Long-term rental arbitrage?

3 Replies

I know of short term rental arbitrage (or at least the philosophy of it). I am talking to an friend who is trying to figure out what to do with their mother's house. She passed away several years ago and the house is now owned by my friend and his sister. I have asked for the past several years what their plans were for the house. They have stalled by saying they need to deal with the 70+ years of accumulated stuff in the house. Well, now they are ready to do something with it as they don't want to have to pay insurance on a vacant property anymore. I have proposed three options to them. 1 - Buy it outright at a steep discount. 2 - Buy it for a higher price with seller financing. or 3 - rent from them and turn around and rent it out to a long term renter. I am not looking for the job of a short term rental manager. And, I don't think the market will sustain a profitable AirBNB market. But, it's a great long term rental neighborhood. Do you all have any thoughts or opinions about renting from my friend for $800 and subletting out for $1400. I will cover maintenance calls. But, he will be responsible for capital expense projects. I have 5 single family long-term rentals in the area. So, I am thinking this will be a decent cash flow play. Am I missing something? Please let me know if I am missing anything on this proposed deal. I know it's not a bajillion percent return that AirBNB arbitrage seems to offer. But, as a buy-and-hold investor, no large down-payment and cash flow seems to be very interesting!

Sounds to me like you will be effectively the property manager and your fee will be the difference between the rents. In Ohio, you need to be a licensed broker to manage properties. Just something to consider. Sounds like the numbers work pretty well. Personally I'd like to buy the property before anything else as while the cashflow is nice, you are not benefitting in other ways such as appreciation and depreciation.  

I would love to buy the house with seller financing. I tried to get creative with my terms and presented the benefits of seller financing. But, I am not sure the owner wants to give up owning this house quite yet. They are looking at possibly doing some renovations and move into it themselves. I know I cannot be a property manager in VA as I need to serve under a brokerage. But, I thought if I could do a sublet, I would work around property management regulations as I would be invested in renting the property and then renting it out myself.