Airbnb Arbitrage as a stepping stone into STR

[Erica Lee]

Need some thoughts. 

Do you guys think rental arbitrage is a good stepping stone to build some cash and experience before getting into purchasing and doing STR with a property I own? In my situation, I do not have much to invest (maybe $10k-19k) so I have heard that airbnb arbitrage could be the best solution with the proper research and strategy. Let me know!

[Michael Baum]

Hey @Erica Lee, I am going to be the cloud of reality on all this sunshine blowing your way.

Arbitrage is a tough row to hoe. It is easy to lose it all with one issue. Regs change, owner decides to stop leasing to you, pandemic...there are a lot.

So any owner who knows anything will ask for above market rates for their place you want to STR. That will be after making 100 calls with them all saying no.

Let's say they just want a year lease. Ok, so that is first, last and deposit. So maybe 5k of your saved cashola.

Now you have to outfit. Let's say it is a 2/2 in a trendy area that allows STR. You will be looking at a certain demo that will want certain things. More upscale maybe. You can expect to pay about 10k per bedroom to outfit the property in total. That would soup to nuts done and ready to hit the market.

Now, if you do well, then maybe the landlord sees that and says I can do that and won't reup the lease. Now you are stuck with a ton of furniture you have to either give away or store. Maybe sell for pennies.

Honestly if you can save up 19k, you can save up 30k to buy your first place. Scrimp, live cheap etc.

If you are a single person, or maybe with a partner, look at the FHA multifamily loan program. 5% down on up to a 4 plex. Live in one, rent the other 3. They pay your mortgage and maybe a little extra.

Then you refi after a year or so, fix up your unit and do it all again with another FHA loan. Then again. Now you have 4 multi family units performing for you and it is a great first layer to branch out to STRs.

That is what I would do if I was still young.