Are you doing AirBnB arbitrage?

Question

Hello BP!

I will be starting my own AirBnB arbitrage with a landlord soon and I’m incredibly excited because the market where I am is amazing for it! I’m curious about the contract that you have with your landlord. Ive fully disclosed my intentions with my landlord and even brought him on as a partner for multiple reasons. But we are still going to have a contract in place covering both of us and would like to take a look at some of your contracts so I could bounce ideas off of it. Also if you had any recommendations for someone that is just starting out utilizing this business model that would be appreciated as well. Thanks for your time!

Jeff

David Bergmann · Answer

Hey Jeffrey - I won't comment on the business model except to say that I don't think it's going anywhere.  I believe in the long run there will be a singificant subset of AirBnBs run by professional managers with other peoples properties (like a property manager).

To answer your question on contracts, you should really look into "AirBNB Automated" channel on YouTube. Sean is an excellent resource and has numerous youtube videos where he goes deep into contract language. He manages about 90 properties using this business model, and has some really great experience on how to pitch landlords, write contracts, setup automation, manage your listing, etc.. This is a free resource - no need to buy some gurus "course". Also, he has a huge following/community on Facebook, and you might find a more receptive audience from folks who know this business model a bit better.

Good luck!

Jeffrey Bresch · Answer

Each of you offered a bit of skepticism in some way or another which is slightly alarming for me. Maybe I can clear some stuff up so I can reach out for a more vivid picture of what I am up against.

I’m currently living on Guam, and not to be biased but it’s a tropical paradise. It is a VERY hot market for the business model because the local government recently came out with an implementation of short-term rental licensing. Which means not very many people have the new license thus decreasing competition. I am also privy to all local tax laws and regulations. I understand this business model doesn’t work everywhere but I am fairly confident it will work in my market due to the fact that tourism is the #1 source of income for the island.

Not only is my landlord privy to my intentions but wishes to partner with me as well. This benefits me for a number of reasons a couple of which being; repairs/ cost will be paid by him, I will also not be locked into a monthly contract with him because we will be partners so seemingly there’s actually no risk in it for me.

Again, I know this will NOT work in every market all the time but I have done enough research to feel confident to pursue it here. I appreciate your considerations and look forward to hearing anything I may have missed or anything that I may need to tweak!

Paul Sandhu · Answer

Go for it man!  I think you are in a unique position sort of like myself.  Your market is probably different than what most of us would have.  Take mine for example.

We had a large employer (Amazon) pack up and leave.  1800 jobs gone in a county of about 30,000.  Lots of bank foreclosures here. This probably happens to 1 out of 100 counties in the country.

But we still have another large industry here.  A refinery.  There are a lot of high paying temporary jobs at the refinery.  Those people need a place to stay.  This is probably the case with 1 out of 100 counties in the country.

I get to meet all the contractors coming to work at the refinery before they start working.  This is probably the case with 1 out of 5000 people in the country.That's when I give them a sales pitch about staying in one of my furnished houses (that I have been buying for $9500) while they stay here for work.  Most get $600/week per diem.  I charge $200/week for every bedroom in the house, and I rent out the entire house to a group of co-workers.

If you have ever taken a class in statistics or probability, using the above numbers (100 x 100 x 5000) means 1 out of 50 million people are going to be in a position like me.  A place to buy houses relatively inexpensive where there is a steady demand for short term rentals and you get to meet all the people before they start work.

I've posted what I've done on non-real estate forums and half the people think I'm full of b.s.  The other half realize that people that get a per diem can cook and do their laundry for less than staying in a motel when they stay in one of my houses.

Spencer Gray · Answer

I've always thought the concept was interesting from the standpoint of being able to increase overall occupancy at one of our multifamily properties. However, on the operations side running what is essentially a scattered site hospitality business seems like a very steep climb. The only way to scale is to actually get into the hotel business.

As a MF owner/investor I love the idea of someone and taking vacant units and keeping them full, taking some of the downside risk but only if they have the proper systems, legal framework in place, and it doesn't disturb actual residents.

Nathan Gesner · Answer

Have you verified zoning allows for short-term rentals? Do you understand the laws for your state/county/city? Are you aware of what taxes will be owed and how to file them? Do you and the Landlord have the appropriate insurance? Besides getting permission from the Landlord, do you have a written agreement spelling out exactly what is or is not allowed? How many people you can have over? Who pays repairs?

I'm not a fan of arbitrage, primarily because I think there are too many amateurs doing it without Landlord permission or without following the law. I hope you're not in that category.

Ken Latchers · Answer

"Also if you had any recommendations for someone that is just starting out utilizing this business model that would be appreciated as well."

for most people, the strategy will turn into Fool's Gold. Especially those relatively new to short-term rental. Having a landlord in a business relationship is certainly helpful. But if you don't have an out, you may find the impending economic downturn and the rapidly growing number of eager Airbnb wannabes and a lot of risk you probably don't even understand can turn this into a disaster. Especially if you follow the Lemmings who want to scale as quickly as possible.

I do Arbitrage my own way. I buy carefully chosen real estate in good markets, using the bank's 80% at 6 or 7%.

the Arbitrage? Using an owned property as long-term instead of short-term rental.

all the improvements belong to me, the long-term appreciation and pay off for the mortgage belongs to me, which will probably roughly equivalent to the profit over a 15-year.

you will have all the risk and none of the benefits. It goes south, I can long term rental. You get the chance to go under with a lot of leases you're stuck with. Fools Gold for most.

excited? After all, it's not the fall but the sudden stop at the bottom of the cliff that's the problem

James Wise · Answer

Seems like an overly tough way to make a living. Tons of risk with this. You've got municipality scrutiny along with real estate license laws to worry about. Not to mention all of the service work required without any of the benefits of property ownership. No way Jose.

John Underwood · Answer

I consider this a bad idea. There are many posts here on BP with the many reasons why.

Luke Carl · Answer

This topic is brought up on this forum daily. The regulars including myself frown upon it so be prepared. Just search the forum for "arbitrage" and you'll see 100s of posts. It can be done. It's hard work. It's not for me. Check out Brian Page of course. He was on a recent episode of Cardone Zone.

Are you doing AirBnB arbitrage?

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