All Forum Posts by: Dave Gaines

Just a quick update here since I mentioned the other thread.  I have posted the conclusion of the story there.  I have closed this chapter.  It could have been smoother but "all is well that ends well."

(FYI, BP.  Your post update feature doesn't accept text formatting.  I am posting the same update here.)

An update to this story....

They day I posted this (6/16), Loftium contacted me. We set up a call for a few days later (6/18) and, on the call, they agreed a reasonable outcome:
A. pay me all the missed rent ($6,100)

B. I would give them $2k credit for the furniture they left in my house (A reasonable price. I didn’t really need furniture, but it sounded like a fair thing to do and the quickest path to closure.)

C. hand over the subtenant’s security deposit, less their security deposit that I am holding.

D. release me from the terms of my contract and assign the lease so that I could rent directly to the sub-tenant.

I got and signed the updated contract on 6/23. They signed on 6/29. As of today (7/1), they have paid off the rest of what was owned, and we are officially done.

So here I am. I am clear of this contract and have a house with a renter living in half of it. I can either go into the AirBNB business (assuming their former role) or renegotiate with the renter.

I would change the title of this post, if I could, to soften it. Maybe “Loftium – a story when AirBNB arbitrage met COVID-19”.

Final Thoughts:

If I had another house ready to go a year from now, would I do it again?  Probably not.

I don’t like how much control I gave up. I have a renter in place now that I didn’t screen or select renting at a price I didn’t choose. Everything I have read says that the key to successful AirBNB Arbitrage is automated systems and they seem to be lacking in that area, at least for now. That gets frustrating.

Would I tell you to avoid them?  No.

Gen. Patton once said, “I don't measure a man's success by how high he climbs but how high he bounces when he hits bottom.”
They showed integrity and squared up in the end. That makes them OK in my book.

An update to this thread.  Loftium contacted me the day that I posted the above (6/16).  We set up a call for a few days later (6/18) and, on the call, they agreed to pay me the missed rent and release me from the terms of my contract so that I could rent directly to the previous sub-tenant.  I gave them some credit for the property they have in my house.

In short, it sounded like they are trying to do the right thing.

I got and signed the updated contract on 6/23.  Yesterday (6/26) I got notification of another partial rent payment (the one I expected a month ago.)  We shall see if, next week, I get the remainder of the money.  I will update this thread with final outcome.

@Nghi Le, I don't know if it was quite that high, but it was something.  There are articles in the Seattle Times and Geek wire for those interested.

@Nathan Gesner, Thanks for your opinion.  The things you mention (host training, common incentives, cleaning fees) are about execution, not the plan itself.  I don't think we should consider the purposeful shutdown of our economy and government-issued travel restrictions as "reservations are down".  The situation is unprecedented and we should all take that with a grain of salt.  The overall idea of split unit and live-in host is still a decent one.

I wasn't running negative.  If not for COVID-19, I would be getting $3,100 rent on a $2,700 mortgage.  This is $400 per month of cash flow.  (I was trying for $1,100/month but I won't squawk at $400.)
As for the business model, this means that Loftium had a break-even point of $1500/month (on average).  I doubt they are making that in COVID-land but that is totally possible on a normal day.

@Ryan Evans There have actually been a few cases of that already.  I am trying to not break rules.  If I wanted to break rules, I could just change the locks and wait until they get contacted by irate AirBNB customers.  Alas, I am trying hard to follow the rules even if they are not.

@Tim G. Not ads.  If you do some forums search for Loftium, you can find a general good opinion about them (prior to recent events).

@Lauren Kormylo, In an article in the Seattle Times, Loftium claimed that they believe themselves to be covered by the moratorium.  I, personally, disagree.  I have a feeling that a judge will side with me (wanting to keep the current sub-tenet in place) rather than Loftium (taking sub-tenet rent and shafting me) on this issue but that is an expensive process so I am looking for other options and holding that for a last resort.

@Nathan Gesner, I disagree.  The model isn't flawed.  Execution was poor and timing was unfortunate.  They overextended and had too many eggs in one basket but the base idea is still sound.
I have no intention of selling the house.  For one, it would be folly to hit a speedbump and just give up.  Also, anyone buying a problem like this would be expected to be compensated for doing so.  Would you buy a house with a non-paying tenet in a state that doesn't allow evictions?

@John Underwood  I have thought a lot on cutting Loftium out.  It is violation of my contract however we could just let a judge sort that out later.
The sub-tenant hasn't done anything wrong here.  They are acting with integrity and upholding what they said that they would do.  Because of this, I feel obligated to shield them as much as I can.
I do have rapport with them and could probably make this happen.  If we get to the end of June and I am still hanging in the wind and getting ghosted, I may have to pull that trigger.

@Jon Crosby Not all cities have regulations on short-term rentals (and I, for one, am happy for that).  I agree that it is insane that they didn't do any training.  If I end up taking their role in this deal, I am confident that I can execute this business model better.

Hi All,
I just posted my entire story in a new thread (see below).  As for the above here.  I have been unsuccessful at getting a reply to mails and texts.  I just included the above email on the thread.  I will let you know how it goes.

https://www.biggerpockets.com/forums/530/topics/844484-loftium-airbnb-arbitrage-gone-wrong

Since it was BiggerPockets Forums that gave me good feelings about deciding to work with Loftium, it seems fitting to post, here, the outcome of this experience.

I have a house in SeaTac, WA which is split into 2 separate units. Each unit has 3 bedrooms, 1 bathroom, a kitchen and a living room with fireplace. I originally attempted to rent this to either a multigenerational family or to 2 smaller families but was unsuccessful. I had been listing the house for $3,800. (This was about market but not "priced to move".) My mortgage is $2,700 but I have so much into this house, ROI is a long way off.

In any case, then I found Loftium.

Loftium’s business is a slight spin on the “traditional AirBNB arbitrage” you have read about. They look for houses with 2 spaces. They put a long-term renter into one of the spaces then they furnish and AirBNB the second space. The long-term renter is the co-host and manager. The long-term renter gets below-market rent, Loftium gets the AirBNB money with virtually no additional work, the Landlord has a stable renter in place. Win-win-win.

Up Front Problems:

The first clue to this not being as sooth an operation as I was led to believe was the pricing. They offered me a tiered approach:

• $3,100 – Guaranteed
• $3,200 – if the Subtenant pays $1,619 or more in rent
• $3,300 – if the Subtenant pays $1,869 or more in rent

Of course, I had no control over choosing the sub-tenant nor how much they would pay. They put someone in at $1,597.

• They collected a security deposit from the sub-tenet but didn’t want to pay a security deposit to me since “we are a company”.
• They wanted access to the house to show it for 1 week before they started paying rent.
• They wanted a 3-year lease via DocuSign, which isn’t legal in this state without notary.  (I only agreed to sign a 1-year.)
  

On the other side of the equation, the long-term tenant seemed to not get a square deal:

• They got no training on how to be a host. There was no course or guide. They we just told that the posting is live and someone will be here this weekend.
• They long-term renters were told that they had to furnish several things in the rental unit… including TVs!
• Loftium set the rent for a 3 bedroom to be less than a local motel. This keep bringing in difficult AirBNB customers and the long-term renter gets to handle the problems.
• The long-term renter is not allowed to block out days nor take any time off of hosting.
• Loftium sets the cleaning fee at $65. The long-term renter is expected to pay utilities and clean the unit, getting a $60 kick-back per stay.

Then COVID-19 hit:

Timing on this one was rough. The long-term renter moved in on 3/11/20. This was just as things were getting bad here in the Seattle area. The rental unit was only half finished when the constant stream of Amazon deliveries stopped. The renter had to fill the gaps for things that never showed, such as providing a dining room table and curtains over the sliding glass door.

The Reduced Rent:

After receiving pro-rated rent in March. They called and told me that the short-term rental business is on the rocks and they couldn’t afford rent in April. They were going to either pay me $1,600 (the same as the sub-tenant rent) rather than $3,100 or they were going to stop paying altogether. Finding new renters was impossible. There is a moratorium on evictions.

They sent me a contract saying that, for the remainder of the rental contract, rent would always just be $1,600.  Of course, I don’t make long term decisions based on short term problems, so I countered with accepting $1,600 for April and May and then let’s revisit in June. (I didn’t agree to reduce rent, only to not pursue for the time being.)

During these 2 months, they continued to rent the AirBNB unit. This means that they have been making profit (albeit a small one) while I have been loosing out big time.

They took the cash and ghosted me:

This brings us to June. In June I didn’t get the $1,600 any more. I got nothing. They still collected the $1,597 from the long-term renter and whatever is from AirBNB but now they just use my house for their own profit.

In any case, I have no recourse right now. Evictions are banned. AirBNB says that I can’t take over the listing on my own house. Loftium doesn’t return emails or texts. (It has been over 2 months since I heard from them at all.)

The long-term renter has done nothing wrong nor the AirBNB customers who have booked stays however all the moves I have will likely come back and hurt someone else.

So that’s my story…

caveat emptor!

Congrats to your son.  MS should have assigned him a realtor to help him search.  Talk to your HR contact if not.  I met Ben Pridgeon as my randomly assigned agent and he was awesome.

The area has a lot of amazing public schools and a few not so amazing ones.  Home prices are (at least in part) tied to which school you will be served by.  If this is a concern for him, he should keep that in mind for his search.  Also, Microsoft is in the middle of a huge remodel which includes a big change to public transportation.  The realtor should be able to help sort out how commuting will work.

Microsoft is a very large company and we have lots of social interest employee groups.  I would suggest he takes whatever he is into (hiking, camping, firearms, amateur taxidermy) and search "IDWEB" to find the email alias for people of similar interest and reach out to them for an instant community.