Rental Arbitrage: What is for Landords?

Question

I currently run a STR company and up until now, we have only partnered with property owners (aka co-hosting). I rent where I live and I recently moved to a new place and was coming across great rental prices. Since I know my local market, I know what type of profit margin could be achieved with rental arbitrage and it got me thinking about it.

I am curious to hear from someone who does arbitrage on what you offer landlords in your lease agreement or how you set up your lease agreement? Looking forward to reading the comments.

Paul Sandhu · Answer

April 1 2021 came early this year.

Michael Baum · Answer

Jeeeeez....@Mitchel Foster, do a search on arbitrage and our thoughts on that. There are some that do it, but most of us avoid it like the plague.

It is an excellent way to put yourself in the poorhouse. So many have lost their collective shirts doing arbitrage when COVID hit.

Nancy Bachety · Answer

@Mitchel Foster

Great question. I’m interested in hearing the answers, to see if I’m surprised by them.

You are in a different market and bring different experiences to the table as a property manager of STR’s than I do. As a self manager, every dollar is mine, and all expenses are mine, and all the risk is mine. Presumably, as a PM, you keep (earn) 20-40% of the owner’s income. You do all the same work self-manager’s do. And you earn it, correct?From my perspective, you are poised to take a client who is maybe not thrilled with the income (see above) and transition them into a LTR landlord, one is convinced that is a better way to get “guaranteed, consistent” income. To me, that is only landlord who buys into STR arbitrage and will sign a 2-5 year lease with you willingly and happily. Willingly and happily are key. Anything shorter than two years means you are hustling to find and keep landlords more than building a business.

Correct my assumptions as necessary please.

Now if you’re asking here on BP in hopes of hearing from other arbitrages, you might be disappointed. They don’t usually hang out here because they aren’t RE investors, they are hustlers earning a living. Nothing wrong with that, of course, but they seldom post here. Frankly, I’d be curious to hear the answers they’d give you.As far as how to structure the lease, sorry, I can’t help you but there are several players in that game who sell there how-to guides.

Please share what your findings are: rental costs, costs to furnish, utility and insurance costs, income potential, etc. It’ll help us answer your question.

Erik Stenbakken · Answer

Glad to hear that you reach out to landlords rather than do it behind their backs. I have several STRs I own as well as some LTRs I own. I have it written explicitly into my lease no arbitrage. None. As a landlord, it puts me at too much risk of the arbitrage broker just skipping out when things get hard. I think @Nancy Bachety may be right. One who doesn't own properties isn't really a real estate investor as much as small business operator. YMMV. Before I'd allow arbitrage, I'd want a HEFTY deposit as well as a lawyer-drafted contract that I'm guessing no arbitrage broker would want to sign. YMMV.

Rental Arbitrage: What is for Landords?

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