place!
Michael, Thank you! I'd love to connect with you here (Please add me back :) ) and show you around if you come to Atlanta next time! My company Lulu Homes own all of these properties. I've love to share more on how we grow in the forum in the future. So our units in Columbus is near the university. I don't personally manage the listings, we have local partner who's managing the listings locally. There're still a lot of long term tenants when we purchase it but we have turned 8 units into short term and they are doing really well.
- 6yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
@Jingru Sui, that is what I figured. Very cool! Like @Luke Carl said, you would be a valuable addition to this forum. You have done so much and could really offer some good insights to those who are trying to grow their STR business.
- Rental Property Investor · Brooklyn, NY · Member since 2013 · 272 posts · 165 votes6y
U couldn't pay me enough to have a succession of uninvested extremely short-term Air B&B guests in my Properties. No thanks! No good can come from it
- 6yMichael BaumPro MemberOlympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
@Michael G., then why are you here? Those of us doing vacation rentals are doing well with a small amount of problems. Just sayin....
- Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes6y
My short term renters pay me 4x as much as a long term renter would pay. With less hassles. My houses pay for themselves every 6 months. I don't think a long term rental can do that.
- Real Estate Agent · Fort Lauderdale, FL · Member since 2018 · 360 posts · 213 votes6y
Originally posted by @Jingru Sui:
Just want to see if anyone had success doing the rental arbitrage model? master lease from developer and operate them as short term rental? Any success story? I've reached out to a lot of apartments in area my company want to go but a lot of them have company policy that doesn't allow Airbnb type short term. Any developer here are thinking about partner up with a short term rental company?
Jingru,
I know quite a few successful people down here in south Florida (from local meetups) , also I'm part of M1 Tribe,( is kind of like a mini Gobundace and you meet tons of experts from different industries throughout the USA .) There I have been able to see the process (story journey) of success for some people and I know successful people already doing it. and yes arbitrage is basically managing the STR .
- New to Real Estate · OH · Member since 2020 · 22 posts · 27 votes6y
Originally posted by @Jingru Sui:
Originally posted by @Michael Baum:
Thanks @Jingru Sui. Another thing, your places you listed in the previous post look pretty great! You look like you know what you are doing. Clean, bright and stylish. I really liked all I took a look at.
You should do a post about your markets and strategies you are using in those markets. I am curious about Columbus OH and those are doing. Atlanta looks solid!
Also, you own each one of those units? It seems like you have a ton of leverage you can use. Of course I have no idea, but with that many quality properties in your portfolio, it makes much more sense to stay your current course with the business model you are using.
If I ever come to Atlanta (my charity does an event there) then I will give you a buzz for a place!
Michael, Thank you! I'd love to connect with you here (Please add me back :) ) and show you around if you come to Atlanta next time! My company Lulu Homes own all of these properties. I've love to share more on how we grow in the forum in the future. So our units in Columbus is near the university. I don't personally manage the listings, we have local partner who's managing the listings locally. There're still a lot of long term tenants when we purchase it but we have turned 8 units into short term and they are doing really well.
Great post and your properties you posted looked amazing! I'm very interested in in your Columbus model. I would love to read a lost about this more in detail or maybe one day soon hear you on a podcast! Would love to hear a deal analyses and numbers from the market.
- Westchester, NY · Member since 2018 · 115 posts · 52 votes6y
@Jingru Sui, at a StayAlfred now in Nashville. I can't comment on the profitability of the model, however, I can comment on the condition of this single unit. As a condo/apartment, it wasn't meant to take a STR beating ... or, I guess, that StayAlfred doesn't care about making repairs. It is a new apartment building in the Gulch; I would estimate under 10 years old. Its materials are of builder quality (vs a hotel's more industrial quality), so the wear shows.
As for the unit, the issues I have seen are:- Walls repaired then repaired over with paint of a different shade; it is a patchwork of color and paint finishes
- Bathroom door hook missing; ripped out of door.
- Toilet seat missing 2 feet (so it wobbles)
- Stand up shower separating from the drywall (large vertical crack)
- Mold outside the shower glass doors
- Glass rotating plate missing from microwave
- Elevator call button surround smashed and cut up
- Acoustics between floors are terrible or we have Elephants in the STR upstairs.
It is clear that the cleaning staff is either not reporting the issues to the local room wrangler or they just don't care that much. Half the items above could be fixed in 2 hours with 1 trip to Home Depot.
As for furnishing, they are fine, but curtains are translucent, so you will be up at sunrise.
I guess the moral of the story is pick a well built, sturdy, building or you will have lots of repairs/complaints.
Joe
- Investor · United States · Member since 2018 · 565 posts · 356 votes6y
Originally posted by @Jingru Sui:
Just want to see if anyone had success doing the rental arbitrage model? master lease from developer and operate them as short term rental? Any success story? I've reached out to a lot of apartments in area my company want to go but a lot of them have company policy that doesn't allow Airbnb type short term. Any developer here are thinking about partner up with a short term rental company?
Yes, Check out this BiggerPockets Blog article: https://www.biggerpockets.com/...
It's apparent that some here don't like this model. Rather than making a smart remark I'll just say that it's not for everyone. It's also not a "get rich quick" scheme, it's a business that takes work, time and expertise, but if you do it right you can be very successful.
Good luck.
- Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes6y
Of course, that is the rub. You can do it right and still have your head handed to you. That is the point of anti arb people when the masses come in asking the same thing. It has way too many ways to kill a newbie.
"but if you do it right you can be very successful" - Lender · Salt Lake City, UT · Member since 2019 · 40 posts · 17 votes6y
@Jingru Sui
I can personally see a lot of benefits to being on both sides of these deals. In either case, it comes down to doing a good job at what you do.
STR arbitrage doesn't have any of the appreciation, tax benefits, etc. that comes from ownership but it also doesn't come with the initial financing investment or rehab. There are a lot of people on here that don't have an appetite or respect it, but everyday property management firms fall into the same scenario.
As an owner of rentals, it would come down to who the management partner is. I personally like the idea of having my units professionally cleaned and inspected multiple times a month (if not weekly.) All of the wear and tear items I saw in the thread are no different than those found in long term rentals at move out time.
I think there is a market for what you are looking for and it's no different than a developer bringing in a hotel management company or apartment leasing team to run a property. I can also think of advantages like not having franchise fees, national branding issues, rent escalations can be built in to long terms leases more easily since the lessee is a professional, your property is faster and more quickly to adapt to which STR platform is working at any given moment, the lessee is more likely to be financially capable of paying for damage to the unit, etc.
I think if you got to a high enough unit portfolio, developers would entertain the idea of having you run entire properties or even doing build to suit with you as a partner. A comparison would be condo projects that slowly transition into time share properties and then into hotels.
...
I didn’t realize I had so much to say! Good luck! I’m glad as a community we worked through the initial negativity.
- Tacoma, WA · Member since 2018 · 230 posts · 257 votes6y
Originally posted by @Michael G.:
U couldn't pay me enough to have a succession of uninvested extremely short-term Air B&B guests in my Properties. No thanks! No good can come from it
No good can come from it? I just booked a four night stay at a house in Cabo for a large group to the tune of $5,500 (the owners take is roughly $4,500). The whole area is filled with STRs and amazingly most of them appear to still be standing. I can barely fathom the money those owners must be making.
- Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes6y
@Jingru Sui Most of the rental arbitrage people I run into, do it because of lack of capital. Many of them sign a lease in the name of a corporation and their clients stay there. The owner has no idea it's a short-term rental. It can scale quickly, but it's dishonest.
Seems like a better approach is co-hosting. You can make the business arrangement how you like, but you go the relationship more openly.
- 6yMary K.Pro MemberInvestor · Ocala, FL · Member since 2015 · 157 posts · 88 votes
@Jingru Sui there are some folks in my local investor group doing arbitrage. DM me and I will hook you up. I live in FL but am from Columbus and was hoping to buy a couple of STRs in Columbus but then read that Columbus was one of the worst markets last year for returns for Airbnb (which surprised me since its a growing city with the university, biz district and all the hospitals). Would you please put your link to your Columbus units and also share how your Columbus units are doing? You said you are buying more so they must be performing well.
- Investor · Houston · Member since 2019 · 153 posts · 139 votes6y
I'm just getting into the STR game with a studio condo purchase in Baton Rouge across the street from LSU. If this one goes well I thought of expanding by arbitrage. There are a few larger, more expensive, units in the building that have been for sale for a long time and I'm thinking those owners might be open to an arbitrage style lease with me to stop the monthly vacancy bleeding.
- Member since 2019 · 89 posts · 64 votes6y
Originally posted by @Mary K.:
@Jingru Sui there are some folks in my local investor group doing arbitrage. DM me and I will hook you up. I live in FL but am from Columbus and was hoping to buy a couple of STRs in Columbus but then read that Columbus was one of the worst markets last year for returns for Airbnb (which surprised me since its a growing city with the university, biz district and all the hospitals). Would you please put your link to your Columbus units and also share how your Columbus units are doing? You said you are buying more so they must be performing well.
Do you have a link to the article about poor performance? Several people have told me it's a great target for Airbnb
- 6yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
I would like to remind people that arbitrage is creating a job for yourself and not creating wealth. We as real estate investors want to create wealth. If you want a job and some money in exchange for your work then by all means have as many jobs as you like.
Read or reread "Rich Dad Poor Dad"
Arbitrage is creating wealth for the owner of the property, you want to be the owner of the property.
My goal is to retire early because my money is working for me making more money.
I as an owner would be OK with someone doing arbitrage on a property for me because they would be working and I would be creating equity and wealth.
The better way of course is to purchase your own properties and then rent them out STR or Long Term.
Have an owner that might be open to arbitrage? Instead try and get them to owner finance the property to you so that you will get something long term out of the deal instead of just a short term paycheck.
- Real Estate Agent · Atlanta, GA · Member since 2014 · 683 posts · 317 votes6y
@Jason Allen
thank you Jason! The article is very informative!
- Hatfield, PA · Member since 2012 · 1k+ posts · 629 votes6y
Agreed. a 15 year mortgage is fixed, renting from another keeps going up. Longterm price appreciation can double your return over the life of the mortgage. There is a backup plan available. Improvements are yours.
Most newbies see arb as scale rapidly and build wealth, clueless to the str risks coming down the pike. deer in the headlights.
Originally posted by @John Underwood:I would like to remind people that arbitrage is creating a job for yourself and not creating wealth. We as real estate investors want to create wealth. If you want a job and some money in exchange for your work then by all means have as many jobs as you like.
Read or reread "Rich Dad Poor Dad"
Arbitrage is creating wealth for the owner of the property, you want to be the owner of the property.
My goal is to retire early because my money is working for me making more money.
I as an owner would be OK with someone doing arbitrage on a property for me because they would be working and I would be creating equity and wealth.
The better way of course is to purchase your own properties and then rent them out STR or Long Term.
Have an owner that might be open to arbitrage? Instead try and get them to owner finance the property to you so that you will get something long term out of the deal instead of just a short term paycheck.
- 6yRemington LymanBusiness MemberReal Estate Agent · Columbus, OH · Member since 2017 · 6k+ posts · 7k+ votes
@Jingru Sui I am doing Airbnb arbitrage on a 1bd/1ba unit in my 4 unit multifamily property. My Airbnb company is renting from my rental company (different partners in each entity). It is working well so far.
- Investor · Houston · Member since 2019 · 153 posts · 139 votes6y
@John Underwood if the overhead costs of property management, insurance, and master lease are covered by the gross revenues and you cash flow the unit, how is that a bad thing or taking on a job? If your approach is systematized and works, why not take the cash flow so you can use that as a funding source to buy other properties?
I agree it’s not a long term wealth building strategy, but neither is house flipping. In my view this just a strategy taking on risk that the property owner isn’t willing to.
- 6yJohn UnderwoodPro MemberInvestor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
Originally posted by @Adam D Rinehart:
@John Underwood if the overhead costs of property management, insurance, and master lease are covered by the gross revenues and you cash flow the unit, how is that a bad thing or taking on a job? If your approach is systematized and works, why not take the cash flow so you can use that as a funding source to buy other properties?
I agree it’s not a long term wealth building strategy, but neither is house flipping. In my view this just a strategy taking on risk that the property owner isn’t willing to.
You are correct, Arbitrage, flipping and wholesaling are all jobs, you have to keep trading hours for dollars. If you follow Rich Dad Poor Dad you want your money working for you, not you for it.
These are not bad if you want to keep working a job. Yes these might be a way to make money to get out of the rat race and buy properties that not only cash flow but build equity and let someone else pay off properties for you.
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