Outsorucing rental homes for short-term rental propety management

North Charleston · Member since 2021 · 11 posts · 1 vote

I was contacted by someone on Zillow wanting to use my rental home for short-term rental property management listed on AirBnB, VRMO, etc. Has this happened to anyone else?

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Andrew SteffensBusiness Member

Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes

Yes this is likely someone trying to arbitrage your house. Essentially they pay you guaranteed rent each month in exchange for your permission to re-rent it out nightly on STR sites like Airbnb etc. In theory they should turn a profit each month, and if they do not they still have to pay you the set rent as well as the utility cost as well as up front cost like furnishing. If this is of interest to you, I would suggest looking into furnishing it yourself and then turning it over to a STR Property Management company, you would be cutting out the middle man and essentially doing the same thing for (hopefully) more money.

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Andrew SteffensBusiness Member
Tampa, FL · Member since 2022 · 4k+ posts · 3k+ votes
2y
Yes this is likely someone trying to arbitrage your house. Essentially they pay you guaranteed rent each month in exchange for your permission to re-rent it out nightly on STR sites like Airbnb etc. In theory they should turn a profit each month, and if they do not they still have to pay you the set rent as well as the utility cost as well as up front cost like furnishing. If this is of interest to you, I would suggest looking into furnishing it yourself and then turning it over to a STR Property Management company, you would be cutting out the middle man and essentially doing the same thing for (hopefully) more money.
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
2y
Quote from @Andrew Steffens:

Yes this is likely someone trying to arbitrage your house. Essentially they pay you guaranteed rent each month in exchange for your permission to re-rent it out nightly on STR sites like Airbnb etc. In theory they should turn a profit each month, and if they do not they still have to pay you the set rent as well as the utility cost as well as up front cost like furnishing. If this is of interest to you, I would suggest looking into furnishing it yourself and then turning it over to a STR Property Management company, you would be cutting out the middle man and essentially doing the same thing for (hopefully) more money.
Whether you rent to someone arbitraging the property or utilize an STR property management company, you are “paying” the cost of a middleman; one way through an expense item and the other way through a reduction of income. Theoretically paying a third party manager SHOULD be less expensive since the manager is not incurring the risk that the arbitrage company is.
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
2y
Hey @Katie Konner, this is something that happens to a lot of owners.
It is something that can work for you, but it really depends on who it is.
I would be very wary.
Also, you should check and see if your house is even able to be a STR. There are restrictions around Charleston as far as I know.
Some arbitrage folks are less that reputable. They will set it all up even if it isn't legal to do one.
They will run it until you, as the owner, start getting fines.
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Patricia Andriolo-Bull
Member since 2022 · 529 posts · 413 votes
2y
Quote from @Michael Baum:

Hey @Katie Konner, this is something that happens to a lot of owners.
It is something that can work for you, but it really depends on who it is.
I would be very wary.
Also, you should check and see if your house is even able to be a STR. There are restrictions around Charleston as far as I know.
Some arbitrage folks are less that reputable. They will set it all up even if it isn't legal to do one.
They will run it until you, as the owner, start getting fines.
What Michael said. I have a STR that during the fall months I put on Zillow to attract a different customer for longer term (it’s our slow season). I received a similar request to your from someone that wanted to arbitrage. My HOA doesn’t allow monthly rentals but they didn’t know that or care. Personally, even if they did, I wouldn’t do this. Too much risk for very little reward to you. If you can do a STR, do it yourself.
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
If it were legal to do I would want a higher rent and a large deposit due to the extra wear and tear and risk.
Make sure they personally guarantee the lease (no LLC).
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Michael SmytheBusiness Member
Real Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
2y
It's arbitrage and risky as you don't know who they will rent to or how much liquidity they have to back up their guaranteed rent to you.
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Katie Konner
OP
North Charleston · Member since 2021 · 11 posts · 1 vote
2y
Thanks everyone for the insight. I've been a 5 star host in the past - who knew there was a business model for this STR arbitrage?
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Michael BaumPro Member
Olympia, WA · Member since 2016 · 8k+ posts · 7k+ votes
2y
Hehe @Katie Konner. Pretty much everyone on this site. :)
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Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
I have to chuckle when I read these posts, I always wonder if I know of the person call landlords through Zillow. This is not necessarily an arbitrage call but could also be a company seeing if you're interested in upping your returns on the property, by purchasing furniture and having a STR that they would manage for you. So even though everyone thought of arbitrage right away, there are other options that companies could be calling you about. I would get clear info on what the expectations are and then make the best decision for you and your goals!
[email protected]330-557-3021
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Katie Konner
OP
North Charleston · Member since 2021 · 11 posts · 1 vote
2y
@Sarah Kensinger Who wouldn't want to up their returns, but how do I if the STR Manager is paying a set monthly rental rate?
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Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
Quote from @Katie Konner:

@Sarah Kensinger Who wouldn't want to up their returns, but how do I if the STR Manager is paying a set monthly rental rate?
Because STR managers have the systems and processes in place that can yield upwards of 20% more in revenue then self-managing. Plus, their entire "9 to 5" is dedicated to managing a STR, not squeezing it into their life and in-between other work. Unfortunately, not all STR PM companies bring exceptional results, since there are plenty that bring mediocre work and guest experience to the table. But if you can find a company that has surrounded themselves with A+ players in the industry and has the dedication to making the STR a 5-star experience for everyone, it's worth their 20-25% fee!
[email protected]330-557-3021
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Katie Konner
OP
North Charleston · Member since 2021 · 11 posts · 1 vote
2y
Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
Quote from @Katie Konner:

Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?

Yes you would require a higher rate, a bigger deposit, a personal guarantee from lessee etc to minimize your risk and compensate you for the higher wear and tear.
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Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
Quote from @Katie Konner:

Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?
I need a bit more clarification on this question but if I'm understanding right, here is my answer. If not let me know and I can clarify...
If it's an arbitrage agreement then no you wouldn't have a higher return, it would be your typical LTR amount for the area. But if you have a STR and then hire a property management company to manage the STR, it could yield higher returns then self-managing. That is if you partnered up with the right PM company.
[email protected]330-557-3021
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Zachary Cain Humphrey
Investor · KY · Member since 2022 · 204 posts · 77 votes
2y
I have contacted many landlords over doing rental arbitrage in their properties. In technicality the manager is the person who signs the lease agreement with you. You put in the lease an addendum to allow subletting or arbitrage. Technically just as the landlord you are going to make market rents, but the person doing the rental aribtrage is likely making more profit. After all expenses a good rental arbitrage should cash flow 800 -1000$ /month.
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Richard Elvin
Investor · Cleveland, TN · Member since 2016 · 280 posts · 187 votes
2y
@Katie Konner Search these forums for "arbitrage" and you'll see there are a few that advocate for it, a few are cautious, but will do it with thorough due diligence and well vetted arbitrager's, but most of us that have landlord experience are opposed.

Personally whomever would want to arbitrage one of my properties would have to have an excellent business plan. They would have to be capitalized well enough that they can sustain the lease even if things don't go as well as hoped and have assets I could put a lien/judgment against if things go sideways, these would either have to be in there personal name or in whatever LLC they're signing the lease with. They would have to sign a personal guarantee as well. I would require a clear lease with detailed expectations of who is responsible for repairs that was for a minimum of 36 months, with rent escalating annually.

Even then I would most likely go with a good property manager vs some random person. A property manager takes their cut off the top, so the better the property does the more you make. An arbitrager's business is somewhat adversarial in that they want to rent for less than they'll make and then they pocket all of the difference vs taking a cut and you pocket the difference.

Several of us have written ad nauseum about why this is usually a bad idea for the property owner. Again, search through these forums and you'll find there are very few, but there are some, landlords that feel this is a good fit for them. Most of the people making money off of arbitrage are the youtube guru's promoting this as the next "get rich quick" scheme. The property owner is the one left with lien's/judgments against their asset if the arbitrager racks up fines from the city/county or gets sued for negligence.

Is the property they're asking about in Charleston?
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
Quote from @Sarah Kensinger:

Quote from @Katie Konner:

Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?
I need a bit more clarification on this question but if I'm understanding right, here is my answer. If not let me know and I can clarify...
If it's an arbitrage agreement then no you wouldn't have a higher return, it would be your typical LTR amount for the area. But if you have a STR and then hire a property management company to manage the STR, it could yield higher returns then self-managing. That is if you partnered up with the right PM company.

As an owner allowing Arbitrage you should absolutely require higher than market rents and a larger deposit to offset your risk and the increased wear and tear. That's what I would do anyway.
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Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
Quote from @John Underwood:

Quote from @Sarah Kensinger:

Quote from @Katie Konner:

Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?
I need a bit more clarification on this question but if I'm understanding right, here is my answer. If not let me know and I can clarify...
If it's an arbitrage agreement then no you wouldn't have a higher return, it would be your typical LTR amount for the area. But if you have a STR and then hire a property management company to manage the STR, it could yield higher returns then self-managing. That is if you partnered up with the right PM company.

As an owner allowing Arbitrage you should absolutely require higher than market rents and a larger deposit to offset your risk and the increased wear and tear. That's what I would do anyway.

Depends on the landlord and the type of person they are. I rather would advocate for the arbitrager to agree on handling all maintenance expenses. That seems to work out quite well for everyone! Besides an arbitrage unit as a STR, is left in far better condition than long-term tenants. Especially since a STR must be in pristine condition at all times to market well for guests.

[email protected]330-557-3021
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John UnderwoodPro Member
Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
2y
Quote from @Sarah Kensinger:

Quote from @Katie Konner:

Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?
I need a bit more clarification on this question but if I'm understanding right, here is my answer. If not let me know and I can clarify...
If it's an arbitrage agreement then no you wouldn't have a higher return, it would be your typical LTR amount for the area. But if you have a STR and then hire a property management company to manage the STR, it could yield higher returns then self-managing. That is if you partnered up with the right PM company.

A STR PM is likely taking around 30% of gross income.
I think self managing and doing it well can have higher returns than a PM.
You are already 30% to the plus.
Yes if you don't have time and energy to do a decent self managing job then a PM could do better even after the 30% hit.
It depends on a lot of variables.
Self managing takes some time to do it right and you need to be committed to doing a good job.
For some people self managing is a better option, for others using a PM is a better option.
At the end of the day there is no one more interested in your sucess than you.
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Sarah KensingerPro Member
Real Estate Consultant · OH · Member since 2023 · 2k+ posts · 1k+ votes
2y
Quote from @John Underwood:

Quote from @Sarah Kensinger:

Quote from @Katie Konner:

Thanks for clarifying. How do you earn more returns on a locked-in monthly rate? Is it through a higher rental rate – $2.4k vs $1.8k, for instance? How would one determine this?
I need a bit more clarification on this question but if I'm understanding right, here is my answer. If not let me know and I can clarify...
If it's an arbitrage agreement then no you wouldn't have a higher return, it would be your typical LTR amount for the area. But if you have a STR and then hire a property management company to manage the STR, it could yield higher returns then self-managing. That is if you partnered up with the right PM company.

A STR PM is likely taking around 30% of gross income.
I think self managing and doing it well can have higher returns than a PM.
You are already 30% to the plus.
Yes if you don't have time and energy to do a decent self managing job then a PM could do better even after the 30% hit.
It depends on a lot of variables.
Self managing takes some time to do it right and you need to be committed to doing a good job.
For some people self managing is a better option, for others using a PM is a better option.
At the end of the day there is no one more interested in your sucess than you.

30% is rather high for a PM, not even a boutique STR company charges that much! Self-managing all depends on a homeowner's lifestyle, commitments, and to be honest some people just aren't good at hosting. So that's why it's a more of a personal decision according to each one's goals. There have been studies that the right PM company (not the well-known nationwide companies) does generate more revenue, but it's been a while since I looked to see if a more recent study has been done. But it all depends on the owner, their priorities, and what they want to put their energy towards.

[email protected]330-557-3021
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Corby GoadeBusiness Member
Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
2y
Yep- arbitrage. As an owner, there's really no benefit to arbitrage, the operator is the only one who wins.
If your property would truly perform well as an STR, just hire an STR manager and then YOU will get the benefits of the improved ROI, instead of the person trying to arbitrage your property.
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