All Forum Posts by: Ethan Cooke

@Asan Dixon - I work with owners of single-family homes, apartments and duplexes. A few of my units are in San Francisco and most are just south in San Mateo County. SF is tougher since there is a 30-day minimum rental. I focus on long-term rentals since they are much less work than STRs. My occupancy rate is 90-95% depending on the unit and the season.

Good idea about negotiating the rent deposit. I usually focus on negotiating terms for pets, parking spaces and number of guests allowed (usually 2 per bedroom +1 who can stay on a sofa bed in the living room). Most of the landlords I work with really like the security of the deposit, and I’m happy to pay it since they are flexible with the terms I am looking for. 

About 70% of my bookings come from AirBnB which is very popular for folks coming to the Bay Area. Also 15% are repeat customers (long-term corporate renters), and about 15% long-term bookings through Zillow, Trulia, HotPads and Craigslist. 

Yes the Bay Area is an expensive market. But in some ways I like this since the dollar profitability per unit is higher than many other places. For example you can profit $1000/mo for a long-term furnished rental requiring very little work after the set-up period, or $2500/mo for doing short-term rentals if you are willing to manage all the marketing, pricing, communications and guest turnover. As you mentioned, the trade-off in the Bay Area is higher start-up costs.

Let me know if you have other questions or want to jump on a quick call. Happy to help if I can. Thanks!

@Asan Dixon - Thanks for asking. It depends what market you’re operating in and the size/rent of the unit, hence the range I mentioned of $5k-$20k start-up costs. In the Bay Area where I operate, $4k/mo for a 3BR/2BA is below market rent. So deposit and first month’s rent alone are $8k. Pet deposit is $500. Then if you need to paint, add light fixtures, new hardware, etc. to modernize an outdated place you’ll spend another $1k-$3k (depending on if you hire help or not). Furniture, kitchen wares, linens etc. to make the whole place “turn-key hotel room ready” will run you about $6K-$9k. So there’s a startup bill of $15k. I have also spent $20K on a 4/3 place that had 2 kitchens, and it’s my most profitable property.

If you surf Craigslist and eBay buying used furniture for a 3BR home (which I have done before), you might spend $3-$4K less and two weeks of extra time. So there is definitely a time vs. money equation. 

@Account Closed - That’s awesome that you have a whole network of folks who have spent less than $5k setting up each unit including luxury units and making over $100k in annual net profit in the first 1-2 years. Can you please put me in touch with a few of them? Especially if you know anyone in the SF Bay Area. I am being genuine when I say I would love to gain the knowledge to do this. I enjoy being open and transparent with other entrepreneurs, and I’m always looking for actionable ways to be more successful. 

@Cheryl Vargas - I tell my landlord partners that I will fix anything that costs less than $200 and 2 hours of my time. So 90% of the time they don't have to get involved in repairs at all. I spend approximately 2 hours every 3 months doing repairs and/or maintenance on each property. I also find places where the landlord is asking below-market rent so I can offer another $100 or $150 per month if necessary to land the lease and still be below-market. (This is rarely necessary.) All of my landlords have renewed our leases because they love that they get free up-front property improvements (e.g. paint, new light fixtures, shelving, etc.), free minor repairs, free maintenance to keep the property nice for the corporate renters who stay there and early auto-payment on rent each month. Most landlords don't like dealing with maintenance issues, noise complaints and other headaches from tenants. As long as they can accept the idea of having professional business travelers staying in their property, it's a great value proposition for them!

@Account Closed - What percentage of rental arbitragers make six figures of net profit a year after 1-2 years? What cities are they doing this in? Can you PM me with their contact info? This sounds like it might apply to the top 1% in the field, like a real estate agent who makes over $1 million in year 1.

I am part of a community of 200 rental arbitragers, and don't know anyone who has achieved six figures of annual profit in year 1 or year 2, including 2 mentors who are among the best and have been doing this for 5-10 years. I have noticed that my colleagues who run truly "passive" arbitrage businesses typically pay out 25-50% of their potential profits to Team Managers, Virtual Assistants, Property Managers, handymen, automated pricing and messaging tools, etc. Other folks truly "self-manage" their business and spend about 30 minutes to 3 hours per week managing each unit (depending mostly on average length of stay/turnover). It also costs $5K-$20K to launch each unit and typically takes 6-12 months to make back the start-up costs for a unit. Even the most successful arbitragers I know are spending $50K of start-up funds in year 1 to make $30K in profit (or $100K to make $80K) and are putting a lot of work into it.  (This is a combination of savings/loan start-up money plus initial profits).

I LOVE rental arbitrage and the opportunity we all have as hard-working entrepreneurs to build cash flow and scale a good business. But I also think it's important that folks looking to get into the business understand the work required and what typical returns look like.

@Kelly Nolan - Your vision is doable. You have gotten some great advice from @Amit M., @Account Closed and @Mark Schwab. I have purchased 3 homes in the Bay Area--in 2005, 2015 and 2017. All have increased in value 7-10% annually, and Walnut Creek is no different. If you are buying for a long-term investment, you will do very well.

Can the home you are interested in buying be split into a main home and an in-law/studio with a separate entrance?  This is a great way to turn a negative cash-flow investment into a positive cash-flow investment. And if you furnish the home and in-law unit and rent them out to long-term business travelers, you can create a very strong cash-flow situation while your investment also appreciates nicely. I have done this and added value to over 10 Bay Area properties. It's a simple way to create positive cash flow with an otherwise cash-flow-negative home. Let me know if you have any questions, and good luck!

@Rachael A. Tanner - Please share your findings on this post as you go. I also own property in San Francisco  and have considered doing a 1031 exchange for an out-of-state multi-family investment. I hope you find a great deal!

@Asan Dixon - I run a rental arbitrage business in the SF Bay Area. @Paul Sandhu is right--pitch to your landlords' "pain points" and tell them exactly what you're doing. And look for landlords/property managers/HOAs who are open to sub-leasing. I have had very good results signing leases with mom & pop landlords. They love that I have a great credit score and offer free property maintenance and early rent auto-payment every month. After 15 months in this business, all of my new units are coming as referrals from the landlords who are my partners already. I also have friends who have built a whole rental arbitrage business based on a relationship with a single landlord who has multi-unit buildings. 

I have not had good luck trying to work with property managers. I recommend that you connect directly with building owners and build your business from there. Good luck!

@Jordan Hanks - Some companies including Evolve Vacation Rentals charge 10% for booking and marketing, with extra fees for cleaning, re-stocking, etc. I self-manage my own furnished rentals. But I also provide full management for a couple of others for 10-20% depending on minimum length of stay (since 30+ day stays require much less work for guest changeovers). I think that 25-30% is outrageous unless the company is doing an outstanding job increasing your occupancy rate compared to AirBnB, HomeAway/VRBO and other popular sites for properties in your area.

@Katie Fiola Jones - I run a furnished rental business in the SF Bay Area. I don’t own any of the properties, and I get good cash flow from them.

What is your main goal in owning an AirBNB property? Given the opportunity you have, it sounds like a passive cash flow play. If you know the local RE market and the local AirBNB market very well and the price is right, then buying a property might make sense. But if not, I recommend that you start by renting a property, furnishing it and subletting it as a furnished rental. This will give you experience with the business and operational aspects of running an AirBNB property. You’ll learn what it takes to make money in a particular market, and your financial risk will be very low compared to buying a property.

Good luck!

@Bob Mueller Jr. - For 30-90 day AirBnB rentals, I usually don't set up a lease. The guests agree to all House Rules before booking (e.g. No Smoking, no parties, Quiet Hours 10pm-7am, etc.), and both AirBnB and HomeAway/VRBO have a $1M insurance policy. For 30+ day bookings off AirBnB/HomeAway, I set up rent through cozy.co, collect a $500 security deposit and I often set up a lease also.

@Malia Domingo - I agree with @Jake Miller and @John Underwood that your income won't be as high and you will need to market to traveling professionals. But there's also much less work than an STR!

How frequently do traveling professionals come to the area for work assignments between 1-12 months? I imagine that UCSB visiting professors, graduate residencies, research fellowships etc. might be good markets for you if you are close enough to campus. Also tech and medical workers. Summer will probably be easy to rent since people like to vacation in Santa Barbara. If you target 6+ month work assignments and find the right market, you can do very well. Post your place on Zillow/Trulia/Hotpads (one posting will go to all 3 websites). Consider craigslist, but you will need to screen out a lot of unqualified tenants. Do a background check with emphasis on credit score. And as @Luke Carl said, have them sign a lease.

I manage 12+ furnished rentals in San Francisco and just south, and most are 30+ days. All units are profitable, but some are not worth the work and others are very profitable. 

Good luck!