Arbitrage... when will the folly restart?

Question

I am just wondering how many more weeks or months it will be until newbies with that deer-in-the-headlights look start wandering in:

hey, have any of you heard  about Arbitrage,  where you don't have to buy the property to make a lot of money?  What could possibly go wrong?

I saw a course  about Master Lease  yada yada yada

Did you know you could  arrange 50 to a 100  units  in just 3 months  and make a bazillion dollars for only 5 hours a month totally risk free? I wanna scale fast...

You guys are doing it the hard way...

*sigh*

John Underwood · Answer

I wish we could see statistics on how many of rhe people lost their shirts trying to rent other peoples houses. Most likely had no reserves.

Someone will start back promoting how they can get rich with no money of their own and a new group of doe eyed followers will replace the failed group that preceded them.

Don Konipol · Answer

@Ken Latchers

The arbitrage business promoters seem to be focused on the major cities rather than the vacation destinations, except for Disney World.  Since most or all big cities are in some form of lockdown, promoting StR arbitrage in the current environment is a non starter, except maybe conceptually.

In 2015 I set up a STR company in NYC using the arbitrage model, which my daughter ran.  We actually were very profitable for 6 months, until the city decided to pass and enforce some very tough regulations making the business subject to large fines.  Some of the buildings we were in were fined $10,000 per day for allowing us to operate.  Despite having valid contracts with these buildings we decided not to fight it out and essentially the building management bought out our leases.  We could have probably continued to operate with minimum of 31 day stays, but the profitability of that wasn’t attractive.

I’m not as down on the arbitrage model as you.  Like any other small business, there is a huge failure rate.  It is a lot more difficult business than people are led to believe, and requires a higher level of skill than most wannabes possess.  But I do know a number of operators who have made a success of this model.  The biggest negative I see with this model is that it’s nearly impossible to build any equity value in the business itself, and that’s the real payoff of getting into any operating business.  Without being able to build equity in a business, you’re really just have a job.  That being the case, I don’t see how the risk and capital investment is worth it, unless the operator hits a market where the returns are unusually high.

I think if we did a study of the naive people who think the StR arbitrage model is the Holy Grail, wed find that the same people previously thought that of multi level marketing, real estate wholesaling, and currency day trading.

Nancy Bachety · Answer

During the last several months, we’ve read of STR owners converting to LTR. This means more of them and fewer options for short term stays. It’s bound to happen, STR arbitrage.

Evan Polaski · Answer

@Ken Latchers, when will arbitrage come back in favor... I have a longer term approach on it.  The news of airbnb hosts taking it on the chin, especially those that overpaid, under reserved and in general didn't practice sold business practices, is wide spread.  Combine that with the general decline of travel for the foreseeable future and it could be awhile.

Paul Sandhu · Answer

Probably when the Airbnb rentals start to get filled again.

Ken Latchers · Answer

we used to get 4-5 a week at peak arb... No one listened  Time for round two.

Arbitrage... when will the folly restart?

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