5 real-estate investors explain how they created cash flow by leveraging other people’s properties through a strategy called ‘rental arbitrage’
- Rental arbitrage is a strategy in which you rent a property and sublet it on platforms like Airbnb.
- The goal is to make enough rental income to not only cover rent, but pocket extra cash each month.
- Insider spoke with five investors who’ve created cash flow by leveraging other people’s properties.
As experienced real-estate investors have taught us, you don’t need a large sum of money to get started.
Rental arbitrage is one of many innovative ways to break in.
You rent a property and sublet it on platforms like Airbnb and VRBO using this strategy. The goal is to generate enough short-term rental income to not only cover rent but also to save money each month.
Because you are not purchasing a home, you avoid the down payment and closing costs, which can quickly add up. Instead, your initial expenses will include the first month’s rent, a security deposit, and furniture.
Insider spoke with five investors about how they generated cash flow with low start-up costs by leveraging the properties of others.
Nathan and Taniera Turner set up their first Airbnb rental with $6,400 upfront and scaled to 25 units in 2 years
After being laid off at the start of the pandemic in March 2020, Houston-based couple Nathan and Taniera Turner began researching rental arbitrage.
The first step was the most difficult for them: finding an apartment or house to rent, as well as a landlord willing to let them sublet the space.
“We were looking for ourselves at first and couldn’t find anything,” Nathan explained. They eventually found a realtor through a Facebook real-estate community who assisted them in securing their first unit: a two-bedroom apartment for $1,200 per month.
They spent about $6,400 and three weeks putting together their first Airbnb, including the first month’s rent, a $1,200 security deposit, and furniture.
“This one was a learning experience for us because we were trying to figure out pricing and how to get your listing out there,” Nathan explained. We didn’t make anything for the first two months.”
It took about six months to recoup the money they put into setting up the unit, but by the end of the lease, they were profiting between $1,000 and $1,200 per month, according to Turner.
Over the last two years, the couple has expanded to 25 units in Houston, Des Moines, and Louisville, generating $50,000 to $60,000 in monthly revenue, which Insider confirmed by reviewing their business bank account statements.
If you want to get into real estate but don’t have a lot of capital, Turner suggests rental arbitrage: “Realistically, you only need about $4,000 to $5,000 to get started, whereas buying a house will likely require at least $10,000 to $15,000.”
Zeona McIntyre set up an Airbnb unit in the apartment she was renting and living in
Back in 2012, Zeona McIntyre attempted a slightly different version of rental arbitrage. She began with what she already had because she couldn’t afford to rent another apartment at the time: the two-bedroom Boulder apartment she leased and lived in. She listed her extra room on the platform and began earning money right away.
“It turned out to be so good that I started renting my room and going to stay with friends or pet sitting so that I could be in someone else’s house,” she explained. “I was like,’I need to do more of these.'”
She decided to rent another apartment but lacked the funds to pay a security deposit and furnish the space. “I borrowed $4,000 from my dad, and that was enough for a little bit of furniture and a security deposit,” she explained.
McIntyre did Airbnb arbitrage for the next two years, renting four bedrooms across two apartments on Airbnb and living in whatever room was vacant on any given day.
“I spent about two years living out of a suitcase and just bopping around,” she explained. That is unquestionably easier to do when you are young. It is not suitable for everyone.” But, in the end, it worked: after about two years of living between two apartments and listing each individual bedroom on Airbnb, she’d saved enough money to buy her own home.
McIntyre, who is now financially independent as a result of her nine-property portfolio, advises anyone interested in making extra money through real estate to begin by assessing their current living situation.
“There are many parts of the house that people don’t use,” she explained. “They might have a basement or a guest room that they weren’t using very much.”There’s also the option to co-host if you don’t have a spare room,” she added. “Perhaps you have a family member who owns a lake house, and you could ask, ‘Hey, what’s that house doing sitting around?'” ‘Would you like to make some extra money from it?'”
Natia and Jervais Seegars used rental arbitrage to test out the profitability of short-term rentals before buying their own
Before they began investing in real estate, Natia and Jervais Seegars owned a primary residence, which they purchased for $191,000 with only $2,000 in cash.
When they relocated across the country for a job, they turned their first home into a long-term rental and were able to purchase their next primary residence with no money down. That was back in 2012.
Natia and Jervais did not purchase any additional property until 2021. They spent several years setting specific goals and planning how they would achieve them.
Their primary goal was to leave their day jobs in their early forties.
With that in mind, they began researching various real-estate investing strategies and came to the conclusion that short-term rentals could be profitable. Rather than investing tens of thousands of dollars in a property to test the short-term rental strategy, they decided to do rental arbitrage with Jervais’ parents’ home.
It was a win-win situation in their case: Jervais’ parents were looking for a long-term tenant, and the couple wanted to test the profitability of short-term rentals.
“They were happy because we took on the burden of finding a renter,” Jervais explained. “And we were pleased because we were earning income from that property in excess of what we were paying in rent.”
In August 2020, they began renting the Savannah, Georgia-based home. By March 2021, “we really started seeing profits,” Natia said. “That’s when we realized, ‘OK, this could work.'” Now let’s go out and buy some houses.'”
