All Forum Posts by: Corby Goade

Hi everyone! I’m very new here and have so much to learn. I have read many books and listen to audiobooks and podcasts everyday so I’m learning more everyday. I have saved up 10k and plan to keep saving but I was wondering if there are ways that anyone has used this amount of money to get started in real estate? I am not afraid of the answer keep saving and I’m truly interested in any advice I can gain from everyone here! 

Thank you for the discussion @Corby Goade .

I feel like we are biting off big pieces of a complex topic, and I think it would be helpful to focus on either the interests of the property owner or the MTR operator to simplify things,

I think your greater objection to MTR arbitrage lies with why a property owner would want to willlingly enter into the agreement, so I will focus my reply on that. 

Pre-internet, being a landlord wasn't easy, but it was straightforward (this is a gross oversimplification). Buy a property, find a tenant, collect rent every month.  Fix things as they got broken, and hope for a good tenant. Wait for the equity to increase. Nowadays there are a lot more strategies available to a lot more people, and that has changed the avatars of who is investing in real estate.

Not every investor is defining "success" in the same way. A property owner that is looking to maximize return may want to run their own STR. An investor looking for liquidity may value a REIT. Somewhere in the middle may be an LTR owner who is used to doing the hard work of tenant selection, routine maintenance, and rent collection.

If that owner is used to doing all of that work to receive their monthly rent, would it be appealing to enter into a business-to-business lease with an MTR arbitrage operator? Now, the owner can vet the operator one time, offload routine maintence to the operator, and receive the rent they've agreed to in the lease, possibly for years to come. For many owners, this is a win.

Other owners may value the consistent monthly deposits rather than worrying about the usually seasonal STR incomes.

You mention a traditional STR PM agreement where the upside is shared by both parties. That is a great benefit of that arrangement, but you didn't mention that the downside is assymetrically shared by the property owner. An STR that is poorly managed may leave the PM without his or her portion of the income, but it may set up the owner to lose the property if that cash flow was needed to pay the mortgage. Some owners would prefer a clearly defined floor even at the cost of not rising to the highest ceiling.

While I hate to say it, there are also property owners who lack either the time, knowledge, inclination, or skill to want to manage their property effectively. Perhaps they would make more money if STR was an option, however if that's not permitted in their location, no STR demand exists, or no STR PM is willing to take on their property, they may not have that option. An MTR play may work well for them.

Long story short, it can be logical for a property owner to enter into a deal with an MTR operator. It may not be the best option for you or for many, but it may be a good option for others.

I am sorry this part was not more clear; since forums can be read by people other than the person quoted, I wanted to define a word that some people may not know. Not every person reading our conversation will have almost 3000 posts.

I think it is possible to operate an MTR arbitrage ethically. The MTR being upfront and honest about his or her intentions for the property is critical to that. Pulling the wool over someone's eyes can happen in any relationship, is not conducive to long-term success, and should be condemned.

Your original reply asked for "someone to explain to me how this model truly benefits the property owner". I will assume you mean in comparison to finding a skilled and ethical STR operator, of which I also assume you are one. The following are some reasons why a property owner may choose to enter into a long-term lease with an MTR operator:

1. A lease. Any LTR operator knows that a lease offers some legal protections to the lessor, and this includes financial obligations on the lessee. If an MTR operator skips out on paying rent owed, the property owner can sue, and the lease's protections will help in court. The business agreement would act similarly if an STR manager fails to pay, but that kind of an agreement may be less familiar than a long-term lease to a long-term lessor. No lease or business agreement will protect from unscrupulous actors, so vetting remains important.

2. Not all areas allow STR. In your second post you recommend hiring "a legit STR manager and pocket[ing] the profits". There may be an abundance of STR-preventing ordinances (or a lack of legit STR managers) in an area that would make following your recommendation difficult. MTR arbitrage may allow an owner less hassle and equal profit from their unit compared to the other available alternative of LTR.

3. Skin in the game: professional MTR operators have it. Because of the lease, an MTR operator will often pay first month's rent, security deposit, pet deposit, last month's rent, and even lease application fees. He or she would then pay for the furniture for the space and pay movers to install it. Don't forget about paying to start electrical, gas, water and internet services. Lawn services and snow plowing would also typically fall on the MTR operator. These are sunken costs even if no one rents from the MTR operator or if MTR rents don't cover monthly costs.

4. Financial alignment with the property owner. After paying all the costs in #3 above, an MTR arbitrage operator would prefer to have a good, lasting relationship with the property manager.

I don't mean to make a ringing endorsement of MTR arbitrage as great for all property owners or even for all MTR operators, but I do not feel that it is "the worst". Like most things in real estate, a lot depends on the circumstances of the individuals involved and not just the numbers and figures.

I hope this helps explain my thoughts, and I apologize for the lack of clarity when I defined "arbitrage". It was not slight aimed at you or anyone.

Quote from @Corby Goade:

Ugh. Arbitrage is the worst. Still waiting for someone to explain to me how this model truly benefits the property owner. 

If you want to manage STRs, start an STR management business and just do everything on the up and up. If you are offering excellent services, you'll win and your clients will win too.

Hey Corby, what do you not like about arbitrage? It seems like you've had a bad experience. Co-hosting/management is definitely a legit alternative, but rental arbitrage is as well. Just because some do it poorly doesn't mean the business model is flawed.

Some of the benefits to the landlord:
- A tenant lol. Isn't that what all landlords want?
- Having minor maintenance taken care of at no cost 
- Regular cleanings and maintenance so small issues don't become big issues
- A hands off tenant who never bothers the landlord
- A property maintained in new condition because it's in the tenant's interest

I used to do primarily rental arbitrage but shifted to STR/MTR property management. I like this model better but doesn't mean it's the better option for everyone.

Quote from @Corby Goade:

Ugh. Arbitrage is the worst. Still waiting for someone to explain to me how this model truly benefits the property owner. 

If you want to manage STRs, start an STR management business and just do everything on the up and up. If you are offering excellent services, you'll win and your clients will win too.

I can't comment on STR arbitrage as I have no experience with it, nor is this an STR forum. With regards to MTR arbitrage, a quick definition may help less experienced investors follow this topic better.

In this context, arbitrage refers to entering into a long-term lease with a property owner, and then furnishing the space (also probably setting up the utilities and Wi-Fi), with the purpose of renting it out at a higher rent for a profit.

The value to the property owner is that if they enter into a lease with an honorable and responsible person, the rent will be paid every month on time and without fail (regardless of whether or not the MTR provider leased the space). MTRs do have higher turnover than a typical LTR (usually between 2-4 times a year), but since most MTR residents treat the space well and since there is less moving in and out of furniture, it is not uncommon for an MTR to actually have less wear and tear over the year than an LTR (and a lot less than an STR),

Arbitrage for the MTR operator has its own sets of pros and cons, but I just wanted to address the question of why would a property owner ever want to allow an MTR in their unit.