The Secret To Making Passive Income with Rental Arbitrage | Episode 06 - The Real Estate UNLOCKED Podcast

Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Joseph Marohn (00:12):
What up everyone and welcome back to the Real
Estate Unlocked podcast.
I'm your host, joseph Marohn,and today we're going to be
discussing a very interestingtopic in real estate excellent
strategy for new investors togain cash flow very little
capital needed to get started.
Today we're going to bediscussing the topic of rental
arbitrage.
Rental arbitrage is a uniqueinvestment model that involves

(00:36):
renting a property, thenre-renting it out at a higher
price to earn a profit.
This is obviously an attractiveopportunity for investors,
especially for those who may nothave substantial capital to
purchase properties outright.
It's an excellent way fornewcomers to dip their toes into
real estate without the heftyfinancial commitments of
property ownership.

(00:57):
Additionally, rental arbitragecan offer higher cash flow
compared to traditional realestate investments, making it a
less riskier option for someinvestors.
Now you know how we do it onthe Real Estate Unlocked podcast
.
If we're going to do it, we gotto do it right.
We can't just bring on anyoneto speak about rental arbitrage.

(01:18):
We need to bring on the MrRental Arbitrage.
Today, our special guest is MrRichie Matthews.
Put some respect on that name.
In 2020, richie and his wifestarted a side business in the
rental arbitrage space to offsetthe seasonality of their event
production company.
The very next month, the10-year-old event production

(01:41):
business was gone with thepandemic.
So they decided to fully committo rental arbitrage, learning
through trial and error.
They managed to find successand scale to 45 properties in
just 24 months.
They now have 60 properties todate, earning $6 million using
the subleasing property method.
Richie now teaches others howto do the same.

(02:03):
So, without further ado I'vebeen talking long enough,
everyone if you will, pleaseallow me to formally introduce
to you Richie Matthews.
Rich, what's going on, man?
How are you doing today?

Richie Matthews (02:18):
I'm doing fantastic.
Wow, what an intro.

Yeah, it's something I kind of started
doing recently and a lot ofpeople seem to like it, so I'm
having fun with it.
But yeah, man, how's everythinggoing on in your world today?

Fantastic, really, really.
Well, just waiting for the slowseason to grind down in
Southern California.
So December and January, partof February is a little bit slow
, so we got a lot of time to doa lot of fun stuff on our
properties.

Absolutely.
Now, do you prefer Richie orRich?
Because you're smelling likemoney through that screen over
there, brother.

Richie.
Well, yeah, it's like an oldname from family and friends and
I just go by that, but it'seither one I have.
You know, richie is typicallywhat my friends and family call
me.

So All right, cool, cool.
I just want to make sure we'reformally introducing you
properly.
So, first off, greatlyappreciate you taking the time
to sit down and educate us onthis very interesting business
model.
Seems like a great way for newinvestors to really get their
foot in the door without havingto come too much out of pocket,
right?
Why don't you start off bytelling us a little bit about
your story first, how you gotinto real estate, why you chose
the rental arbitrage businessmodel and what you're currently

(03:29):
doing?

Right.
So I've.
You know I'm familiar with realestate in general.
I've invested and invested inrentals long time ago.
My wife and I have had rentalsand properties that we've we've
purchased and rented long term,and so I was fairly familiar
with it.
But I had I started hearingabout this sort of rental
arbitrage.
I'm not a big fan of the name,but where you lease a property

(03:53):
and, with the owner's permission, you sublease it on short-term
rental platforms or even as afurnished rental on midterm
rental platforms, and so I hadheard about it.
I was fairly skeptical about it,primarily because the type of
people I was hearing about it onYouTube.
So I looked closer and did myown homework and realized it
really is just a cash flow play,Right.
So one could even argue it'snot really real estate.

(04:15):
It's really just abouthospitality.
You're using someone else'sasset and, with their permission
, you're subletting it.
And why would someone do that?
Why would?
This is what I thought in thebeginning.
I'm like why would a landlordallow you to run a business out
of their asset?
And one of the reasons why Ifound, primarily during COVID,
was vacancies, and so we lease,by the way, apartments, typical

(04:39):
two bedroom apartments, so we'renot doing single family homes.
As a homeowner, as a landlord,I wouldn't give someone low
deposit and rent concessions andthings that are fairly
commonplace in multifamily andlarge apartment buildings giving
someone a low deposit if theysign a long lease or if they're
vacant or if there's otherissues with their building

(05:01):
vacancies issues.
Oftentimes they'll allow rentconcessions, so we negotiate
them.
I look for buildings that arenot offering that and then we
try to get the rent below marketby asking for rent concessions,
and the way we're able to dothat is contacting buildings
that are vacant and otherwisevery good markets, and so that

(05:24):
was happening big time in 2020.
You know, I got a little bitlucky.
I discovered that.
You know there were a lot.
There was a lot of pain in themultifamily world, One of which
in Southern California.
They were just talking abouteviction moratoriums, which
became it became the reality,and so we were approaching them
as a corporation and thatparticular state rule didn't

(05:49):
apply to us.
So we just sort of kind of gotlucky with that.
But it was also a component ofvacancy.
A building was vacant.
We became partners with them ina way.
We picked up two or three orfour units in a building.
I'm thinking of my very firstbuilding that we did.
And then the landlord actuallycame to me and said hey look, we
have another very smallbuilding in this market and then
this one.
And so we grew organically withthat one building, one or two

(06:11):
units at a time.
I was so unsure about thiswhole business model.
I was leasing a property, andwhen I would pay myself back the
furniture and typically amodest deposit, then, and only
then, did I go back to them andsay hey, I'll take another.

And like you, richie, I also have my doubts.
But I mean you've obviously,with 60 properties, six million
dollars in revenue.
I mean you've obviously found alot of success with doing so.
So I mean I'm interested tolearn more about this.
But something I like to alwayskind of remind my guests is that
the goal with these interviewsis designed to guide the

(06:47):
conversation from a beginner'sperspective, then gradually
moving towards more complexquestions as the interview
progresses.
We just want to make sure we'reproperly covering everything
from A to Z.
So, with that being said, let'sstart from ground zero.
What is rental arbitrage andhow does it work?
What is rental arbitrage?

and how does it work?
Sure Good question.
So arbitrage, meaning anarbitrage, is where you make an
investment in one market, moveit to another market and make a
guaranteed profit.
That's not this, that's notthis.
I think that's why I said earlyon that I have an issue with
the Axel word what it's knownfor, so I actually use the term

(07:24):
too an issue with the actualword.
It's what it's known for, so Iactually use the term too.
It's similar in that you'retaking a long-term rental and
then you're putting it for X andthen you are moving it as a
short-term rental, as 2X.
That's what you're getting at.
So we take an apartment thatleases for $2,000 and I'm
looking to make at least twicethat.
By the way, that is my formula,and so I look at historical

(07:47):
data and see what an Airbnb, twobedroom, a condo or apartment
in a certain market will make orhas made, and there's research
tools out there you can use.
You can find out what they'vemade, and I look for an
apartment for half that for aproperty, get permission, and
then I just sublease them andyou can just, we use a lease
addendum.
So we're basically just getgoing to a landlord.
Now you can apply this as a toa single family homeowner, a

(08:09):
landlord.
A lot of people do that.
I don't, for a lot of reasons,and I'm not going to disparage
that model.
It's a great model to a lot ofpeople, but and it's also a cash
couch if during good times.
So there's a lot of reasons whyI, you know, I think, with the
economy the way it is, I, I, Iwant, I don't want all that
seasonality, I want year roundtravel.

(08:29):
So all we do is go to anapartment building and we're
like, hey, look, I saw you havefive units vacant.
I'd like to take all five,starting with one, try us out,
and we'll, um, and we're goingto furnish it and we're going to
sublease it.
So we sign a lease contract,just like, if you know, when you
have an apartment, you sign it,except for it's under our
company.
And then, except for, we have alease addendum that says, hey,

(08:50):
we're going to be subleasingthis, hey, we're going to be
listing this on Airbnb, and allthat.
And then we go to the city andwe have filed for a license.
If it's regulated in mostcities it's either on its way to
being regulated or already is,and in our markets we go to the
city and we pay the thing andnow we have a short-term rental
license.
It says we can operate thisapartment as a business and the

(09:13):
owner has already given uspermission to that effect and
it's in the contract and you canlease for a year or two or more
, and every year they become.
If you're in good with thelandlord, then you just get a
lease renewal.
We've got lease renewals onevery single one of our
properties.
The only time I didn't renew iswhen I didn't want the property
anymore, Like, for instance,now there's some studios that

(09:34):
are coming up and I'm not a bigfan of studios anymore.
So that's it.
It's a very simple businessmodel and you would ask yourself
why would you go through allthat effort instead of maybe
buying your own property?
And then you have all theseother benefits, and here's why
they're both fantastic models.
Ownership is where it's atright.
You know you get amortizationand debt pay down and you you

(09:55):
have an asset that appreciatesover time some tax benefits in
there.
Right Cashflow is typicallyeven for an Airbnb, is usually
at the top of the benefits.
It's usually one of the.
It's an ancillary benefit.
Some people are even cool withbreak even, With our business
model.
It is all cash flow.
It's just about cash flow.
And you could argue oh right,I'm building a brand, which we
are right, so you have that too.

(10:16):
But really, if you're justdoing this with one or two units
, you want a little side income.
It income.
It's strictly cashflow, and sothat's why it's so important to
get in a deal right, Look forcertain types of market
conditions, and all that withoutgetting in the weeds.
That's it.
But that's the business model.
We're leasing properties and,with the owner's permission,
we're subleasing them as ashort-term rental or even a

(10:39):
midterm rental to nurses andthings like that Right and you
obviously got a clear foundationalready set in place.

But what are the first steps a new investor
should take to enter the rentalarbitrage space?
Great, question.

Now there's two considerations.
If you're going to do this,You're going to do this in your
backyard and I consider that 45miles around where I live.
That's how I did it and all Idid was list the cities in that
area because I wanted to see ifit was legal, and typically
cities are the governing bodiesSometimes it's the county.
It's typically one of those.
To do a little Google search ohyeah, they allow this.
And then and then from there Iwould.

(11:15):
I got on hot pads when this wasan experiment Fifteen minutes
before I would leave my office.
My event production company isabout two exits away from my
home office.
My event production company isabout two exits away from my
home, A couple of minutes.
I wanted to kind of check thisout and I blasted a whole
neighborhood, came back to workthe next day and my inbox was
full of a bunch of no's and thenthere were three babies and two

(11:36):
of the three said come andcheck us out, We'll do a tour.
I did a tour and one of thosetwo actually said yes to us.
Now, now they put conditions onthat I didn't agree with.
They wanted to screen ourguests and things like that, but
it was really neat.
That proved the concept that,from in a few minutes, that I
can do this, so you can do thislocally if you want.
But that really means thatyou're in the middle of all that

(11:58):
and, knowing what I know now, Iactually advise people to do
this remotely.
And so and the reason why I doit remotely A, you get to choose
the very best markets.
Not everybody lives by killershort-term rental markets In
fact, most of the time we don't.
So you find the best marketsand then put a team and a system
in place, and I don't mean farmit out to a property manager,

(12:19):
which are, you know, pardon toall the property managers out
there, but it's a very expensiveway of going about this.
I think and if you, there aresome of those guys out there
that they can do it for cheaperthan great.
But I actually I'm a big fan ofbuilding your own team, your own
culture, and so you can go fromthe very, very beginning.
You could ask more of yourhousekeeper, For instance.
They can just, besides cleaning, they can swing by the storage

(12:42):
unit, pick up supplies, let inyour guests if they're locked up
, so you can ask more of thatperson.
Have a VA.
We hire VA virtual assistantsin the Philippines.
We don't use a service but wejust hire people and ultimately
I do have an operations team anda management.
But in the beginning, doingthis remotely, you can do it.
They're just have to put asystem and a team in place,

(13:04):
because who wants to be thatperson at three in the morning
when someone wakes up says youknow, something's broken or
whatever?
And so having a couple ofthings in place before it gets
to that point is highlyadvisable.

Right, and building a team is absolutely
crucial to scaling your business.
I absolutely agree with you.
I'm actually in the same boatmyself where I'm actually
building out a team right now.
Because you can't do everythingyourself, you know you're going
to have to have a team in placeand a proper structure.
So great points on that.
What exactly was it about thisbusiness model that attracted
you towards it, and how did youget started?

So I was under the impression it was real
estate and I was actuallylooking into Airbnb.
I was also looking for the cash.
On cash return.
I was thinking, all right,where can I put X amount of
money with some effort and be sounique and not correlated to my
other business?
The answer for me was alwaysadd more events.
So when I was complaining that,oh well, our best income is in

(14:00):
the spring and the summer, I'mlike, all right, I'll throw up a
fall event or a winter eventwhich is not as popular in our
space and type of events we do.
They're typically summer typefestivals, so our income was so
seasonal.
So it was really like a way forme to even out our income now
that we had kids and so I waslooking at that and the various
business models.
Trust me, I went through atnight, I would just get my

(14:24):
wheels moving and try to thinkof, and my answer always was
let's just do another event2020,.
We had six major festivalsplanned in Dallas and Miami and
LA.
We were two weeks away from thebig one in LA.
I also added in between thosefestivals a trade show component
of them that we're actuallydoing pretty well, them that

(14:45):
were actually doing pretty well.
So that was always my answer.
But all that was doing wastaking away time because I was
trading my time for money.
It was a 15 hour, 16 hour a dayjob that I gave myself.
I mean I was doing everythingselling the tickets and
marketing, and I was hiring theteam, and I mean it was a very
physically taxing business.
I mean you're running around,you're battling with a fire
marshal or the alcohol bureau orwhatever, and you have

(15:09):
thousands of people at yourevents.
So there's always somethinggoing on, and so it's fun when
you're young.
But you know over time to scalethat I hadn't never figured out
how to scale it.
So every time I added an eventit was like, how am I going to
do that?
I'm like, let's just do it.
So this business model seemedlike that you could put a system
and a team in place, and so Iwas planning on doing something

(15:30):
like that because we were aboutto start doing our events.
But when COVID hit I hadnothing but time, and so then I
was determined to do it myself,and so I would piece together.
I would find people on YouTubeand I'd piece together pricing
strategy.
I'd piece together how do youpay housekeepers, do you pay
them by the hour or do you hirea cleaning service?
So I would get all thatinformation and I tried it all

(15:51):
and I'd fail on some of it and Iwould use what worked and
fortunately the failures didn'ttake me out right, because that
can happen.
Trial and error is not the wayto learn.
There's someone did somethingbefore you that you can cozy up
to if you're, if you can findthem, and so trial and error is
really not the way to do this.
Any kind of business I don'tthink I knew.
Obviously you can make thingsyour own, you can create your

(16:13):
own model and tweak it, butstarting raw, like that was, was
bonkers.

Yeah, and then you touched on a very good point
about failure.
You know failure is part of theprocess, man.
If you're not making mistakes,you're not learning anything.
You actually got to go andcreate these problems and then
learn from them and then failforward, and you've proven that
to be a good perspective of that, and you're doing the right
thing, brother.
But help me understand the keybenefits here.

(16:40):
What would be the advantageversus just purchasing a
property and leasing it outyourself?

No.
So if you, if you have thewherewithal and you'd have, you
know the the the cash reservesto pick up 40 units, to, to, you
know, to pick up 40 condos or amultifamily building, there you
go.
But for for those that arelooking, are looking to perhaps
to learn to get, first of all,get a paycheck.

(17:08):
You can get one right away.
I mean you can put.
In my case, I'll just say whatI know my first unit was under
$5,000, $4,300 worth offurniture, $6 a square foot, a
little apartment.
We had a $300 deposit.
That was it.
I got the first month's rentwaived and so I was off to the
races.
I set it up and now the way youhost it in 2020 is not the way

(17:28):
you should host now, right?
So then you know it was like anIkea explosion.
I always say, you know, nopricing software.
The design was kind of, eh, andit was only on Airbnb.
Now we're on six, sevenplatforms per listing.
Airbnb.
Now we're on six, sevenplatforms per listing.
We tie it together with achannel manager.
We have a pricing software,dynamic pricing software.
We have someone that picks upthe phone if you, you know,

(17:52):
replies to them in the middle ofthe night.
If someone makes an inquiry, sowe're treating it
professionally, but then you cango and do some of the, because
it's a very young industry rightnow, and so the difference, the
difference is that this isreally just about the cashflow.
And if you own if you own abunch of of short term rentals
or rentals there's a lot ofother benefits there.

(18:13):
Right, there's some reallybeneficial long-term attributes
that you can get from owning aproperty wealth creation and all
that but this is just creatinga brand in a way.
That way I look at it is that,look, we're just trying to get,
I'm trying to get up to acertain amount of units, and now
that it is all formalized andthere's a system, the sky's the
limit in how we can grow.

(18:34):
Here's another one If you are aninvestor and you only have a
few units, what better way tolearn how to become way more
competitive with your propertiesthan to do arbitrage, because
an arbitrage is inherentlyscalable.
You really need to get to 10 or20 or 30 units, right, once you
do that, because picking upfive units is the same thing as
picking up 30 if you're growingon cashflow.

(18:55):
So once you do that, you knowall about how to manage your
properties at scale all thatstuff so you can easily
incorporate your own propertiesinto your portfolio.
All that stuff, so you caneasily incorporate your own
properties into your portfolio.
And for that reason, when youown a property, one of the
harder things to do is figureout how to manage it, and so
that's why a lot of owners go toproperty managers, and it's
awfully expensive, and ifsomething goes down in your

(19:17):
property, property manager isnot going to treat it like if
it's yours, your own.
The other big one that we don'tknow in the arbitrage world is
construction.
Those are the two things thatI'm trying to learn a lot about.
Well, now that I know themanagement side is the
construction stuff forinvestment.
But if you're an investor,there's no better complement to
your portfolio than a smallnumber of arbitrage units that

(19:39):
you can use that cash flow toinvest in your properties, to
scale your business or to getpaid the buildings do the
construction.
You don't have to worryyourself about the mortgage or
the down payment or anything.
It's literally what you come infor.
Furniture is really what theexpense, if you negotiate it
correctly, and a very modestdeposit.
So the difference is that oneis just cash flow on steroids,

(20:02):
and the other one is aninvestment, an asset that you
are.
You are you're acquiring overtime.
If you Airbnb it, great, thenyou have a little bit better
income.
What I'm finding, though, is alot of owners think they could
automatically put it up from arental as a short-term rental
and automatically get betterincome stream, and some of them,
if they're doing it incorrectly, are the ones that you're

(20:29):
hearing about this, this Airbnbbust, which I actually you know,
I deride.
I don't think that's anaccurate term.
What I think is happening isthat a lot of people are
flooding into this businessbecause it's so young and and
you can, you can perform onaverage.
You can just be an average hostand do all right, and I always
say name a business that doesn'trequire marketing no-transcript

(21:18):
.

You brought up furnishing and I want to circle
back to that real quick, so canyou share some insights on
furnishing and preparing theproperties for rental?

Yes.
So great question.
Because up until now we've onlypaid out of pocket for that,
because I always considered thatthe investment that was my
first risk capital for the firstunit and then, when the next
one came, we used the capitalfrom the other one and moved on
from there.
But there are some people thatI think there's a company called

(21:47):
Cort C-O-R-T.
They rent furniture.
And there's a some people thatI think there's a company called
CORT C-O-R-T.
They rent furniture.
And there's a few people that Iknow in our program One of the
gentlemen is renting for sixmonths and then his idea at six
months he's going to replenishit, which to me seems expensive.
But I did the numbers and sofor $850 a month, instead of
paying the $6,000 it takes nowto rent a furnishing apartment,

(22:09):
a one bedroom apartment.
It seems like a way for him toget in and to scale a few.
I still prefer the old schooljust pay for your furniture and
then build organically fromthere.
But if you have done thenumbers and it's an opportunity,
there's an argument to say youcan rent furniture.
I still think you should buy it.
I'd almost rather pay theinterest on a credit card if
someone doesn't have it that way, or better yet, just wait till

(22:32):
you have at least five, 10 grandfor cash reserves, but here's
the number.
So it's about eight to $9 persquare foot to furnish will cost
for us to furnish.
Other people swear it has to bedouble that.
Now, no-transcript lock.

(23:22):
We paint accent walls.
We're doing a bunch this week.
We're doing, uh, pvc panelsinstead of peel and stick,
because the peel and stick isfalling in some of our buildings
and so we're using differentaccent walls.
We split tested last low seasonaccent walls versus no accent
walls on clicks and bookings,and it was a dramatic increase

(23:42):
on accent walls.
So it's really inexpensive.
We have a team to do that.
But even if you were to paylabor, you can get at Home Depot
.
There's peel and stick.
You can paint, or you can aslong as you have the paint, the
building gives you the paintcode so you can repaint it when
and if you have ever leave.
Or PVC panels, which we do now.
But we're doing some reallyneat things in the units that

(24:02):
make them look like a condo ormake them look a lot nicer, and
so that is included in your persquare foot.
So $8 to $9,000 square footapartment if you get that one
big do the numbers, then youhave to pile on top of that your
deposit, which is reallyimportant.
Now that you think about it, Ineed to get a low deposit and
definitely you want to get thefirst month's rent waived, if

(24:24):
you can, if you're in a market.
I was on what was it in Memphisthe other day on AirDNA, the
research tool, and we found abeautiful brand new build, 90
days free rent.
I don't know if it was all upfront or if it was just over the
course of the lease, but it'sgoing on again right now.
It's happening in very goodmarkets around the country right

(24:45):
now, just in not all markets,not Miami, but in a lot of
markets where things arehappening.
There's a lot of flux and soit's about.
I have a shopping list, so Ihave every item.
We know exactly what we'regoing to get right when we get a
unit, and so we stay underbudget.
One of the things I learnedfrom the event business you have
to stay on budget to set upyour unit and then you're

(25:05):
counting the weeks for yourreturn, and only when you get
your investment back do I thengo back to the building and say,
hey, I'll take that second unit, like we discussed when I took
this one, and so on, and sothat's really basically how I
built this thing.

Yeah, I saw your units, man.
They're very impressive.
Like you said, they do looklike condo.
In fact, they actually lookbetter than some condo units.
I've seen Very impressive stuffyou're doing.
I got to ask so, as far as like, are you finding any?
You talked about renting outfurniture and whatnot.
Have you utilized things likeFacebook Marketplace to kind of
cut costs buying used furniture?

things.
Remember earlier I said it'slike an Ikea explosion.
If you, if you design from anyone source online stuff all
looks the same, then it's goingto look like that.
And one of the things I learnedis, if you go to like I forget
the name of it, I think it'sOfferUp or Facebook Marketplace
there's some folks on there inour markets that were like I was
recognizing, I'm like thisguy's a professional.
What they were doing is theywere buying vintage luggage or

(26:10):
wine barrels and they wereconverting it.
They were flipping it, theywere converting it, after they
did their thing to it, intofurniture.
So we put them in our units andI was like, wow, it looks like
they're one of a kind pieces alot less than the stuff you
would buy online anyway, andthey looked original.
Some of them are a little roughand we would turn in these wine
barrel pieces into coffeestations and we were like end

(26:32):
tables out of the luggage and soyou can go out and buy all the
Walmart and the cheap stuff onAmazon.
But then if you, if you mixthat in there, especially when
the things you need are endtables and coffee tables have to
be sturdy Kids sit on them.
I've learned the hard way.
You just can't get that fakemarble stuff on Amazon or it
will break in the third month.

(26:52):
Same with your sofa.
So we would get used sofaslocal and we'd pay for them.
Our guy would drive out therein a truck and we'd pick it up.
In the beginning I didn't havethat kind of time, so I was
buying everything online, I washaving it shipped to the
building.
I'd move into the building fora day or two and I would set it
up myself.
Not how we do it now, not what.
How I would recommend Now youcan get it sent to a self

(27:14):
receiving deliveries, a storageunit and then have it done, or
you can organize it that way.
But one of the things we stilldo is I'm always shopping,
looking around I like doing that, it's fun and seeing if there's
like an artisan out there thatwill do something for like
really inexpensive.
Find a really killer mirror for$10.

(27:34):
And if you're slowly puttingthem in there, your units will
look great.
Take out the vertical blinds,put in blackout drapes, put on
an accent wall you know, do eventhe chandeliers?
Apartment buildings have thosenotoriously ugly.
You can get one for reallyinexpensive that really pops
into place and, believe it ornot, it doesn't break the bank.
It's not going to changeanything on your lease other

(27:54):
than the paint.
You do have to ask about thepaint peel and stick.
You don't have to ask, and soyou can do things in the unit
and, assuming you're in therefor multiple years, it's a
return on your investmentimmediately.
You'll get the money back justbecause your photos will pop and
you'll look different than therest of the neighbors in that
area, condos or not In fact,you're right, by the way, a lot

(28:16):
of people who own places.
They'll inherit a condo orthey'll buy one, and they use
their iPhone photos because theythink they're going to save a
few bucks.
And you'll see, the place isnot even competitive and you
would think there is a condo.
They probably have a nicerbuilding, but they're not
showcasing it.
It's all about the photos forAirbnb.

It's the best photos wins Some of these units
that I've seen.
They're really impressive.
You know, it's like reallythere's an art to this.
You know, and it's veryimpressive what you could do.
And I'm seeing, I'm askingother people and they're
spending not that much money onthese to get them up to that
quality.
You know so now.

(28:54):
So you said $8 to $9 per squarefoot and then you're talking
first and month less of thesecurity deposit.
Is that your total entry fee onthe deal?

So the furniture, the $8 to $9 is just
that.
It's your move-in.
By the way, I'm including theif you can.
So sometimes I've like if I wasat budget I wouldn't put on a
smart lock on the thing becausethat's $400.
I'd come back a few monthslater to get into a deal and
then get paid back.
I want an eight to $9.
It used to be five to $6, butnow it's eight to $9.
So that's just that.

(29:24):
Let's just say, for a 900square foot apartment at $9 is
$7,200.
So that's my setup costs.
On top of that, typically afour or $500 deposit.
If it's a two bedroom, that's a.
That's a competitive depositand that's it.
And um, and I'm, I'm includingmy if it's a day labor into that
the eight to $9, but I alsohave a team, so I have people

(29:46):
that set up that are on salary,so I'm not including that.
So if it is just you, you'llhave to include yours.
But in ballpark that's what itis.
If you're coming in, really, ifyou're getting a killer deal, I
mean I'm finding like on myshopping list I have like $9
toasters and I'm like everydollar I was trying to take off.
But then you do need to go.
You'll see the value of thefirst month's rent free in your

(30:09):
cash.
On cash analysis You'll seethat you're like whoa, that
really matters, and your firstdeal usually sets precedent with
that owner.
So if you get a good deal onthe first time not always, but
that typically is your templategoing forward when you get more
units, same thing if you don'tget it.
If you don't get it, so you dothe math, that could be a
significant amount of money andit also can make your numbers

(30:31):
work.
So I look for 2X my rent.
So if I look for $1,500 net perdoor, so if I'm at $1,300 and
it's a 12 month lease, I'm likethat's four weeks.
Right there I need to negotiate.
So getting in a deal as you know, in real estate it's no
different.
Here you make your money whenyou get in.
And then, once you're in, whatif the economy takes a hit?

(30:51):
What if there's a ton of newhosts that come on the market?
Then you're like I'm good, Icould stay at 50% occupancy in
pencil.
And so the problem a lot ofpeople get in so expensively and
so they need 70%, and that'snot a reality these days in a
lot of markets.
So there's a lot of peoplehurting out there, whether they
purchase properties or they'redoing arbitrage.
So I'm a big fan of just waituntil you get a good deal, find

(31:14):
the market conditions, expressthe value that you're going to
bring to the table.
You know what I always say tothe landlord.
If they're on the fence, I sayso we leave the units and show
condition.
And they're like what does thatmean?
I said well, what's thecondition of a prop or one of
your apartments when you get thekeys back after a three-year
lease?
So I'm like we leave ours.

(31:37):
They have to be in showcondition.
I go.
You know we got a personchecking in.
You know can't mess around, sowe're doing most of the light
stuff, obviously, if anappliance busts on you, but
we're, we're taking care of yourcaretakers, of your asset.
We're mindful of the neighbors,and here's our references.
You can talk to the peoplearound the corner where we have
15 units with yeah Great info.

What are some common misconceptions about this
business model?

I think it's regulations.
I mean, the positive unintendedconsequences of regulations is
not really discussed.
So just like the state of Texasgets businesses to move from
California, the cities are nodifferent.
They're competitive.
And so when one city makes adraconian law, like Dallas,

(32:24):
there's probably other correctme if I'm wrong, but there's
other markets around therethey're like no, no, no, we
don't have a ton of hotels, wedon't have a big tax base,
transit, occupancy taxes, thetax you pay when you check into
a hotel, you pay that to thecity, you pay to this hotel, the
hotel pays the city.
Same with short-term rentals.
So if a city doesn't have a lotof that tax base, they're

(32:51):
typically more welcoming andthey exist all around major
cities and so there's a lot ofpositive unintended consequences
.
This business should beregulated.
Who wants to, you know, youknow.
Have a if you're living in asuburb, have an Airbnb house
next to you.
Then vacation markets differentstory.
But in that I don't, and so Ido believe it should be
regulated.
I'm only, I only exist in incommercial zones.
I actually used to be way beforethe regulatory discussions in
my markets.
I used to make sure that Icould see at least a motel or a

(33:13):
hotel from my front door in myapartment building, because then
I knew it was a commercial zone.
They're not going to sweat useventually when they do regulate
this.
And lo and behold, they passeda law last year in one of my
markets.
Some consider it tough, but tothis day you still can pull a
permit, a tier three permit, inthe city of San Diego.
So I think there are positiveunintended consequences.

(33:33):
Now there are some where theyliterally will just cap it Los
Angeles and Dallas and New York,and perhaps even one day San
Diego will eventually cap it.
And so you know.
That's another reason why nowis the time.
So I think there's a misnomerabout what happens during
regulation.
Like with all laws, there areconditions.
Some of them have conditionsthat you might not like.

(33:54):
You know, a thousand dollarapplication fee or whatever.
Some of them they're fine,they're just a way to do
business.
And so I think the regulationsaround this business and
everyone fearing that they'regoing to shut you out, I just
haven't seen it.
I haven't seen it in any of themarkets that I was in that
weren't regulated.
They are now regulated.
It didn't affect us.
We just had to get our license,pay our fee and make sure that

(34:17):
we're making sure that theplatforms are paying our taxes
for us.

And you talked about commercial zones and you
touched a little bit aboutdifferent cities.
How important is location?
How do you identify profitableproperties?

Locations.
I say location is not just goodat how you stay booked, but it
will even.
If you pick the right markets,you can find some conditions in
the market that will actuallyhelp you get the deal.
So some people, a lot of people, consider the acquisitions in
this business a beast because,for a few reasons, lead
generation is the lifeblood ofevery business small business,
and especially in ours.

(34:52):
So some people think they cancontact a few apartment
buildings and say, oh, they'renot down for this, they're not
allowing this, that's justbecause they don't have a lot of
output.
And so, through a lot of output, you get more opportunities and
you ultimately get a betterdeal.
I don't think you should, justbecause of a building, says yes,

(35:24):
a lot of people are jumping atthat.
I think that's just thebeginning.
You now need to negotiate andif you'll tell if they want you,
if they really need you, if youcan provide value, your deal
will reflect that.
Have a lot of vacancy, and so Ithink finding a market for the
reasons I stated earlier wherethere's something going on in
the economy, where vacancies areticking up and the rents are
dropping even solid markets Imean there's some really good
markets around where I live,very nice areas.
I mean you say the area.

(35:45):
They're like oh, that's areally nice area and they are,
and they're by the universityand they're by the medical
center and they have year roundtravel.
But rents are finally goingunder $2,400 for a one bedroom
in that market.
So I pounced, so it was tooexpensive last year.
So I went in there and wepicked up more units this year
in there six more and so you canwait for market conditions to

(36:08):
be favorable for you if you'reastute enough.
Now, real estate is a localbusiness and if you think about
it, you really get to know yourarea.
But just because I live here,what?
If I really like San Antonio, Icould focus on a certain market
and I could become an expert inthere.
I could learn about the nuancesof different markets.
Who's building, what's going onin any market.

(36:28):
You don't have to do thislocally, and I think that's the
other big mistake.
But it is about the market.
I do believe that.
So the research tool that I useis AirDNA.
There's a few others out there.
I was using a few others backin the day.
I bit the bullet and I paidthere.
They have an enterprise levelsubscription Gives you all kinds

(36:50):
of data for if you're a realestate investor, if you're
looking for Airbnbs, whetheryou're arbitraging or not, so
excuse me.
So I like AirDNA and so I justlook at their market research
tool.
It gives a lot of predictivedata.
It also looks at historicaldata, but then I'm looking for
markets with high vacancies thatare showing strength on Airbnb

(37:10):
and as a short-term rental.
But, by the way, I think one ofthe big future trends is having
the ability to go midterm.
So if you're talking aboutregulation in markets where
they're like, nope, you can't doshort-term rentals.
New York City, for instance, ifyou've got the midterm rental
game down, you could go marchingin one of those markets and own

(37:30):
it.
You could do really well in amarket like that, because then
the city, they can't say a wordto you, it's none of their
business what you're doing.
So you could do a furnishedrental.
You could arbitrage it.
Here's another one Somebuildings, a lot of the
apartment buildings, will sayyeah, sure, we'll allow
corporate leasing, short-termrent or subleasing, but we won't
allow your guests to stay under30 days and so we walk away.

(37:51):
Well, guess what?
What?
If you were a midterm rentalperson.
You can get yeses from the bestbuildings if they allow
corporate leases and when I saycorporate leases I mean 30 days
or above and then if you knowhow to book your property, then
30 days, then you can dominatethat market.
One of the components tolearning how to book the market
is having its B2B business.

(38:12):
So you get in with insurancerelocation companies or nursing
recruiters who they need tohouse traveling nurses right,
because there's a shortage ofnurses and they're traveling all
over the country.
So those were a good one for awhile.
Their budget's a little bit lowthese days.
We like the military, the Navy.
We did a contract with the Navy, got a bunch of our properties

(38:33):
booked up, and so if you can getthat side, the B2B side or get
someone on your team that knowsthat you can actually go find
inventory in a market afteryou're confident that you can
get a contract, Right, and Iwant to make sure we're
providing a lot of value for allthe listeners.

So what we're going to do is we're going to
just go ahead and flash yourlogin info to AirDNA on the
screen for that enterprisesubscription.
I'm kidding, I'm kidding.
So, richie, are you searchingfor single family homes or are
you looking primarily for rentalunits?

Just apartments , yeah, just apartments, for the
reasons I stated.
Most single family homeowners.
They're maybe easier toconvince to do this business
model right Because they're nota company and people can change
their minds quickly, unlike abig company.
A big company is opposed to it,like Graystar, for the longest
time one of the largestapartment owners in the country.
They're a real estateinvestment trust.
They did an about phase duringCOVID.

(39:28):
They said, okay, now we'llallow this.
It's a building by buildingdecision.
We're in them, so you can do,you can go, you can convince a
building because a lot of timesthey'll do it.
But it's typically harder toget into a building.
But the reason why I likeapartment over single family
homeowners is because we can getin the deal cheaply.
You can scale quickly.
A three bedroom apartment is adifferent thing than a three

(39:51):
bedroom house to furnish.
You have hallways in the garageand a backyard and so it's very
expensive, and so I like thehouse model.
I have people that I know whoown end arbitrage and they
they're telling me they're Forexrent.
But that's usually during goodtimes, right?
So so when, the, when, the,when everything is happening in
the economy, I'm of the opinionthat we're going to see a big

(40:12):
pullback next year in a lot ofways, and so for me the
apartment model is great,because you can get in
inexpensively and scale and justwatch your costs, and so for me
that's the model.
Who knows, maybe if in a yearor two, when things turn around
and we get a better economy,better people are running the
thing, then we can then go tothe single family home model,

(40:32):
which I was very tempted to do.
Came really close in PalmSprings last year, came
furnished and everything, but inthe end they were unwilling to
they didn't.
They were like no way we'regoing to give you half, you know
like a half deposit or yourfirst month's rent free.
And so we came close, though,and so I walked, and so for me
it's just the apartment model.

Okay, great info.
So can you give us a fewstrategies on how you're
locating these properties andhow do you find landlords that
are even willing to do?

this.
So if you're just starting thisout today, go to HopHeads or
Zillow.
Zillow owns HopHeads.
I like HopHeads because you canstay in the map view and
contact all the buildings in theproperty.
Once your account is opened up,it will send a default message
to them, so you just think, hey,I'm interested in your property
.
And then you're doing thatbased on markets that are
showing high vacancy and you cancheck those.

(41:26):
You can check thoseno-transcript and if it's two

(41:57):
times what the median rent is,you've got a pretty good cash
flowing market.
And then what you do is justmake sure it's legal, do
short-term rental permits andthen name your city and most of
the time their city landing pagewill come up if it's legal,
because they've got a lot ofmoney, so they've got a slick
website and then you can get ontheir website.
I like to call them Now you'vechecked if it's legal, if it
will cashflow.
There's one more step I like todo before I contact the

(42:19):
apartment building on hot padsis I'll look on Airbnb and I'll
look at the competitor landscape.
I want to see if it's justflooded with like professionals
and, conversely, if you see amarket that's doing really well
but it's a lot of condos and thephotos are terrible and they're
on maybe one platform you cantell.
You can click on the host onAirbnb.

(42:40):
You can see all their listings,you can see if they're
professionals or not, and so Ilike to do it as a qualitative
way of looking at a market.
But after it's cash flowing andall that, then the next step I
get right on air on hot pads andI blast an entire neighborhood.
Takes about 20 minutes.
You can do that on hot pads mapview and then the conversation
moves over to your inbox andthen there's a certain email

(43:02):
sequence or scripts that we use,where you're basically saying
one thing we're just trying tofind out if they allow corporate
leasing, and ultimately itleads up to a phone conversation
when they're a qualified leadand they sound like they want to
play ball, and we get on thephone and basically explain our
model and get a for sure, yes,and I stop it there.
I do not negotiate.
You end the call becausetypically you want to get the

(43:22):
manager and after that you'relike yes, I'm interested, let's
move forward.
They're going to give you theapplication and then, once
you're approved, then Inegotiate, believe it or not.
I do that.
A lot of people do it the otherway.
They're like well, that's awaste of time.
What if they don't want to playball?
Because think of all the peoplethat contact those buildings.
And so the further you get downtheir fall, the further you're

(43:44):
related.
Every time you're talking tothem or communicating there's a
touch point.
They now know you as real, sothey know you're a serious
person.
You fill out the application,you pay the $45 fee.
I like to ask them if they'llgive it back if they don't
approve us.
But whatever, you fill that out.
And now you're like before yougenerate the lease, after they
say, hey, you're approved, sayhey, I'd like to talk to you

(44:08):
guys today.
I run my numbers of the unit nowin my calculator comps occupant
.
Now I run it.
I have a calculator.
Anybody wants it?
I'll give it to you for free.
It's a basic spreadsheet, but Ibuild out my calculator.
I don't run the deals earlybecause you'll be just spending
time running numbers all day.
I wait until I get a firm yesand then I look at the number

(44:28):
and I look at that and Idetermine if I'm going to
negotiate hard or not.
So I'm like Ooh, I have to get1500.
I'm going to have to, it'sgoing to, I'm going to walk if
they don't give it to me.
So then I'll get on the phoneand I'll ask them I have a whole
pitch on how I asked for forlow rent and it's counter to
anything anyone's saying outthere, people asking a landlord
can you lower my rent, can yougive me free rent?

(44:49):
All that?
They'll say no 99% of the time.
There's a certain terminology inthe apartment world called rent
concessions.
I use it against them.
It's their own language, it'show they advertise it.
Their marketing departmentscame up with this term and I'll
use that.
And I present a very reasonablerequest to them, given the
amount of units are ultimatelygoing to take from them.

(45:10):
And and you just put it inperspective and what we're
asking for, I typically ask forsix weeks front.
I want them all up front andand and that's usually a 50, 50
and and if they don't agree toit and the numbers already work,
well, there you go, you cantake the deal.
If, if the numbers don't work,unless you get it, then you know
where you stand with them andand I say you hold out.

(45:31):
And so that's really all I do.
That's the nature of our entiregrowth and it's just something
I've learned over trial anderror of what has worked and
what hasn't worked.

Right, and are you always fully transparent
with the landlord?
And what does that firstinitial conversation look like?

Hang up or like no way get out of here, you
know, but this business model isbecoming more and more known.
So, as it's becoming more knownand as a tool for certain, some
apartment buildings have acertain number of units they
have as inventory dedicated towhat they call corporate leasing
, corporate rentals.
That's not us.

(46:11):
It's a version of that model,but ours is slightly different,
right?
Because instead of having oneguest over the term of the lease
, we have multiple people atdifferent terms and we're
advertising on a bunch ofplatforms.
That's the part most buildingsdon't really like.
But again, if they're feelingsome significant pain and their
owners are coming to the leasingmanager and the regional
manager saying, lease this up,and you come along and they're

(46:33):
like well, wait a minute, Inever thought of this guy's
asking for all of our vacancy.
You just are solving apotential massive problem for
them.
You don't know if they'refinancing at the term.
You don't know if they'retrying to sell the business.
We don't know.
So it's, it's not, it's.
I'm not going to say luck,because I don't believe that.
I do believe if you're outthere and you have a lot of,
you're generating a lot of these, having a lot of conversations.

(46:54):
Ultimately, you're going tofind luck in that you're going
to meet someone at the righttime and you're going to need
them.
They're going to need you andthat's where it's a good deal.
We've gotten deals where theysaid no to us and later on they
said they came to December.
A year ago.
This month, two big buildingsthat said no to me the actual
properties came to me.

(47:15):
They said no to me twice.
They came to me with four weeksin hand, which we parlayed to
eight weeks yeah, gray StarBuilding.
So we got January for free andFebruary, march and April.
We had the other four weeksspread out of those.
So it was an easy way to get induring low season into the
building.
I just told you, the one withthe midterm rental guy is
expensive $3,750.

(47:37):
And so we got in that way andit was a building that said no.
A leasing agent had just gothired from them.
She worked with us in anotherbuilding and she was smart
enough to go hey, you guys arevacant.
I got this guy that can helpout, and one thing led to
another, and so you know, ifyou're offering value again,
I'll just go to that if you're,if you're able to help them, but
there's a hard no.
A lot of them are just like noway we've had a terrible

(47:59):
experience.
You know they have Airbnb Ifyou use that word, which I never
do, it's just one of theplatforms we're on has a bad
reputation rightly so to a lotof people, and so you know.
You just have to learn what yourapproach is and be completely
transparent from the firstconversation, well, from the
second conversation.
First conversation said I'minterested in your apartment.

(48:20):
Second, we let them know who weare, what we do, and then I
have a kind of a sequence ofevents, ultimately just spelling
it out and giving them a leaseaddendum that spells it out in
black and white what exactlywhat you're going to do there,
and so if you've communicatedproperly with them up until that
point, the deal shouldn't blowup.
It happens, though.

Deals blow up?
I bet it does, but for every 99no's, you're going to get one.
Yes, right, so what platformsare you using to advertise on?
Is it solely Airbnb, or are youusing Furnish Finder?
What other platforms are youusing?

Yeah, yeah, so 70% of American hosts are on
only two platforms Airbnb, vrbotypically.
That's a colossal mistake.
That's got to change for thosepeople, because in two or three
years they're not going to bedoing so good.
So we saw the writing on thewall, so we're on Expedia.

We're on Furnished.

F're on furnished furnished finder.
We're back on bookingcom.
It's a little bit spammy anddefinitely scammy, but it's a
massive engine.
It's the largest platform inthe world, and so we have a gal
that we just hired from thephilippines who says she, she's
like no, no, I'll manage it.
We, we do a few things in ourthe way we screen out the bad.
We've had people like we've hada bad experience we're on a
couple of times and we pulled aplug on it.

(49:32):
So we're back on bookingcom.
Here's the big one.
Google Travel is the elephantin the room and they're a
completely different model.
If you think about everything,everything is sort of watered
down.
Airbnb.
Google Travel is not.
I buy my flights on Googletravel.
I ultimately go click on theairline thing and I go right to

(49:52):
their landing page.
It has all the data loaded upfrom Google travel.
Same with hotels.
You can do that.
Now Google travel does forAirbnbs, and so it's a, and they
have the search giant behindthe machine behind them.
So so we're on Google traveland the greatest part is it
syncs with our, our channelmanager.
Hospitable as a software we use, and so it syncs with our

(50:13):
channel manager.
Hospitable is a software we useand so it syncs.
So I love Google Travel.
We've gotten a lot of bookingsfrom them.
We're not on the top of theirpage for some reason, but we're
working on it.
We are on the top of Airbnb.
We're super hosts, premierhosts on Vrbo and do really well
on these other platforms, butevery platform has its own
little uniqueness to it.
So what you say on Airbnb is alittle bit different.
On Furnished Finder, onFurnished Finder, we're looking

(50:36):
for people that work at night,that want to sleep all day.
So we're talking about blackoutdrapes and box fans and it's
high AC and it's in a quiet partof the building, different than
if you're pitching.
You're trying to appeal to afamily that's coming to see
SeaWorld.
So you know, know, yourcustomer is business 101.

(50:56):
So every platform has aslightly different customer.
So we want to throw the widestnet.
I'll leave you with this If youonly use bookingcom to book
your travel, or if you only useGoogle travel, for that matter,
and don't use Airbnb for thehosts out there that are only
using Airbnb, we won't ever seeyou.
So it just makes common sensethat you go on as many platforms
as possible while theseplatforms battle to see who's

(51:17):
going to be the player.
Airbnb, up until now, has beenthe dominant player.
They still are, but these otherplatforms are taking away
market share.

Now, you're really thinking outside the box
here.
That's great.
Let's talk a little bit aboutthe lease agreement.
Should I be signing this leasemyself or putting it under an
LLC?

Only an LLC Never sign a personal guarantee
in any business arrangement, andit's no different in this,
especially in this, I would say,because stuff happens.
Actually, we have insurancethrough platforms, but we also
pull our own insurance.
Proper insurance is one of thefew, if I think maybe the only
one that not only doesshort-term rental insurance but
they do rental arbitragebusiness insurance.
So you are protected.
You're protected as an owner ifsomebody falls off the balcony

(52:00):
or whatever, and so for thatreason we use proper.
I'm using multiple channels andthat's just smart business.

All right, and then are we creating a separate
lease agreement for our tenantsand, if so, where can I locate
this agreement?

So I use the leases.
So most apartment buildingswon't use your own lease because
first of all, once you sendthem your own lease, they have
to give it to your attorney.
That's a cost.

No, you're using a denim right, but I meant for
the tenants that you're rentingout to are you creating a
separate lease agreement forthem?
Yeah, say you're renting out to.
Are you creating a?

separate lease agreement for them.
Yeah, so if they're booking anyin my markets, anything over 14
days as a resident most marketsin the country it's 30 days
over 30 days.
If you stay any properties,typically you become a resident,
residential, your laws thatapply.
So then you have to be carefuland that's one of the benefits
of short term rentals.
We don't have to deal withevictions and all that craziness
.
You could literally pullsomeone out of an apartment if
you wanted to.

(52:51):
It sounds crazy.
You can.
You can turn off power, all thestuff.
You go to jail if you did it asa landlord.
You can actually do.
But you have to be careful whenyou find out if they are in
fact a resident and there's allkinds of little slippery ways
Receiving mail can be considereda resident, so we don't allow
that.
There's a lot of little thingsand so in our markets 14 days,

(53:12):
so we don't allow anythingbeyond 14 days.
If someone wants to book 14days, instant book is off.
Then it goes to.
We have to approve it manuallyand if we do, we just send them
to hospitable and they book iton hospitable.
We have our contracts, so wehave our leasing agreement.
It's a month to month leasingagreement and at that point we
screen them and that's just thekey.
You screen somebody.

(53:33):
It's going to be a rare event.
If you properly screen a tenantand put in some real effort and
check their.
You verify all their stuff.
They're saying who they are.
If you check that, you'llmostly dodge a bullet.
It's where people you hearthese horror stories when
something was going on,something was wrong in the
properties.
You hear about these on some.

(53:53):
I heard one in LA about theAirbnb guy who had a tenant.
Yeah, that was because he Idon't think he had a proper
zoning for his property.
He probably didn't screen theguests.
So you know, you just have toscreen your guests.
We've had close calls, though,we've had professionals, but we,
you know, I'd like my, myteam's, my team's great what,
but we, you know, I like my, myteam's, my team's great.

What about the maintenance and repairs?
Are we responsible for that, oris the landlord Landlord?

all day long.
So we we have replacedrefrigerators though Sounds
hypocritical, but we've had.
There've been situations where,over like 4th of July weekend,
something happened and myoperations manager goes here's
the choice.
We have a $2,000 reservation.
It's a major amenity.
The fridge broke, thebuilding's not going to get back
to it because they're onvacation until next week.
We need a fridge, so we eitherlose the two grand or I can go

(54:40):
buy a used one for $400 andinstall it today and say go get
it.

It's an easier fix.

Yeah, it's a business decision.
But no, the building will fixit.
They put in a ticket.
It's usually a pretty seamlesssituation.
They come in.
You have to interrupt.
Your guest stays.
If anything on your side breaks, if the drapes fall because you
didn't put it in the stud andit falls, well, then we have to.
Hey, can we fix it after youcheck out, or do you need us

(55:07):
over there?
No, it's too bright.
We need you to fix it up.
Okay, and then we send someoneover.

Okay, so we talked a lot about the pros to
rental arbitrage.
I want to focus a little moreon the cons.
As you know, tax incentives arehuge and it's primarily one of
the main reasons why mostinvestors get into real estate.
What do you believe are theprimary drawbacks or missed
opportunities for investors whenthere are no tax incentives in
place to support this model?

Right.
I think once you get to a pointwhere you're doing this at
scale and you have the capitalresources and the wherewithal to
go and invest versus pick upanother 10 units, I think it's
very valid to say it's a betterdeal to go after similar
property types that you caninvest in, which is kind of why
I'm really interested increative finance and sub two and

(55:56):
seller finance and stuff.
That's what I'm looking at.
Simultaneously, though, thecash on cash return, the amount
of money that you put in.
I haven't found a better placewhere you get your money.
Back To your point about tax.
It's a misnomer, though.
I mean there's not a misnomerabout the tax benefits of owning
.
It's humongous.
However, there are tax benefits.
So all the furniture that I payfor an apartment I can

(56:17):
depreciate in year one.
And if you think about it thisway, what's your risk?
Beside the term of the leasewhich we sign, early termination
clauses in most of ourproperties we get 60, 90 day
early termination clauses.
So that is your risk.
Beside your furniture, well, ifyou get to write it all off as
a business, so you get that andyou still own the stuff.

(56:38):
So where's the risk?
So, to risk to reward.
There's nothing like it in thisbusiness if it's structured
correctly.
But I recognize that the wealthcreation part of this is missing
.
You can make a lot of income.
A million dollars somebodyconsiders the net that we'll do
this year is a lot, but forowning a property it's so more

(56:59):
significant and it compoundsover time and it grows.
And so I always say it's applesand oranges.
I don't really compare them.
I do think that they are acompliment to one another.
If you really wanted to getyour real estate game down,
throw a handful of arbitrages or10 units into the mix and
you'll be able to make moremoney on the stuff you own,

(57:20):
because A you won't be farmingit out to a property manager.
You'll get your costs down, andso that's one way you can go.
Look into a market.
I'm looking at San Antonio, soI'm like, hey, I'm going to lead
with five to 10 arbitrages, getto know the terrain.
I'll start buying one at a timein that market and then I'll
just throw that into my teamthat's working there.
So I have to think of, oh,who's going to manage this one

(57:41):
unit?
Cause one unit is the worst.
It's the most difficult havingone unit in a remote market.
But if you already have 10arbitrages which you can get in
relatively inexpensively in wayunder a year I did mine.
I did had nine units by August,so you know less than a year.
I started in February.
If you have nine, you have alittle mini team in place, got
cashflow from that and you couldpurchase a property in that

(58:02):
market, or two or three.
So I actually think it's a, ifyou think of it that way, I
think it's a humongouscompliment and I don't believe
in the it's either or type thing.
There does come a time to whatI said earlier, that if you're
trying to think of where todeploy it and I definitely like
owning these days, but I thinkthe complement to the two is
great and if you're juststarting out, I think start out

(58:24):
in arbitrage first, especiallynow.

Yeah, it's just another tool in the tool bag,
right.
So, being versatile, greatpoint.
Now do I need to make sure mymargins are higher than a
typical long-term rental,considering I'm only getting
cashflow and not gaining anyequity on the property?

Yeah, so it.
So for us, like I said earlier,this is you don't sacrifice
cashflow like you can do inowning it because you have all
those other benefits.
This one you have to make surethat you're making at least
$1,250 for a one-bedroom net net, or $1,500 for a two-bedroom,
which is why I'm sheddingcertain types of properties like
C buildings or studios andthose, because I'm watching the

(59:01):
profits going down on those.
So my sweet spot aretwo-bedroom apartments B
buildings, not A, because A'sare too expensive and harder to
get into.
B, b minus in city centers orsubmarkets of city centers that
have year round travel, business, work and leisure.
That's my model.
That's it.
That's all I do, and it's noteasy to find those markets, but
they're out there and so youjust have to look hard.

(59:22):
Market research does take aminute and fully analyzing a
market for all the things that Isaid before, including that
rents are dropping in order toget a good deal.

That's really where it's at before including
that rents are dropping in orderto get a good deal.
That's really where it's at.

What are some of the common challenges faced
in the first year and how do Iovercome them?
The temptation to pick up moreunits when the building hounding
you Without exception, everybuilding that I've ever been in
when they've said, okay, we'regoing to work this out, we'll do
one and if it works out, we'llgive you more.
Almost always they've alwayssaid Rich, Rich, hey, we got a
unit coming available next weekand I just like literally
setting up, and so they arealways coming to me and it's

(59:59):
very tempting to pick up thenext unit and go into your own
pocket and pay for it and like,yeah, yeah, I'm going to make
the money back.
What I'd rather do is let thebusiness grow on cash flow.
So once I get paid back, I oncashflow.
So once I get paid back, I'mproving the concept.
I'm proving that the buildingwill pay me back six weeks,
eight weeks, and then I getanother unit and then another
unit, and I do it that way.
Maybe two Check out what thelaw is.

(01:00:21):
You can do a Google search, geton the city's website and then
you can just do your homeworkand run the numbers.
There's all kinds of freecalculators out there.
Mine is that you join myFacebook group, you can.
It's a creative Airbnb.
I'll give you the calculatorfor free.
It's a spreadsheet and I'llshow you how to use it, and so
if you do that, you'll be.
You're way ahead of what otherpeople are doing to get in this,

(01:00:42):
in this business.
So I think the mistake ispeople just rushing in because
they're hearing about theprofits from guys like me when
it's different and all over.
Your needs are different thanmine, and so on.
So if you need more money thanthat $1,500, real estate, might
you know, this might not workfor you.
Then a single family home modelmight even be better, because
those guys are making a ton ingood markets.

Joseph Marohn (01:01:04):
That's all great advice, and we talked about
being versatile.
You know what would you?
Would you say this is like agood entry point into real
estate, with the long-term goalof owning properties.
Or would you say someone canbuild their entire business
model around rental arbitrage.

Richie Matthews (01:01:18):
Well, Sonder is a publicly traded company with
10,000 doors around the world,and this is their model.
They don't own properties.
So you could definitely couldand you would argue that what
we've done so far in a few yearsis a viable business model that
can support any family which ithas and it does but I

(01:01:39):
ultimately do think it's acompliment to an investor
portfolio.
I think both of these is great.
Some people do three.
Some people own properties, getthe management down for their
Airbnb arbitrage portfolio andthen they do it for others as a
service, like a co-host.
There's some people who do that.
I think that co-host model isbroken.
I think they need to fix theirfee, but once they get their fee

(01:02:01):
down at 10%, if they're good,then I suppose some people would
do that.
I still prefer building yourteam, but you could do that as a
service if you get this down.
So I don't think of any ofthese as one against the other.
I think it's just timing, whereit is in your life, what it
means to you.
But you could do this as astandalone business and build
your own hospitality brand outof this.

And that's what I love about creative finance
having so many multiple tools inthe tool bag and just being
able to adjust to any marketshift or whatnot.
But how has the rentalarbitrage market evolved in the
recent years and what are yourpredictions for the future?

I would say what has changed is just not
just an arbitrage, but it'schanged in general with Airbnb
and the short-term rentalbusiness is that the days are
over that you can just set itand forget it and not treat it
like an actual business andmarket.
And maybe not right now Peopleare surviving.
That shouldn't be, but I thinkin in the next year or two that
a lot of those folks are goingto have to either level up their

(01:02:56):
game, farm it out to a propertymanager or fix the way that
they they operate their system.
For arbitrage itself, there'sgood news.
One is that more buildingsrecognize this as a benefit to
them.
Others may not, but there'smore that say yes to it and some
of them are vocal about it.

There's some out there saying, hey, look, we're
good with it, right, and thenyou have a mentorship right.
Where can people find that?

So you can go to Seven Figure Airbnb, which is
the creative Airbnb community.
It's just a Facebook group.
It's less than a year old.
There's about 2,500 of us inthere 2,400, I think, of us in
there, 2,400, I think of us inthere.
I'm giving away a bunch of freecontent and all that.
But then if you just DM me sayhey, I'd like some information
about your program, I'llactually do a screen share, take
you into the actual platformand show you the different

(01:03:42):
choices you have.
If you're like me and you wantto do this by yourself, our
Facebook group is a great freeresource.
You're never sold to.
You're basically gettinggetting all kinds of stuff.
There are other people in therecrushing deals.
We got a student that just gother 10th rental arbitrage.
Got another one.
Yeah, b short just flew to sanantonio, got three.
He got eight weeks free rent,200 deposit.

(01:04:02):
So again, people in there.
They're sharing their wins andthey're kind of explaining what
they did and what, how they gotit and all that stuff.
And I have free zooms.
I'm having one tomorrow onRental Arbitrage 101, how to
find all the stuff we talkedabout today.
I'm actually going to get intonitty gritty and show all that
stuff.
I'm doing those regularly now acouple of times a month, and so
Facebook group and I'm not theonly one.

(01:04:24):
There's other great Facebookgroups out there but our
mentorship is an eight weekmentorship and there's 10 months
of support and it of support.
So, and and it's a realmentorship it's me, and so
you'll never, ever speak toanybody else on our team, which
I don't know of any othermentorships out there that are
doing that.
I think that model is brokentoo, but it is a real mentorship
.
But I'm teaching something veryspecific.

(01:04:45):
It's not single family homesand vacation markets in the
outer banks, it's for apartments, b apartments, and I'm showing
how I'm actually helping closeyour first deal.
So if you want that, look me up.

Awesome man.
You're doing all the rightthings, brother, that's for sure
.
Now, so I know we covered quitea bit on this topic today, but
I'm pretty sure we just barelyscratched the surface.
With that being said, I want tomake sure we didn't leave
anything important out that youthink we should have covered in
this episode.
Can you think of anything thatwas left out and absolutely
crucial that we talk about today?

No, I think we covered a lot of ground, so I'm
really thankful for you spendingall your time with me on this.

Absolutely, and I appreciate you coming out and
sharing all this knowledge toall my viewers.
Richie, where can people getahold of you?

Same thing you can go to rich at I stay USAcom.
I stay USA is our hospitalitybrand.
You can email me or you can goright to the Facebook group and
I'm in there, so you can just DMme once you're in the group and
say hello, and it's a creativeAirbnb.

Awesome.
We'll go ahead and make sure wedrop your tags on the screen
right here.
Well awesome, richie.
It was an honor to have youshare all this knowledge with us
.
I'm sure so many people aregoing to find a lot more insight
on this topic.
Now, if you feel rentalarbitrage is for you, I highly
recommend you guys reach out toRichie, join his Facebook group.
As you can see, not only is hevery knowledgeable on this topic

(01:06:10):
, but he's actually doing ithimself and finding a lot of
success at doing it.
I'm sure he can get with youand get you on that path as well
.
Now, if you guys found valuefrom this interview, show your
boys some love and make sureyou're subscribed to the channel
.
Hit that like button and drop acomment down below what you
enjoyed most about this episode.
Appreciate all the support andstay tuned because, guys, I'm

(01:06:33):
just getting warmed up over here.
2024, I've got a lot more gemslined up for y'all.
Best believe we're going tokeep bringing you that fire.
Thank you, rich.

All right, take care, thank you.

Joseph for having me.

Thanks for watching.

All Episodes

The Secret To Making Passive Income with Rental Arbitrage | Episode 06

Episode Transcript

Popular Podcasts

Stuff You Should Know

Dateline NBC

On Purpose with Jay Shetty

.css-15opob5{left:0;position:absolute;top:0.8rem;} All Episodes

.css-14f5ked{margin:0;word-break:break-word;display:-webkit-box;-webkit-box-orient:vertical;box-orient:vertical;-webkit-line-clamp:2;overflow:hidden;}The Secret To Making Passive Income with Rental Arbitrage | Episode 06