Arbitrage good idea?

Question

Hi .

Just got an offer from a couple to rent one of my properties for an arbitrage purpose (ARBNB) they will provide their own home warranty.

Do you guys think if it is a good Idea to rent out to a teant who is looking to sub lease?

Any reply will appreciated in advance.

Jerry W. · Answer

@Alex Moazeni, I am going to respectfully disagree with @Nathan Gesner even though I only live one town away from him. Now Nathan is a true real estate professional having both professionally managed vacation rentals, currently managing hundreds of long term rentals, and investing heavily himself as well as being a licensed real estate broker. With all of that said first you have to investigate the potential renter like any other renter. How much do they make, do they have other STRs that are doing well? Do they have landlord references personally and from other STR landlords? Can you go to AIR BnB and see some of their current STRs? If all of those things check out why not rent for $200 per month more and have a 2 year lease? If the folks are very reliable I see very little downside. The STRs I see are usually in much nicer shape and in better repair than regular rentals. It is financially in their best interests to keep the property nice. If they are willing to do repairs like replace faucets, rod out the sewer line, touch up the paint, etc. that is a huge bonus. They will probably be using a corporate shell so have them personally guarantee the lease payment and damages. I find it hard to believe that the property will end up trashed like I have had happen way too many times with a long term renter. They are going to have a lot more insurance themselves than regular renters.

I don't see a downside if you vet them well. If you just see $200 more per month in rent and don't investigate more you won't do well as a regular landlord either. I would personally do it if they checked out. If they do amazing at it you can not renew in 2 years and turn it into a STR yourself. I have a fair number of long term rentals and just opened my 4th STR this month. I have been doing STRs about 5 years and LTRs for over 30 years. So I do have some experience.

I don't see a downside if you vet them well.  If you just see $200 more per month in rent and don't investigate more you won't do well as a regular landlord either.  I would personally do it if they checked out.  If they do amazing at it you can not renew in 2 years and turn it into a STR yourself.  I have a fair number of long term rentals and just opened my 4th STR this month.  I have been doing STRs about 5 years and LTRs for over 30 years.  So I do have some experience.

Alex Moazeni · Answer

@Nathan G. Thanks for the advise.

Nathan Gesner · Answer

That doesn't change my answer.

They don't have money to buy their own property, so they rent yours. You salivate because it's an easy $200 more a month, no maintenance expenses, no headaches, and the place will be inspected/cleaned after every turnover. This is awesome...until it's not.

They don't own the property, so they have no obligation to maintain it well. They don't care about the neighbors. They can avoid registering the property as a short-term rental with the government, avoid paying lodging taxes, and whatever else they can do to keep expenses low. They rent the place out on AirBnB, make some cash, and spend that cash. This is a job for them, not a long-term investment. When the property stops producing enough cash, or they get complaints from the neighbors, or the government comes after them for unpaid taxes, then they'll pack up and move on. You'll be left with a mess.

Go to the Short-term and Vacation Rental forum and ask this question. You'll get the same feedback and probably some examples of people that were burned.

These people anticipate your property is capable of earning enough to pay $200 more in rent, all maintenance costs, and still produce a strong cashflow. If that's true, why don't you hire a short-term rental management company and do it yourself? You'll make more than $200 extra a month and you'll maintain control of your property.

Nathan Gesner · Answer

This question is asked quite often and the answer is always the same: avoid it.

AirBnB Arbitrage is often run by people with no business experience looking to make a fast buck. When that fast buck dries up, they will abandon your property and leave you in a lurch. You have no idea how well they will maintain the home, who they will rent to, if they will obey the laws, pay the taxes, insure it properly, annoy the neighbors, etc.

If your home can legally be used as an AirBnB and will generate more income, figure out how to do it yourself and you'll make more money. Otherwise, stick to your game plan.

Scott Babb · Answer

After reading @Nathan G. post I must agree with him. It’s a tough lesson to learn but ALWAYS TRUST PROFESSIONALS!

Alex Moazeni · Answer

@Nathan G.

They already agreed to pay $200 more and they will provide thier own insurance and home warranty.

They will be responsible for regular maintenance.

And they will sign the lease for 2 years.

What do you think?

Thanks

Arbitrage good idea?

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