All Forum Posts by: Sarah Kensinger

Hey @Zach Edelman, so there are a bunch of ways it can south depending. I will give you real world examples that crushed some "investors".

Pandemic rules in some states were clearly a problem for many of us. Arbitrage people we unable to get anyone staying and had to pay above market rates for their leases. Not enough cash reserves and done tom turkey.

Restrictions going in place. You need to live within 50 miles of a unoccupied STR, you need to be living there, lottery system for new permits and you don't get one, STRs are banned overall in certain zones, HOA votes to disallow STRs. These are all examples of how you can lose. All of this is out of the arbitragers control.

Regarding the cash outlay, you are forking over thousands of dollars. Let's say you find someone who normally rents a nice condo for $1750 a month. You agree to pay $2000 a month. So you have first, last and a deposit. Let's say all that is $5000. It is a 2/2 condo of about 1200sqft.

Now add in full furnishings. In order to be successful, you can't really skimp. I am a big proponent of looking on Craigslist, FB Marketplace and OfferUP for deals on USA made furniture. Even doing that you are going to be in it for about 10k all said and done and that is on the cheap...if you get lucky. More if you just call Wayfair and do it all there. You need furniture, linens, appliances big and small, cleaning stuff etc. The list is long. Some estimates are $10 per sqft, some say 10k per bedroom. 

We started from scratch with our 2700sqft lake house. Nothing was left except the fridge. I was living on those classifieds sites snapping up whatever I could find that looked great and fit the comfortable family home style we were shooting for. A lot of stuff we got for free. We were still about 25k all said and done and I really worked hard to get the price down.

That is just the things that come to mind. What if you are doing great. The owner of the property is seeing it and decides not to renew the lease and do it themselves. Then you are stuck with a place full of furniture, linens etc that you have to move out and store or give away (to me) and you have to start over.

I am not saying it is a bomb, but to say it is low risk is just incorrect. It isn't an investment at all as you have nothing. You have the stuff you bought. Which is depreciated to next to nothing.

The reason I come down hard on these dreams is most of the folks who ask about it have nearly zero dollars. They can barely afford to rent the place let alone furnish properly.

Most owners are getting pretty savvy on this so if they do decide to allow it, you can expect to pay above market rates and a larger deposit. You will most likely be responsible for repairs (within reason) and maintenance. You might also have to give the owner a percentage of the gross.

I have utilized an arbitrage STR strategy in the past as well as owned STR properties. In my case I found STR model (both ways) to consume too much time and effort to continue with them so discontinued it. It was profitable, but not enough for myself.

I don’t know if the arbitrage model “opponents” on the forum are actually all that negative on the concept itself, or are negative on the fact that people asking the questions having just seen the videos are naive and belief that with little knowledge, experience, capital and business management ability they can easily earn a ton of money.  Very similar to the people who think the same about wholesaling.

A big "divide" (IMO) is that STR arbitrage, like real estate wholesaling is NOT real estate INVESTING. It is a business within the general real estate category. Why is this important? Because, historically, real estate investing has been very forgiving of mistakes, bad timing, economic turmoil, etc. The key is staying power. Enough in reserve, no excessive leverage, and you should be able to survive most problems. Not so with a BUSINESS. The "90% of startups fail" is just as true for real estate related BUSINESSES as any other BUSINESS.

In fact, you can think of it like this. 90% of the people starting off investing in a real property will still be property owner/investors earning satisfactory returns after 10 years. 90% of the people attempting wholesaling or arbitrage STR will have failed endeavors, lost money, "went broke" or at best earned unsatisfactory returns in the same time period. In fact, other than utilizing excessive leverage, or having the plain incredibly bad luck (or lack of foresight) to have invested in a mining town where the mine subsequently closed down, "go broke" investing in real property is pretty hard to do.

Bottom line; SOME people can run a successful arbitrage STR operation. They will have sufficient managerial and administrative talent, real estate and business knowledge, specific education, and the CAPITAL necessary to be successful. But will it be worth their time? Many think the big "liquidity event" is what building a business is all about. It's hard to see a big payday coming from the sale of an STR arbitrage business.