Arbitrage vs STR buy and own

[Branden Heath]

I have successfully paid my way out of debt and want to start real estate investing. I have a high desire to be in the short term market. I live in the Pacific northwest (central Washington state). I want to start with a strategy where I can scale to purchase 3 homes this year. I have saved 80,000 to put towards this goal. I am looking for any vacation areas in the west (Washington, Oregon, Idaho, Utah, Arizona, Nevada). I need help identifying a good market and also a strategy to continue to scale. 

My Second question is, I have heard a lot about rental arbitrage and I am wanted to know others thoughts on starting with arbitrage while we are going into recession. Is this a smarter way to get into the business and grow from there?

[Manny Vasquez]

Branden - First, CONGRATULATIONS on paying off your debt and saving $80K!!  Great job buddy! Keep up the good work.

Everybody wants to do the "STR thing" because currently, its the "sexier strategy". There are a bunch of Instagram and Tik Tok posts on STR's, however, none with LTR's. So understandably, its the "cool thing" to do with real estate. However, if you don't have any experience with STR's, I would first suggest that you try it out first by being a Co-Host, just like @Travis Timmons mentioned above.  This would be the cheapest way for you to learn without having to own, or rent (arbitrage), or furnish any of the properties.  You wouldn't have to come-in with any money, just your sweat and willingness to work.  You could also make a little cash on the side, around 10%-20% of booking revenue.  Try this first before you go into the STR market to see if you are truly going to like it.  I have owned a couple of STR's before the 2020-2022 STR boom (and still own them) and I will be the first to tell you that despite what all the STR Guru's say out there tell you (because they want you to buy their course), they are not easy nor are they passive to run.

Secondly, almost everyone on BiggerPockets will recommend that you BUY and OWN versus arbitrage and rent.  The only time I recommend any one to arbitrage and rent are when:

1.  You don't have any money to buy the property, so your only option is to rent/arbitrage.

2. You have no experience in STR's, so before you make a huge mistake and buy a property, arbitrage may be a good option to "Get your hands dirty" without losing your shirt. Sure, there will be some costs (i.e. monthly rent, furniture, etc) but this may be cheaper than sinking money into buying a property thinking you'll do well in STR ,only to find out that you aren't cash flowing and now you can't sell the property for a profit.

What I do recommend is the following:

1. First, use your hard earned savings to buy a property that you can house-hack.  The best thing to do would be to purchase a 4-plex, rent 3 units and house-hack the unit you live in.  

2. Before sinking any money into Airbnb, become a Co-Host. This will give you a huge gain in knowledge and experience. Armed with this, you can then decide if you still want to do STR's.

I hope this helps and I wish you the best of luck!