MTR Arbitrage: Yay or Nay?

Question

Hello All,

I've been searching in Northern VA for some time now to find a property as a primary residence to rent out as an MTR during my own travels. If you're from the area you know NoVA isn't the easiest place to traditionally buy.

I have a storage unit full of good-quality furniture that I'd love to make use of (and save on that monthly bill). I've been aware of the concept of AirBnB Arbitrage and recently put 2-and-2 together that arbitrage should work with a MTR as well.

Happy to hear any thoughts and stories on the strategy!

Mohammed Rahman · Answer

Hey @Aaron Dixon - I am normally averse to rental arbitrage whether it's STR or MTR. Your business model could vary and it might be perfect for your location.

Arbitrage requires a lot of work without any tax benefits or long term advantages from holding onto real estate (depreciation, write offs, expenses, etc.)

Additionally, if you're looking in a high cost area, keep in mind most landlords will be sharper than your traditional mom-and-pop and won't necessarily love the idea of renting to you only to have you sublet their house to strangers.

Allen Duan · Answer

There's no reason rental arbitrage won't work for MTRs. It just comes down to the numbers like anything else. Is the juice worth the squeeze, as they say. We have 10 MTR arbitrage units in Los Angeles and they've been great for us, especially the smallest units. The furnishing cost vs monthly profit ratio is much better than larger properties.

Bonnie Low · Answer

I don't personally like arbitrage because a) you don't have ultimate control over the property and b) you don't get many of the tax advantages of owning your real estate. That said, many people are quite successful in the arbitrage space with midterms. In your case, when you already have the furnishings and are paying to store them it could make sense.

Kenny Smith · Answer

@Aaron Dixon

Love the idea!  I would agree with Bonnie as there are many more benefits to owning the property outright, but if you are tight on capital, I think this is a great option.

So I use a real estate prospecting platform called RedX to prospect for all sorts of different leads for my agent business.  However, you could easily use this to connect with landlords looking to rent their place out.  The lead source is called For Rent by Owners.  You'll get an updated list each day and you can just call each one.  That would be the most efficient way to find these arbitrage opportunities in my opinion.

Best of luck!

Kenny

Zane Cress · Answer

I currently have 3 MTR via arbitrage to complement the cash flow of my 8 unit portfolio. I don't get the tax advantages and I don't build equity but it does have benefits, mainly cashflow and testing the expansion potential of the business model in my area without having to commit too much up front cash. Also with my local prices the rent is cheaper than what my mortgage would be on anything else I could by right now. So if you can make the numbers work and then I say get started somewhere.

Zane Cress · Answer

I use their standard lease agreement I just make sure the option to sub lease is in the contract and they know what I plan to do with the property. The master lease makes you responsible for the whole place and then allows you to sub lease at your discretion. Also put in there that you will be operating the unit for a profit and will not profit share with the owner of the property. Then you can Airbnb out of it or run MTR. If you are using your own leases for 1+ month contracts just make sure they are up to state standards and legal.

Zane Cress · Answer

I handle all repairs myself but a burst pipe would be something that an owner would handle in my opinion, unless you were supposed to drip the water during a freeze and did not. Then I would imagine the owner puts it on the tenant because they are the reason that pipe busted. But you can pass all of your responsibility on to that sublease if you want. But typically in these cases it should be your responsibility since this is your business and your tenants are there for a short period and they are using MTR because they don't want to deal with any of that responsibility while they work/travel/etc.

So picking a newer property in decent shape with newer appliances might be a big part of your search. Older property might leave you with more problems.

Jamie Banks · Answer

Hey, no Reston hate will be tolerated!! But there's actually a lot more demand in Reston that I anticipated. Some of the major employers for travelers has been Reston Hospital, USGS (it's HQed in Reston), Google and Leidos employees, and construction workers building the new Marriott building near Wiehle Ave metro station.

I understand your pain on the toll road / Leesburg pike, it's the worst

Fairfax gets a lot of requests too because of INOVA and I'm seeing more and more requests in Ashburn from medical professionals and tech workers working at the newly built data centers

Nicholas L. · Answer

@Aaron Dixon

sounds like you're trying to house hack.  agree that it's incredibly tough in Nova.  I used to live there, still own a condo in Arlington that I rent out and break even on.  here's my advice:

-don't give up on buying a house hack

-expand the area you're looking in

-keep looking and making offers that work for you until you get one

Konstantin Ginzburg · Answer

@Aaron Dixon

I think that this could work if you find the right property and a favorable lease but I would be hesitant. Many people who got into arbitrage are struggling at the moment since books are down for many. I think that the profit margin between an arbitrage with MTR instead of STR is also likely going to be lower. Again, this will be very dependent on finding the right property that will still allow you to cash flow. One of the downsides to arbitrage is that the return on investment for it is completely dependent on cash flow; unlike other real estate investments where you can also take advantage of debt paydown, tax benefits, and equity accrual. I think your idea is absolutely possible to do and if you go through with it; I really hope you are able to succeed.

MTR Arbitrage: Yay or Nay?

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