All Forum Posts by: Jake Mercer

The Do's and Don'ts of Rental Arbitrage and why I think it is one of the best strategies RIGHT NOW for those getting into real estate for the first time, especially with today's rates and market. I used Rental Arbitrage to get started in real estate three years ago and in my case, I just quit my job last year and have built a 16+ property portfolio since alongside my business partner and team. You can start with your real estate journey without buying property. Here are thoughts that you might want to consider: 

The Do's:

1. 1.) Leverage your expertise, operations and understanding of your market to add vertical services to your business. STR property management, Co-Hosting, Revenue Sharing agreements and Investor partnership agreements to earn equity and profit sharing opportunities as you continue to scale.
2.  2.) Have airtight agreements that protect both you and the owner/landlord. You must have a clear black and white understanding of who is responsible for certain maintenance/repairs and the “quirks” of the house while you arbitrage.
3.  3.) Be intentional with your landlord relationships and arbitrage properties. Use the acronym F.L.I.B and seek deals with Flippers, Long distance Landlords, Investors and Builders! THESE are the people you want to do business with and you will have a better chance of getting a “Yes” from these people. Prove yourself as a reliable tenant and work with them and more of their portfolio. They will want to support you and give you more of their portfolio to be more hands off. 

The Don'ts

1. 1.) Neglect maintenance/operations. Your true test will be how well can you handle the day to day as well as the major operational requirements of the arbitrage business as you scale. Property operations: Deep cleans, air filter changes, moisture issues, hvac maintenance, etc.. Business operations: lease negotiations/renewals, calendar management and pricing strategies, etc..
2. 2.) The rental arbitrage business can be very lucrative but will test you and your ability to implement and delegate  systems/checks and balances/S.O.P’s. Your business and success will rely on your property’s reviews. Decrease in quality, bad reviews can quickly lower your monthly revenue and rate of return.
3. 3.) Get into the wrong deal! Don't JUST use AirDNA's "Rentalizer" tool to analyze a property's income potential. There are many factors not considered in that projection. You need to cross reference Airbnb comparable properties in that market using their reviews, offered amenities, occupancy rates, nightly rates and their offering. Also, utilize rabbu/airdna for market scores, year over year changes on rev, occ., supply/demand and amenity ROI data.

About me - I started with Rental Arbitrage 3 years ago. From scratch. Literally, had $10k to my name and that was it. Zero experience, zero knowledge and unfortunately at the time, not much support. I have hustled and bootstrapped the business until this day. Lots of failures and lots of learning lessons. Since starting in March 2020, I have built 16 a property portfolio alongside my business partner combined with rental arbitrage properties, properties under our management sector, and even properties and land that we have bought of our own. I have worked with investors, quit my job as a fitness instructor last year and we will do a record multiple six figure number of revenue this year. This is by no means to brag but I am living out my vision of being business owner, building long term wealth at a young age through real estate and having the freedoms to create my own schedule and building for the future for myself. Feel free to message to connect and chat Rental Arbitrage/STR/RE! I am also coaching and mentoring others to get started like me. Please message me if you would like to learn more?

 Thank you! Yes, very lucky to do what I love - I wish that for anyone

3 yrs. later and over $750k in bookings earned...Here's what I've learned about rental arbitrage. The Pro's AND the Con's

Pros:

1.) Low barrier to entry (<$10k to get started, don't need great credit & you don't need RE experience)

2.) Positive constant cash flow (You can expect $1k-$2500/month in profit) for a deal that won't break the bank to furnish

3.) Scalability - Grow quickly through creative agreements with landlords, furnished properties, biz credit and creative private financing (no mortgage necessary!!)

4.) You can go for high value, lux and unique properties that can generate HUGE profits.

5.) Be in first position to buy properties from landlords when they want to sell to you. You will have the historical data and numbers to present a lender or bank if it's the right deal!

Cons:

1.) Like anything the agreement and lease terms can protect or harm you. Exercise caution when finalizing your agreement. These terms can outline who is responsible for certain home repairs, maintenance and damages and should outline protections and assurances.

2.) Zero equity. You are building a business and you can bring in some SERIOUS revenue but in the eyes of your conventional lender and banker, you will still have a tough time purchasing assets based on income based on leases and contracts. To a banker this is a "liability"

3.) You are the middle man. You are not only fighting to keep the guests happy, but you are also keeping the landlord happy. When issues come up, you can feel "squeezed" without the right understanding and agreement in place

4.) Furniture is the only asset you own which depreciates over time. It also costly and extremely costly in terms of time and labor if you plan on growing to multiple units.

For me, it has been WORTH IT..

3 years later... I quit my 9-5, now own 2 single family homes a tiny home and 7 acres of land. I am just starting but it wouldn't have been possible without Arbitrage!

 Thank you! Agreed! Investors seem stuck in their ways sometimes but to us, that means they are probably not the right investor to work with : )

 We get around 30% of bookings from VRBO! Depends on the market and type of property for sure!

@Mark Miles haha #5 OUTSOURCE! Perfectly said! Love it. Fantastic post. Extremely informative. We've hired on a full time guest experience manager who handles all guest communication and other responsibilities. While its affected our internal margins, it's been ultimately the best investment. She humanizes every interaction and finds a way to relate with each guest. This has allowed us to be hands off and get more deals and focus on running the business while our reviews remain high and we can grow the business. I might know one property manager who charges a fair fee and is full service and makes their investors happy ; ) 

1.) Market Selection - Prioritize proximity to national parks, tourism destinations, mountain markets and markets that are less seasonal. Select markets with existing regulations and permitting. This allows you to safely minimize your risk category for next 5-10 years plus suppresses future supply and helps your longevity of consistent returns. Choose markets with tourism as a strong economic driver. Use online tools (AirDNA, Mashvisor, Rabbi) for market scores, market occupancy levels and increases in nightly rates (ADR) and occupancy over past year. Beginner investors! Start in second tier markets. That's what I did : ) We are projecting >20% cash on cash returns on our 2 single family homes and tiny home we are placing in what might call a "F" market ; ) .

2.) Property Selection - Stay away from HOA! Pick an "under" supplied type of rental. Maybe it sleeps more than 90% of the listings in the market, has >4 bedrooms or bathrooms, has incredible views, is walking distance/close proximity to desirable areas within the market, has unique built in amenities, fenced in yard, etc... Know the numbers! Use Airbnb PRIMARILY for researching the local market. Find comparable listings and use their calendar, nightly rates, property description, reviews and future occupancy levels to make a good assessment THEN refer to AirDNA. AirDNA shows our 15 listing portfolio to making 10-15% less than what we actually make!

3.) Budget for the right furniture, photos and amenities! Use an interior designer or STR consultant who knows where to cut costs and where to invest to increase your ROI. Some amenities are more popularly searched and make sense to accommodate and to highlight! Jacuzzis and pools are shown to increase nightly rates 10-15%/night. Top 5 searched amenities include being pet friendly, smart locks, wifi, fully stocked kitchen, hot tub or jacuzzi.

4.) You are no longer in the business of real estate. You are now in the business of hospitality! If you are not willing to put in the extra hours to invest in a property and market specific pricing strategy, manage vendors and maintenance, be a super host with communication, guest experience and review management then your business and cash flow will struggle. You need to take the time to learn how to do it right or build I the tools and operations to outsource or hire a full service property management company to make it hands off for you!

I hope you enjoyed these tips! My name is Jake Mercer and started in short term rentals 3 years ago. I started from scratch with rental arbitrage with only $10k and then grew it to a 15 property portfolio in the last few years. We will do multiple 6-figures in gross rev on Airbnb this year and we are building out our property management services, coaching/consulting services and investor solutions services. Happy to connect! I am located in the Raleigh, NC area so if you're local, I love coffee!

1.) Market Selection - Prioritize proximity to national parks, tourism destinations, mountain markets and markets that are less seasonal. Select markets with existing regulations and permitting. This allows you to safely minimize your risk category for next 5-10 years plus suppresses future supply and helps your longevity of consistent returns. Choose markets with tourism as a strong economic driver. Use online tools (AirDNA, Mashvisor, Rabbi) for market scores, market occupancy levels and increases in nightly rates (ADR) and occupancy over past year. Beginner investors! Start in second tier markets. That's what I did : ) We are projecting >20% cash on cash returns on our 2 single family homes and tiny home we are placing in what might call a "F" market ; ) .  

2.) Property Selection - Stay away from HOA! Pick an "under" supplied type of rental. Maybe it sleeps more than 90% of the listings in the market, has >4 bedrooms or bathrooms, has incredible views, is walking distance/close proximity to desirable areas within the market, has unique built in amenities, fenced in yard, etc... Know the numbers! Use Airbnb PRIMARILY for researching the local market. Find comparable listings and use their calendar, nightly rates, property description, reviews and future occupancy levels to make a good assessment THEN refer to AirDNA. AirDNA shows our 15 listing portfolio to making 10-15% less than what we actually make!

3.) Budget for the right furniture, photos and amenities! Use an interior designer or STR consultant who knows where to cut costs and where to invest to increase your ROI. Some amenities are more popularly searched and make sense to accommodate and to highlight! Jacuzzis and pools are shown to increase nightly rates 10-15%/night. Top 5 searched amenities include being pet friendly, smart locks, wifi, fully stocked kitchen, hot tub or jacuzzi.

4.) You are no longer in the business of real estate. You are now in the business of hospitality! If you are not willing to put in the extra hours to invest in a property and market specific pricing strategy, manage vendors and maintenance, be a super host with  communication, guest experience and review management then your business and cash flow will struggle. You need to take the time to learn how to do it right or build I the tools and operations to outsource or hire a full service property management company to make it hands off for you!

I hope you enjoyed these tips! My name is Jake Mercer and started in short term rentals 3 years ago. I started from scratch with rental arbitrage with only $10k and then grew it to a 15 property portfolio in the last few years. We will do close to multiple 6-figures in gross rev on Airbnb this year and we are building out our property management services, coaching/consulting services and investor solutions services. Happy to connect! I am located in the Raleigh, NC area so if you're local, I love coffee!