The Arbitrage Empire (Company) reached out to us
Rental Property Investor · Lexington, KY · Member since 2015 · 43 posts · 16 votes
We have a property listed for rent in the Cincinnati area. I received a phone call from a company "The Arbitrage Empire" wanting to rent our property. I understand they would be listing it as STR or MTR, but I have not experienced this. It doesn't sound ideal but curious to see if anyone has done this with them. We own the property so would they pay us our market rent each month and then they do what they want from there?
Thanks in advance.
Will they personally guarantee the lease? Are they worth enough so that if your property gets trashed and they don’t pay rent for 3-4 months you aren't financially trashed? Are they offering at least 25% over market rent?
You are taking a huge risk, they are taking almost none. Their company signs a lease. After a month or two they figure out it’s a money losing proposition so they stop paying you rent while they continue to rent it out trying to turn a profit until you can finally evict them after every delay they can come up with. You win a judgment, turns out the company has $12 in the bank, that’s what you win. Maybe it does work financially for months until one drunken party does more damage than the company can justify fixing vs walking away, same results.
I guarantee if your HOA, city, or state makes laws outlawing STRs by non-owner occupants this will play out. They'll continue to rent it out until you or the company gets so many fines due they just shut the company down. Then the government can take their lumps or come after you.
TLDR: get 25%+ in extra rent or don’t bother. Have the “owners” personally guarantee the rent as well as the no-assets company. You’re going to have people you haven’t vetted in your property, get the maximum insurance you can afford, the right kind of insurance. Your landlord policy is probably useless. You’re going to claim it’s not your fault the car full of drunk teens leaving a party at your home isn’t your fault. The media and the judge are probably going to say otherwise. Maybe don’t even bother unless you are also judgement proof because you have no assets either. Get. MASSIVE security deposit, at least 203 months of rent if allowed in your market. Lastly, only do this if no regular tenant will rent your property. Rentals are supposed to help you slowly grow rich. Not quickly lose everything you’ve built up.
Hi @Blaine Cox,
Yes, that's usually how it works. In a rental arbitrage setup, the company signs a lease with you, pays you a set rent each month, then lists the home as a short or mid-term rental and keeps whatever it earns above that.
It can work, but the risk sits in the details, not the rent number. Before saying yes, I'd look at three things.
The lease. It should say in writing that short or mid-term subletting is allowed, who pays for damage between guests, and what happens if they stop paying or walk away.
Insurance. A standard landlord policy often doesn't cover paying guests. Ask your agent what you'd need, and ask the company for proof of their own liability coverage with you named on it.
The local rules. Check the short-term rental rules where the property sits and any HOA limits, because if the home breaks them, the problem usually lands on the owner.
My recommendation: ask them for two or three owners they rent from today, and actually call them. How those homes look after a year will tell you more than any pitch.
All the best,
Lee
@Blaine Cox this is a great answer by Lee. If you are considering it, I'd also find out how much of a security deposit you can require.
Will they personally guarantee the lease? Are they worth enough so that if your property gets trashed and they don’t pay rent for 3-4 months you aren't financially trashed? Are they offering at least 25% over market rent?
You are taking a huge risk, they are taking almost none. Their company signs a lease. After a month or two they figure out it’s a money losing proposition so they stop paying you rent while they continue to rent it out trying to turn a profit until you can finally evict them after every delay they can come up with. You win a judgment, turns out the company has $12 in the bank, that’s what you win. Maybe it does work financially for months until one drunken party does more damage than the company can justify fixing vs walking away, same results.
I guarantee if your HOA, city, or state makes laws outlawing STRs by non-owner occupants this will play out. They'll continue to rent it out until you or the company gets so many fines due they just shut the company down. Then the government can take their lumps or come after you.
TLDR: get 25%+ in extra rent or don’t bother. Have the “owners” personally guarantee the rent as well as the no-assets company. You’re going to have people you haven’t vetted in your property, get the maximum insurance you can afford, the right kind of insurance. Your landlord policy is probably useless. You’re going to claim it’s not your fault the car full of drunk teens leaving a party at your home isn’t your fault. The media and the judge are probably going to say otherwise. Maybe don’t even bother unless you are also judgement proof because you have no assets either. Get. MASSIVE security deposit, at least 203 months of rent if allowed in your market. Lastly, only do this if no regular tenant will rent your property. Rentals are supposed to help you slowly grow rich. Not quickly lose everything you’ve built up.
Blaine, I run an arbitrage unit myself, a 4-bedroom in Jacksonville. I pay the rent to the owner and everything else falls on me: utilities, maintenance under $500, cleaning supplies, etc. The owner still has access and can enter with 24 hours' notice (Florida law), and it has been working well.
I also have the owner as an additional insured on our STR-specific insurance, and we carry loss of income coverage, so the owner still gets her rent if the property is uninhabitable for any reason.
From an owner's perspective, it should be like regular rent without all the tenants, toilets and trash many talk about, lol.
Yes, typically they'd pay you an agreed monthly rent and then earn their income by renting the property to short-term or mid-term guests. The part I'd be cautious about is that you're still dealing with a tenant who's operating a business out of your property. Before agreeing, I'd want to know who covers damages, whether their insurance actually covers that use, and what happens if their business stops performing. Have they shared a proposed lease or explained how they'd handle those situations?
Blaine, one thing to pin down that nobody has asked yet: what exactly will they put in the house. A lot of these companies start as short-term rentals, and when the nightly numbers or the city rules don't work out they switch to renting it room by room on monthly agreements. That is a very different house to own: more people, more wear, more cars, and every room is a separate person living there.
So I'd have the lease name the use (short-term guests only, or mid-term, or rooms) and a maximum number of people, and say that any other use needs your written OK.
The bigger reason is what happens if it goes wrong. If they have people in the rooms on 6 or 12 month agreements and the company stops paying you, ending your lease with the company doesn't make those people leave. Depending on Ohio law and how they were signed up, you may have to deal with each occupant separately, and they may have paid the company rent you never see. Worth a short call with a local attorney before signing to ask exactly that.
Two easy asks on top of what others said: a copy of the agreement they use with their own guests or room renters, and the rule that every stay over 30 days needs your approval first. If they won't share either, that tells you a lot.
Thank you for all the replies!!! Really helped. I think we will stay away from this type of agreement. Again, thank you to those that replied.