Better Arbitrage Idea

[Ken Latchers]

Since I was on a soapbox on a different thread here,  I want to give my opinion on Arbitrage. 

Recently, Eric Moeller  who is running an  Airbnb success type business,  has abandoned the Arbitrage model in favor of a co-hosting model. the reasons he gave were pretty sound.

Ignoring the people who claimed to find furnished units they can Arbitrage, which is pretty much fantasy, Eric was pretty much pointing out they had to spend 20 to $25,000 on units which they did not even own.

And he talked about many other problems such as zoning that became you could not do short term rental unless you lived in that building. Or owners who decided to do it themselves later. And it made it hard to get a profit with a lot invested in it.

They were talking about things like a 3 year Payback with the investment required.

So now you have your 20 Doors, and the city says you can no longer do your vacation rentals. For people who were doing Arbitrage, co-host is probably a much better choice. It can get around that problems that crop up in the future

My business is a different kind of Arbitrage. I buy lower cost units that are aggressively priced, I put in the needed work, using an investment mortgage, and 20-25% down.

The Arbitrage is the vacation rental income as compared to what I could get if I rented out my property to long-term tenant.  I am using other peoples money (bank) 

I build up equity. Improvements I make belong to me and not the landlord. The furniture belongs to me. No one can throw me out later or decide to change his mind after I got it ready. I pick a place that is vac rental friendly and has good volume. 

Good business practices are to not get ahead of yourself. This constant focus of newbies on rapid scaling and unreasonably cheap furnishings fixtures and equipment are no guarantee of success. With little concept of how complex the VR biz can be. 

It is sort of like somebody who buys a franchise and decides that owning 10 franchises will make him rich 10 times faster. You don't have to worry about business process or understanding a business, he just needs to expand rapidly without worrying about the things that make a business more successful. 

Arbitrage also is where you have 100% of the problems and expenses, but you have to deal with a lot more properties to make the same amount of money.