588: Rental Arbitrage: $700K Renting Out Other People's Properties
Nov 30, 2023
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Guest: Richie Matthews, Real estate entrepreneur - scaled rental arbitrage business to 60 units generating over $2.5M revenue and $700k profits. Interesting topics include: testing unfamiliar models, staying nimble, scalable systems and processes, diversifying marketing channels, focusing on profitability metrics.
Rental arbitrage allows individuals to profit from Airbnb without owning properties by converting long-term leases into short-term rentals with landlord permission.
To succeed in the short-term rental business, hosts should focus on scalability, building a reliable team, and implementing efficient processes and systems.
Diversifying marketing channels and revenue streams and focusing on profitability metrics rather than solely revenue growth are essential for success in rental arbitrage.
Deep dives
Rental arbitrage: Turning long-term leases into short-term rentals
Rental arbitrage allows individuals to profit from Airbnb without owning properties. By locking in long-term leases and converting them into short-term rentals with landlord permission, individuals can generate significant revenue. Richie Matthews, an expert in rental arbitrage, scaled his business to 60 units and made $2.5 million in revenue last year. He focuses on low-cost, turnkey apartments in prime locations, negotiating rent concessions and targeting markets with strong business travel, hospital proximity, and year-round vacation travel. While concerns about the impact of short-term rentals on the housing market exist, Matthews emphasizes that his strategy targets vacant or low-demand properties and operates in collaboration with building owners.
The importance of strategic pricing and diversification
Matthews stresses the significance of dynamic pricing and ensuring a healthy occupancy rate. He uses software like PriceLabs to optimize pricing based on market demand and average daily rates. While aiming for a 2:1 ratio of rental income to lease costs, he highlights that high occupancy trumps average daily rate in his business model. In addition to Airbnb, Matthews diversifies his bookings by attracting direct customers, working with platforms like the landings and furnished finder, targeting traveling professionals, hospitals, and insurance relocation companies. He also emphasizes the importance of referral marketing and establishing relationships with recruiters, hospitals, and contractors to drive bookings.
Addressing concerns and navigating challenges
While concerns about housing market impacts and potential issues like squatters exist, Matthews mitigates risks by targeting properties with high vacancy rates and implementing thorough screening processes for guests. He also has comprehensive insurance coverage with proper insurance that caters specifically to short-term rental, subleasing, and corporate housing ventures. Matthews acknowledges the complexity of the short-term rental market and the need for responsible business practices, collaboration with building owners, and adherence to local regulations. He encourages hosts to be proactive in maintaining quality standards and ensuring customer safety and satisfaction.
Building a Team and Mitigating Risk in the Short-term Rental Business
One of the key factors in the success of the short-term rental business is building a reliable team and mitigating risks. This involves conducting thorough research, focusing on price spreads and diversifying travel sources. Additionally, it's important to carefully review lease agreements, ensuring that favorable rent concessions and lease terms are in place. By minimizing upfront risk, hosts can protect their investment. Moreover, creating efficient processes and systems is crucial. This includes outsourcing tasks like cleaning and property management, leveraging virtual assistants for day-to-day operations, and implementing effective messaging systems to improve communication and guest experience.
Scaling and the Future of the Short-term Rental Business
In the short-term rental business, scalability and future growth are key considerations. Hosts should focus on expanding their inventory to increase revenue and market presence. Achieving economies of scale is essential for profitability. While revenue is important, the primary focus should be on quantity of inventory rather than monetary goals. As the business grows, hosts can explore opportunities beyond their initial market, expanding to different locations and testing different models like corporate housing or mid-term rentals. By developing innovative software solutions, hosts can streamline operations, lower costs, and create a superior guest experience. Looking ahead, the short-term rental business is ripe with opportunities for growth, but hosts must adapt to evolving regulations and competition to stay successful.
Making money in real estate typically requires owning the property, right?
Coming up with a large down payment, securing financing, dealing with tenants, handling maintenance and repairs. The barriers to entry aren’t exactly low.
But what if you could skip all that and still bring in serious cash flow by renting out apartments and homes without buying them?
When Richie Matthews and his wife were looking to supplement their seasonal events business in late 2019, rental arbitrage seemed like an ideal side hustle.
Little did they know that just a few months later, that tiny side hustle would quickly scale into a business managing 60 units and generating over $2.5 million in revenue and $700k in profits. He now runs his company, iStayUSA.com.
Tune in to Ep 588 of The Side Hustle Show to:
Test unfamiliar models with tiny experiments before going “all in”
Stay nimble and embrace opportunities, even in uncertainty
Build scalable systems and processes early on
Diversify marketing channels and revenue streams
Focus on profitability metrics rather than solely revenue growth
