Loftium – AirBNB arbitrage gone wrong

[Dave Gaines]

Since it was BiggerPockets Forums that gave me good feelings about deciding to work with Loftium, it seems fitting to post, here, the outcome of this experience.

I have a house in SeaTac, WA which is split into 2 separate units. Each unit has 3 bedrooms, 1 bathroom, a kitchen and a living room with fireplace. I originally attempted to rent this to either a multigenerational family or to 2 smaller families but was unsuccessful. I had been listing the house for $3,800. (This was about market but not "priced to move".) My mortgage is $2,700 but I have so much into this house, ROI is a long way off.

In any case, then I found Loftium.

Loftium’s business is a slight spin on the “traditional AirBNB arbitrage” you have read about. They look for houses with 2 spaces. They put a long-term renter into one of the spaces then they furnish and AirBNB the second space. The long-term renter is the co-host and manager. The long-term renter gets below-market rent, Loftium gets the AirBNB money with virtually no additional work, the Landlord has a stable renter in place. Win-win-win.

Up Front Problems:

The first clue to this not being as sooth an operation as I was led to believe was the pricing. They offered me a tiered approach:

• $3,100 – Guaranteed
• $3,200 – if the Subtenant pays $1,619 or more in rent
• $3,300 – if the Subtenant pays $1,869 or more in rent

Of course, I had no control over choosing the sub-tenant nor how much they would pay. They put someone in at $1,597.

• They collected a security deposit from the sub-tenet but didn’t want to pay a security deposit to me since “we are a company”.
• They wanted access to the house to show it for 1 week before they started paying rent.
• They wanted a 3-year lease via DocuSign, which isn’t legal in this state without notary.  (I only agreed to sign a 1-year.)
  

On the other side of the equation, the long-term tenant seemed to not get a square deal:

• They got no training on how to be a host. There was no course or guide. They we just told that the posting is live and someone will be here this weekend.
• They long-term renters were told that they had to furnish several things in the rental unit… including TVs!
• Loftium set the rent for a 3 bedroom to be less than a local motel. This keep bringing in difficult AirBNB customers and the long-term renter gets to handle the problems.
• The long-term renter is not allowed to block out days nor take any time off of hosting.
• Loftium sets the cleaning fee at $65. The long-term renter is expected to pay utilities and clean the unit, getting a $60 kick-back per stay.

Then COVID-19 hit:

Timing on this one was rough. The long-term renter moved in on 3/11/20. This was just as things were getting bad here in the Seattle area. The rental unit was only half finished when the constant stream of Amazon deliveries stopped. The renter had to fill the gaps for things that never showed, such as providing a dining room table and curtains over the sliding glass door.

The Reduced Rent:

After receiving pro-rated rent in March. They called and told me that the short-term rental business is on the rocks and they couldn’t afford rent in April. They were going to either pay me $1,600 (the same as the sub-tenant rent) rather than $3,100 or they were going to stop paying altogether. Finding new renters was impossible. There is a moratorium on evictions.

They sent me a contract saying that, for the remainder of the rental contract, rent would always just be $1,600.  Of course, I don’t make long term decisions based on short term problems, so I countered with accepting $1,600 for April and May and then let’s revisit in June. (I didn’t agree to reduce rent, only to not pursue for the time being.)

During these 2 months, they continued to rent the AirBNB unit. This means that they have been making profit (albeit a small one) while I have been loosing out big time.

They took the cash and ghosted me:

This brings us to June. In June I didn’t get the $1,600 any more. I got nothing. They still collected the $1,597 from the long-term renter and whatever is from AirBNB but now they just use my house for their own profit.

In any case, I have no recourse right now. Evictions are banned. AirBNB says that I can’t take over the listing on my own house. Loftium doesn’t return emails or texts. (It has been over 2 months since I heard from them at all.)

The long-term renter has done nothing wrong nor the AirBNB customers who have booked stays however all the moves I have will likely come back and hurt someone else.

So that’s my story…

caveat emptor!