Short Term Rental Arbitrage

[Evan O'Brien]

Hello, with short term rental arbitrage is that when you sublease a property and rent it as a short term rental? Depending on the location of the property would it be best to use STR arbitrage for individuals going on vacation or to use it as corporate housing for the short term? I'm very interested in finding out more what about what the uses of STR arbitrage are!

[Don Konipol]

@Evan O'Brien

Most regulars on this forum are dead set against arbitrage as a business model, you can do a search on BP for this forum and find all the reasons why. Undoubtably, some people have built companies successfully on the arbitrage model. I will summarize the arguments others have stated for why they dislike the arbitrage model

1. No equity buildup as there is with real property ownership

2. If successful the property owner is likely to not renew lease and run as STR himself

3. Much more cash intensive than one is led to believe;, security deposit, first months rent, furniture, furnishings, operating capital to sustain initial negative cash flow, permits, licensing, taxes.

4. If the model doesn’t work you’re liable for the lease payments with little or no income

5. The best properties and locations won’t be available as landlords have many more attractive options. Hence, you’re left with the secondary locations with property in less than excellent condition.

In answer to your question, in general monthly or longer rentals won’t allow enough of a price difference for arbitrage to pay; you’ll need the greater income of daily rentals to be profitable.

[John Underwood]

Well said @Don Konipol

[Quinn Olivarez]

Just to add to the list of reasons STR arbitrage sucks. It's bad for the long term tenants of the property. Condos and apartment complexes aren't built to be treated like hotels, and very intentionally offer hotel-like amenities to guests to justify the rents. When folks do arbitrage in these properties, the pools and common spaces become effectively unusable for tenants. I lived in a building where illegal arbitrage became a rampant problem, and it significantly lowered the qualify of life for all us tenants.

Good business ethics means you need to evaluate how you affect the people around you, not just your customers. Rental arbitrage is a silly investment (even a broken clock is right twice a day) that has negative consequences for other relevant stakeholders. Don’t do it.

[Andrew Street]

Evan,

Everything the people above commented are truths about the pitfalls of STR.

However, there are many who find a ton of success using arbitrage. If it cashflows, does it really matter what method you use? Of course there will be many opportunities that don't work out, which is why you should be selective. Arbitrage is a great strategy when you consider the cash flows you could have.

Additionally, you should know that renting out nightly's is not the only airbnb strategy out there. You can choose to rent out for months at a time as well which is an entirely different market. Furnished Finder is a great platform to find traveling nurses. So consider the location and see how you can provide value to an area.

Be careful of the concept, "This will never work". Instead ask, "How can this work?".

No doubt that you will find exactly what you are looking for. Keep grinding!

Always feel free to reach out as well!

[Evan O'Brien]

@Andrew Street thank you for the feedback! And I agree, I think it’s great to have the mindset “how can I make this work?” I’ll definitely reach out and send you a message if I have any other questions!

[Zeona McIntyre]

Hey Evan, 

Even though arbitrage can work, there are a few other strategies to consider: 

-Cohosting - Managing others properties, this is a $0 investment strategy and you make a percentage off of all of the bookings. 

-Renting out where you live - even if you are just renting, this is a low commitment way to arbitrage to learn the ropes and see if you like it. We use petistting to get out of our home frequently and rent it out. There are apps now that let you stay in luxury homes for free while renting your home. Reach out if you want more info. 

-Buying a property. Sure, you might not be able to afford one where you live, but how about out of state? I can connect you to different options at different pricepoints to get you started. 

[Evan O'Brien]

@Zeona McIntyre Hey Zeona,

Thank you so much for the feedback! I’ve been thinking about purchasing a rental property out of state or in upstate New York since I live on Long Island and the barrier for entry to purchase a rental property on Long Island is quite expensive. If you have any suggestions for markets or price points to purchase a property out of state that would be greatly appreciated!

[Scott Johnson]

The pitfalls are definitely noted, but I would say that it's a very viable option if you do these things:

- Make sure the landlord is fully aware of what you're using the unit for

- Read the Homeowner's Association Bylaws and Rules (If applicable)

Even though there's a risk of the landlord wanting to take it over, you're taking all of your stuff with you when they kill the lease, so the heck with them. Have at it and find another. 

Pay close attention to @Zeona McIntyre's post, @Evan O'Brien. She just gave you a"work to learn" strategy, which is what I always do when I'm learning a new skill/investment strategy. 

[Andrea Kendall]

Do people on BP hate arbitrage? Yes
Can you make money doing it? Yes
I heard on one of the STR podcasts that arbitrage should be a part of every STR portfolio, along with cohosting, and owning. Each method has their pros and cons - but together they make a complete portfolio. I can't remember the exact numbers, but it was something like "For every one STR owned, you should have 8 arbitrages, and 16 cohosting". It was like a pyramid of STRs and it was an interesting idea.

[John Underwood]

Quote from @Andrea Kendall:

Do people on BP hate arbitrage? Yes
Can you make money doing it? Yes
I heard on one of the STR podcasts that arbitrage should be a part of every STR portfolio, along with cohosting, and owning. Each method has their pros and cons - but together they make a complete portfolio. I can't remember the exact numbers, but it was something like "For every one STR owned, you should have 8 arbitrages, and 16 cohosting". It was like a pyramid of STRs and it was an interesting idea.

I'm not sure who this person is that recommended arbitrage if you can afford to actually be an investor and buy properties, but I would dare say they are an idiot. I get it if you can't afford to come up with a downpayment and you do arbitrage or work at Wallyworld to come up with the downpayment. 

[Davian Akers]

What about a house?