$47k/Month in Rent & 0 Doors Owned through Rental Arbitrage

this is the bigger pockets podcast show 5 20. my goal is to be 65 on a beach sipping a margarita on the first of the month getting a paycheck and that's able to happen because i started with 40 short-term rental arbitrage units that bought me my first apartment complex that maybe got me the second one that got me the third one so by the time i'm 65 that margarita is going to be hanging out right like with me because i did all the work and the groundwork to get there does that make sense you're listening to bigger pockets radio simplifying real estate for investors large and small if you're here looking to learn about real estate investing without all the hype you're in the right place stay tuned and be sure to join the millions of others who have benefited from bigger biggerpockets.com your home for real estate investing online what's up everybody i am your co-host brandon turner wait hold on i'm not brandon turner what's up guys now it's tony robinson i'm here with my co-host ashley care from the real estate rookie podcast and today we are taking over the bigger pockets og show we couldn't be more excited this is a very exciting day for us it is also tony's first time ever doing an intro on the podcast we almost had to get out a teleprompter but he made it through so everybody please clap for tony yeah hopefully those bloopers never make it onto the air so that stays between us um ashley what's up welcome to the og show how's it feel to be here it has been almost two years since i've been on the show even before i was a podcast host i had a episode on here so it is great to be back yeah it's so crazy right like all the years we spent listening to the podcast now to be on this side so this is a this is a message to all the listeners that dreams do come true um you can achieve your wildest crazy dreams if you work hard enough to make it out exactly and we have a guest on the show today rafa who talks about that is his dream was to get out of his w-2 job and he has his five-year plan in place and he is going to talk about how he uses apartment arbitrage to have airbnb and short-term rentals and corporate rentals and nurse rentals all kinds of short-term rentals you can think of yeah so for those of you that don't know like the the majority of my investment portfolio is in short term rentals and roth and i actually connected on clubhouse a couple months ago we've just kept in ch and touched since then he's got like just such an amazing story of how he's pretty much built this business like single-handedly and he's got like 25 active units i think he's got like another 30 that he's working on right now so he's just doing phenomenal amazing things and he gives an absolute master class on how to get into the game of airbnb or short-term rental arbitrage so before we get into the show let's hear a quick word from tyler before we get into today's show here's today's quick tip [Music] make sure you guys go and subscribe to the real estate rookie podcast where tony and i are the co-host and we have a ton of fun and we bring you guys rookie content so if you are a new investor getting started in real estate and you want to learn and you want to grow and scale and become the best investor you can be we have content that is tailored directly to you so you can also check us out on youtube search real estate rookie all right asher that was a great awesome tip a little self promotion there i love it but with that let's get into today's show and bring on rafa rafal welcome to the bigger pockets real estate podcast whether we're super excited to have you on here today excited to dive into your story um why don't you tell the listeners a little bit about who you are and how you got started in the world of real estate investing yeah tony thanks for having me man um i'm really really excited to be here so um you know my name's rafa i do short term rentals it's really all i do i've been doing it for about four years now and i started i just a quick story to get into it uh about four years ago i wanted to get into real estate investing and um i live in southern california so the house is here in southern california right at that time we're about an average medium of like 460 470 um in my area right um in orange county and so i had this idea where i at the time i was transitioning between jobs i was working at casino and i'm like hey i need to find like something to make extra cash to get out of this job i'm not the type of guy that likes to work nine to five i think i've had like five jobs my entire life um and so um i i started doing the like listening to podcasts and and figuring out how to analyze deals and i quick i didn't know about the burn method back then right and i found that like quickly found out that if i were to buy a house here like i would make zero cash flow i probably end up with like 50 bucks if i like type timed everything up or probably even negative cash flow right so at the time as i was doing research um my partner at the time she we were talking she's like hey uh because she works in hollywood and she's like yeah there's this guy who's driving around this ferrari he's like 24 years old and i'm like how's he doing this and he's like yeah i guess he's got like 10 apartments on airbnb and i'm like oh i know what airbnb is right and i started doing research and i found out about short-term rentals and i was like wait a second so it's as simple as the arbitrage model where i can lease out a unit and put it up on a website like airbnb and start making money and so i started doing more research um and found a mentor that was teaching like systems and processes and i kind of jumped in on it watched a couple videos and then put it on the back burner right like a lot of people do i uh i let it sit there for about six months and i was like i it was always in the back of my mind i was working still um at that time i was working graveyard so as you can imagine like sleep during the day so it sucked like it really slowed me down a lot like my progress um and then one day my my partner at the time she's like hey i got us a meeting at this apartment complex like i already did the initial like call go out there and um see what uh see what we can do so i went out there and i pitched them hey you know we're trying to do short-term rentals um it's my first pitch i was nervous and shaky and um at that time that that complex had it was a 120 unit complex and it had about a 65 vacancy they were um they were remodeling the whole thing it was all refreshed brand new remodels so i was like oh at least one two bedroom off you guys um i ran the numbers and she's like yeah we can we can go ahead and uh give you one so i was all excited right so we ran the numbers um we went and we did what i did is i ended up leasing so what i do is arbitrage right and so um i lease out units um we can go into that in a little bit but um i i ran the numbers in comparison to the house that i was going to purchase versus this and the money that i was going to put down on the house versus the money that i was putting down in this apartment that money i was going to get back in about seven months projected right and um it was it was a 20 grand or so a little bit under 20 grand at the time um i we spent about it was i ended up doing half on a credit card and half cash um and um we spent about i want to see a little bit under twenty thousand dollars on this two bedroom apartment right with rent and deposit and um we went live in the middle of december um i paid the first month to rent that first month's deposit as well because i was brand new in that building and by the end of december i had both that money back the rent and the deposit and i was like whoa okay um at the end of january i had made a six thousand dollar profit on a two-bedroom apartment right and i was like ecstatic about it so i was like okay um and it all just kind of fell into place after that the part i had a good relationship with the complex again they were super vacant and they offered me another one offered me another one and then nine months later i had 14 units live two different complexes um now i've been at it for four and a half years 24 units live right now so it's so awesome uh can you just tell everyone just real quick what's the snapshot of your portfolio look like what was the total amount of units you have today so right now i have actually 23 live units i just closed one down yesterday so i have 23 um apartments um they're all arbitrage leases um and i'm actually sitting in an eight bedroom apartment complex that we're taking over right now um it's actually being remodeled by the owner i'm kind of in a partnership with him um where i lease out everything he goes live on um and so i have 23 live um i'm actually giving four away here to to uh one to two to my brother and two to a buddy of mine because i want them to get started in this and then so i'm gonna have four more in the back side there's a two bedroom bungalow that's been remodeled that i'm taking over um i just signed at least on a three bedroom house this morning so currently live i have 23 units um four different locations and i have four five six seven units that are going to be coming live in the next three weeks or so um and then i spoke briefly to tony about this but i'm working to deal with another investor that i'm going to take over at 30 unit apartment complex this is so cool yeah i can't wait to dive into more of this i want everyone listening today to be able to do the exact same thing you're doing if that's kind of what fits their goal their strategy so let's start first of all with your strategy what is arbitrage can you go into detail as to what that is yeah actually it's a really good question because i've heard a lot of people talk about it and like everybody has a different kind of like how they do it right the arbitrage model that i do is basically we come in as a long-term tenant on any apartment or bedroom um and we lease out the the unit for long term right a year lease like a regular person would but we do it under our corporation and what we do is we take that one apartment house whatever the the actual asset or the actual building is and we furnish it and then we re-rent it per night as a short-term rental so we end up making a profit um based on the nightly rentals right so um if we rent an apartment for 2100 a month for 12 months um then we furnish it instead of me making 12 2100 off that one-bedroom apartment i end up doing anywhere between 4 500 to 6 000 a month so we make a decent spread on on top of the rent and all the expenses that's what arbitrage is that's basically locking up that that unit and then re-listing on an airbnb for a higher price now rafa you and i originally connected on on clubhouse and i remember after hearing you talk i was like man like this guy's got it going on right because like we're both in the short-term rental space we're doing it in different ways and when i hear the the revenue that you're able to generate without actually owning the units it kind of makes my head spin um so there are definitely some pluses to the arbitrage model but there are also some risks associated with the arbitrage model as well so just from your own perspective what do you see as the things that make rental arbitrage really really i guess a really strong business plan and then what are some of the risks associated with going down that path as well yeah absolutely tony dude such a good question so all right here's the deal right i'll give you guys a quick example i just opened a one bedroom apartment um it cost me 12 000 in terms of furnishing design first month's rent and deposit that's all it was right the four biggest expenses um and so that unit twelve thousand dollars is all it takes me to start up i can get those twelve thousand dollars back in easy eight to nine months and then as long as that unit is still active it will be cash flowing for the life of that one one bedroom apartment right um just to give you a perspective um that i just checked the numbers on that one bedroom it went live middle of june as of today it's already revenue 12 700 bucks right it's not all profit but it's revenue just exactly what i've put into it right i've profited probably about 40 of that maybe i don't know um and so that that's the beauty of of doing the arbitrage model is let's say somebody only has ten thousand dollars to get started and they can't go and get you know a four hundred thousand dollar loan or a house because the deposit's not there and they just want cash flow right they don't want the equity they they just want to make some side money to to i don't know pay for their weekends out right or their dinners with family or whatever the case may be you open one unit up at a cost of about 10 grand a small one bedroom 450 square foot apartment and um that that unit if done correctly will be cash flowing you a minimum of a thousand dollars a month minimum if if done correctly and done in the right locations right um and it's extra cash right and again if you're the type of person who wants your money back just save all the profits and you'll have it back in a solid eight ten months um with w with what you initially started right to answer the second part of your question the downside is that the there is a so the downside is you're pretty much at the at the expense or at the at the mercy of the property owner right so if you're working with these giant reits right the big 300 unit apartment complexes that have the property managements in place already odds are you can get kicked out in a year if you have issues with your guests with neighbors whatever the case may be or if you go into a building without having full transparency with the owner and you start doing things like airbnb um then uh the owner gets upset he can kick you out and that ends your entire business right it's over so that's the downside you're pretty much uh um at the at the mercy of whoever you're working with and at the length of that lease and there's ways to mitigate that risk right i've been in buildings for four years no issues right um i've been in buildings where after 12 months a lot of people started jumping into that building and we were all asked to leave because it was just bothering too many neighbors right so i've pivoted i've talked about it shortly um to where now instead of me going into these big giant apartment complexes i actually like to work with small mom and pop investors that own eight to 12 unit complexes these small build buildings where i can just lose the entire thing and i don't have to worry about a long-term tenant being disturbed by my short-term guests does that make sense and then i'll sign a three-year lease so i'm protected with them they have i have full transparency of what i do with the owner so the owner knows exactly what i'm doing right some not all of my units are on airbnb right not all of my units are on vrbo i get a lot of direct bookings um contractors nurses all of that and so they're aware of all of that and because they know how i operate the way i manage it's it's a pretty safe bet that i'll be in this this eight unit building i'm in i'll be able to have this for as long as i really want to be honest you know three four years whatever the case may be does that answer it rafa what a what a great answer to that question man uh and you actually answer my second question without me even asking was like how do you mitigate that risk but i mean what a what a great example i know folks that are also doing arbitrage outside you and yeah when you're in that big apartment complex you're there's friction between the people that actually live there and then the guests that are coming in and out of the short-term rentals so you're you're bound to get some complaints but if you go in and the whole place is yours you don't have to worry about anybody complaining and you know you have a better relationship with that owner so i love that approach i want to go back to what you said about the startup costs because i think this is what i really want to highlight for the guests um you said that one of the recent units that you you brought up this one bedroom your all-in cost was 12 000 which is like mind-blowing to me right like we've got a we've got a studio that we're working on in joshua tree and we're probably going to spend about 55 thousand dollars getting that one you know down payment closing costs and the furnishing right um 55 versus 12 is a is a huge huge huge difference right like just ballpark rafa how much do you think you'll actually profit on that on that one bedroom that cost 12 thousand dollars to get set up on an annual basis on an annual basis that unit will do um 1500 a month minimum like minimum so what is that 50 yeah i don't know what the total is 10 15 times 12 i can't do the like do 168 thousand dollars it's like 16 000 somewhere around there right i don't know yeah i'm guessing right now it's upwards it's gonna be like 16 grand for the year something like that um and that's that's again if i have it at the minimum right and this is this is what i'm looking at right now i'm actually seeing some crazy numbers with that unit like all of july did it's guys it's a it's a 400 square foot apartment 450. it's tiny it should have been a studio um and so um all of july was doing like 2 40 a night on that and i was blown away by it like that's crazy they had a ridiculous profit in july um and so but you know right now we're in slow season so um but yeah minimum fifteen hundred dollars a month profit for 12 months um this is what i'll make up for that one i i did the math i'm not 16 but it's 18 000 so 500 a month at 12 months is 18 000 so you're getting back literally all of your capital and then some in that first year right right for us on the studio um again we're putting in about 55 000 into this property in joshua tree we'll probably gross about 75 we'll net maybe half of that so we'll keep somewhere between 35 to 40 grand on that property um so we're not quite recapturing all of our capital we're getting close but not quite and i'm i'm illustrating these two different scenarios to to show something to the listeners that the benefits typically of going with arbitrage are that you're going to get better cash on cash returns because the capital outlay is so small the overall revenue and profit numbers might be a little bit smaller right we're talking 18 000 versus like 35 to 40 000 but your money is going to stretch a lot further on the arbitrage model because you're only spending such you know a third or a fourth of what we're spending to actually purchase and acquire these properties um well for you and i have talked about this before as well and then sorry ashley i'm like hogging up because you're talking about short-term rentals so you're not i can't tony i feel like i do have a leg up for you this one time on a short-term rental because that's my only unit for airbnb is arbitrage well let's let's all kind of talk through this and actually maybe you give your opinion first and raffle we can go to you afterwards but um i i think one of the other benefits of owning the unit as opposed to the arbitrage model is that you get the long-term appreciation to me i think that's probably one of the biggest reasons why i haven't jumped into the arbitrage model yet is because i also want to build wealth long term so ashley what are your thoughts and raffle go to you afterwards yeah i agree with you on that tony there's in there's not a lot of equity build up there's you know no mortgage paid out and there's no appreciation uh what you're seeing is you're seeing cash now compared to wealth building in the future we had just had um avery carl on and she talked about this as to how she doesn't do arbitrage because she's building wealth and wants to own the actual units i i definitely agree with that but i also think that there's a ton of opportunity to build capital to buy other wealth building assets by using this model so for example uh the apartment that i have it's in a complex where i used to be the property manager for i used to run it and i am on a month-to-month lease the owner knows exactly what i'm doing and super happy for me and i can probably do it as long as i want but i also have the option to pull out of it if i want to so that's pretty low risk for me doing this and i just actually pulled up the numbers because we were talking about the initial investment so it was five thousand dollars uh for me to start it and just this year alone we've had uh 18 000 in revenue and we still have three more months to go for the year so there definitely is a lot of uh cash to be made now but there's no really i don't see a long-term benefit of it except for using that cash to purchase other properties or buy and hold ruffle what are your thoughts on that debate yeah so both are awesome points and actually what you just said at the end is exactly the whole reason right um you got to have a goal with this if you and let me i want to structures as best as i can so the whole point of why i do this and how i do this is to be able to come in and purchase property throughout my my little four years of history that i've been doing this i've had the opportunity to purchase um several times already right the reason i don't is because i have a goal in mind to hit a certain amount of cash flow every month to where i can come in and go all right i like that property boom here's the down payment i like that property boom here's a down payment right so you got to have a goal in mind when you start this if you want to start doing i don't know for example tony your your your um studio in joshua tree can a person really put in 55 000 open that one studio and then quit their job with the revenue of that one unit probably not right okay well i can take your 50 50 000 i can open five units cash flowing me five grand a month i can quit my job do this full time build this business and delay gratification right in a year's time those five units will be cash flowing enough to to either open more units or to do this full time as as no other job and focus on actual investing now where i can learn how to do the burst strategy or go out in wholesale or lease the owner whatever it is that people want to learn out there because they started this first and a year later now they're cash flowing enough to quit or they started five units and their cash flow enough to in a year say hey now i have 50 000 sitting in the bank now i can go into real estate investing right and so anybody who's listening to this needs to come in and go all right what's the plan i have a five-year plan guys right my five-year plan is to get to a certain amount of uh arbitrage units and it's why i haven't purchased anything because i don't want to break that plan in five years if i have anywhere between 50 to 100 arbitrage units i can go out and tony join you out in the smokies with the cabin right i'm looking at a five unit complex right now that um that i might turn into short terms purchase right i'm actually working with partners not to be able to buy complexes to purchase but i'm at that stage where i'm able to get there not only do i know short-term rentals so well with the systems the processes that i have built that for me any unit i get even if it's a 30 unit apartment complex i can plug and play it right and going back to that point it was because the arbitrage model allowed me to get there i can i can delay gratification again i know that if i wait three four years my goal is to be 65 on a beach sipping a margarita on the first of the month getting a paycheck and that's able to happen because i started with 40 short-term rental arbitrage units that bought me my first apartment complex that maybe got me the second one that got me the third one so by the time i'm 65 that margarita is going to be hanging out right like with me because i did all the work and the groundwork to get there does that make sense this is why i love real estate because there's so many different strategies so many different ways to do it and real estate can be easy because there's so many different ways to get started but it can also be hard because there's so many different ways that there's no set like okay you go to college you go to med school you do your residency okay you're a doctor like there's no step plan so that makes it difficult that's but i also love it because no matter what your background or what your goal there is some way for you to find a strategy that works for you and this is what's working for you so rafa i want to know when you go out and find these units how do you pitch these landlords so for my unit it's somebody that i know very well and it was easy but how do you even go out and find these apartments and then what does your pitch look like sure so um there's so many ways to do it right i like now my strategy has changed over the years at first it was go on apartments.com and look for apartments that were for rent um and that's how i found it the problem with that is actually is that to go into it without having to change the conversation here is that every pitch is different depending on the type of location i get right so my pitch is different for property managers who are managing 500 units my pitch is different from a owner who has a three-bedroom house my pitch is different to an eight unit apartment complex owner right um every single one is different and it has to be approached differently because this is a different type of location and the way it's going to be managed is different right um and so now and i'll sh so the best way right now like if anybody wants to get started on arbitrage is is to drive your um your neighborhood and uh what will happen is if you see like a a multi-family being rehabbed go talk to the general contractor so you're driving the neighborhood you see a contractor get the contractor to put you in contact with the owner because the owner is going to want to leave these units out eventually so you're going to come and solve this owner's problem before um before it even goes on the market so you talk to the if you're doing like let's say it's an eight unit complex you you get the owner on the line and you go hey uh my name is rafa i'm with ninery properties we're a short-term rental provider we do corporate housing we house business travelers travel nurses um families here for leisure in the area and i'd love to talk to you about leasing out your your complex before you put it up on the market um is that something that that would work for you do you allow corporate leases um are you interested in working with me i'm an investor and i can show you what i do that's the initial conversation with like a small investor right someone that's like-minded that also invests that will take care of it like that's the first initial conversation right kind of like you know wholesale has three different calls that you do type of rapport build all that well same with this the first conversation i just want the investor to know hey this is what i do the second conversation we meet up and i go all right i show them either a unit that i have or i tell them hey look um and with all of them i'll give you guys the pitch for the apartment giant apartment complexes but with all of them i don't focus on short-term rentals i don't focus on airbnb i don't focus on corporate housing provider i focus on the customer that i'm attracting to these locations whether it be business travelers whether it be nurses who are here whether it's the families that are here for disneyland i'm very close to disneyland um whatever it is right uh travelers to the national parks tony uh wherever you guys are having right um and i focus on that specific um topic more than anything so i tell them hey all right guys so i tell the owner hey so this apartment here like i want to turn it into a short-term rental it's going to be corporate house for people that are going to be here for business this place is great and i walk them through what i do right how i'm going to furnish it what what it is that how long the days are going to be medical professionals and business travelers are typically they're not really short-term they're about well they're short-term but they're 14 days to about a month 41 days right on average um and so once i explain what it is that i'm doing and how i'm using the unit and how well i'm going to take care of it that's important you got to explain how well you're going to take care of the unit the fact that hey i'm going to clean this unit professionally seven times a month maybe instead of one time all year where you're gonna have to come in and scrub the gunk off the shower that's not gonna happen with me in five years from now because this place has to be exactly the same five years from now than today right and so that's how i talk to the investors um it's very similar to the big reits the big property managers the one thing i do want to make clear is with the big property managers a lot of these big property managers already have their systems in place up to who they allow in how they vet people and what the requirements are to enter this building right you come in and you say hey my name is rafa i'm with knight in ring properties i'm a short-term rental operator that sets up corporate houses for travel nurses medical professionals business travelers and families here for leisure in the area do you guys allow corporate leases and that's it and then i wait and then they'll either tell you depending on again the type of property manager that you're dealing with they go oh yeah we do a lot corporate housing or yeah we do a lot of corporate releases or yeah we allow that or they'll tell you i don't know what is that and that's where you have to go in and educate them right our job is to actually educate them on how we do it well the problem with these big reads as as uh these big property management companies is that they require two years um business history they require business credit they require maybe a year worth of bank statements or even three years worth of bank statements or five times the amount of money in the bank for the deposit uh and for i mean for the rent and the deposit and all that but their definition of a corporate lease is very different based on who you're talking to some people think that you're bringing your employees and you're going to house them in that unit right something that you're doing a court release at 30 day minimums or something that all it is is your corporation is literally signing the lease and that's it for yourself right so they don't understand and you have to educate them that that's why i'm throwing the short-term rental bid in there because i tell them no look we furnish the entire apartment and then we provide it to people who need short-term stays or places to stay short-term where they don't have the ability to sign a one-year lease and that's where we come in that's the service we provide to them the service we can provide to you is that we can fill up any vacancy you have right now i can take five units if you have them i can take 10 units if you have them and then that's that's kind of where you go from there based on the conversation does that did that answer it i hope that that made sense no absolutely raffle what a fantastic breakdown brother and you're giving like a master class on how to negotiate uh the arbitrage units i i guess one follow-up question is have you ever been denied by a landlord like you once go give them your pitch and they said no i'm not interested and if so like what was their reasoning yeah so a lot actually um funny story i almost got denied with the with the guy i'm working with now and i actually have 14 units with him um the first thing he says before we i when i walk in the door before we even introduce each other he goes i don't want any airbnb here and i'm like okay no problem let me uh let me let me tell you what i do first before we get into the airbnb talk um and so i had to tony that doesn't answer the question but that guy had to educate him on what is that i do right before him i've talked to i mean i've called hundreds of complexes like i know all the apartment complexes in my area um they'll just tell you hey we don't allow corporate releases all right no problem or no we don't want any short-term stays or we've already had a guy to wear a b b here before right we don't want that anymore it's been too many headaches it's too many problems okay well no hard feelings no problem you go on and you call the next one right um the ones that really hurt are like the small investors because you're like hey like we're kind of like-minded here like i'm trying to get to your level you own the property but i'm at the point where i can lease it out for you so that you're zero percent vacancy right um and uh yeah some of them those are the ones that like where i'll meet up with them and i'll explain to them what we're doing they're like nah man look i don't want to deal with any of that i'd rather just have a long-term tenant in there and i'm like i mean look if you i am going to be your long-term tenant i'm just going to be using the house multiple times as a matter of fact i'm going to be an even more of a headache solver because i'm going to deal with the the small maintenance issues you don't have to call a maintenance person out here and they're still like no they're just they're not open to it they're like no we just don't want to deal with it we're going to disturb the neighbors the neighborhood's going to get upset they immediately think oh if i lease you this unit it's going to go on airbnb and tomorrow there's going to be 20 people walking in the door with the cooler and a dj system like that's literally what their mind goes and i have to sit here and like usually the conversation goes back to them like i've passed on i'm sorry they've passed on on letting me lease and then they'll call me like a month later where the unit's still vacant like hey can let's can you explain to me again what it is that you're doing and then that's when i come back and i'm like look yeah this is what i do this is how i do it and then it ends up sometimes it ends up working out sometimes they tell me no hard feelings i just go to the next place it's it's it's kind of the reason i i asked that as i asked that's kind of like a leading question ralph because i i i would have assumed that there would be a lot of rejection while you're going out and doing this and i think people hear that you're at 23 active units with another 30 plus that you're working on and like man like rafa's killing it but they're not understanding all of the the legwork and all of the rejection that you had to go through to get to that point and you know ash and i talk about this all the time like we see new investors who say man i've submitted you know three offers and nothing's been accepted like you know real estate investing doesn't work it was all a lie you know but it's like no it's a numbers game right you've got to get to a certain number of rejections before you finally get to that first yes and you know the fact that you know every single apartment complex in your area right and you've been rejected by many of them proves that point man that's literally me just on everyday deals this week rejection rejection after rejection but it's part of the process right yeah well i'll tell you guys what to put everybody's mind at ease um tony and so like everybody listening right um you'll get 40 no's but all you really need guys is one yes because we're going after multi-family here right so if i'm going after somebody who's got 10 apartments or an investor who's got i don't know 20 doors or something and i get one yes from them and then i do my job as a short-term rental operator and i kill at it right i house the right people my security systems are in place i stop the parties instantly um their vacancies full they love it the place is designed beautifully they they use me to to appraise their property right because it's just beautiful i guarantee everybody listening to this that after your first one they're gonna offer you the second one and then they're gonna offer you the third one that first building that i was telling you guys about i had 14 units in that building because they went from one and then they're like man this guy's like he's doing what he said right i'm i'm housing the p this is why i focus so much on talk about who you're gonna house because if i tell them hey i'm gonna bring business and families here and then they see five twenty five-year-olds walking with coolers and you know cans of beer then i'm not housing who i said i'm on a house and now i'm lying right um and so when you get that first one and you operate correctly and you do what you're gonna say i guarantee everybody listening to this you'll get the second unit from that same person or when you go out and you network and you go to like a local real estate meetup you have the experience to talk about what you're doing because you're excited about it you're gonna catch somebody's ear and that person can go hey i kind of want to talk to you about short term rentals especially right now they're super popular everywhere you go everybody wants to talk about airbnb shorts and rentals um and they'll tell you hey i have a property you want to come look at it see if it works for you i'm actually turning away properties now because they're so ugly and beat up that i'm like i can't work with this like rehab it and then i can come in and take over it like i kid you not and again to put everybody's mind at ease get the first yes and that person will just start throwing properties at you rafa this whole conversation really reminds me of somebody going after a partner too you're you're pitching them an opportunity really the people that do decide to you know have a nice apartment to run out to you you are providing them an opportunity because just like the things you said where in five years it's gonna look exactly the same they're not gonna be scrubbing gunk off the wall and they're gonna have that guaranteed rent for the next three years or however long your lease is so i think that's uh tony and i talk about this a lot is pitching a partner and not begging them like oh please give me this opportunity to partner with me is to show them that really you're providing them an opportunity and that's the way you should be pitching it not that they're doing you a favor correct well you know what ashley really quick to give you an example on that um when i first moved to this city on one of the buildings that i have here up the street i have uh it's a 12 unit building i actually have eight units in that building and um the the it's the same guy that i told you that the first thing he says was i don't want airbnb right so after i we had the conversation was about an hour and a half long um i said hey man look listen um i'll tell you what give me this one unit try me out let's do a six month lease um so you can see how i operate if it doesn't work for you know hard feelings right the building's vacant anyway like if you get other tenants cool if you don't i can take over to all 12. like i kid you not i can show you that everything that i have my business history all of that whatever you need um and he goes all right fine i'll try you out for six months um we started designing it we as it was i i want to say a week and a half later he's like all right we were in there hustling we're getting this we got to get this unit up and running right it's got to be up and running within the week to start making money um we implement we have the security guy come in install everything the doorbell cameras the works and um he goes hey you want another unit and i just started laughing i go i'll take all eight he goes just take one more i'm like okay i start the second unit two weeks later bye i'll give you the one next door i'm like i'll take all of them i'll take all of them and he gives me another one and then he ended up getting two long-term leases up top and then after he's like bro just take the entire building and i was like i told you and now i have eight units in that building you know you talked a little bit about your startup costs but what about your reserves what kind of reserves do you have in place for each of these units as you take more and more on and did how was it during povid uh for my unit we had one month of vacancy and i think we were pretty lucky that that was all that we had and that was even when airbnb reimbursed you up to i think like 15 of what your booking should have been so it really wasn't that bad but if you have this many units how do you prepare if something like that were to happen again yeah so man actually like you're bringing up dark times um the uh so koval was tough it was um just to when it hit in march i was projected at the beginning of the month um in reservations something like 47k or something i don't know um at the time i actually had 21 units live um and the moment kovitt hit i was down to 700 and i'm like oh what's gonna happen here um i had reserves so everybody like you should definitely save one month's reserves like take the money and save it right everybody like this is one of the things with short-term rentals everybody thinks i'm gonna like you know i just said i'm gonna um profit 1500 bucks a month i'm not taking that and pocketing it i pay myself a very small salary out of my business and the rest is in the business and it just stays there and i have at one month minimum for all my rent and my expenses like it just sits there and it's already waiting so in case something happens i at least have 30 days to figure out how am i going to stay afloat here if it continues to happen so luckily i had that when the pandemic hit the second thing is i had to pivot this is another very very important thing too is that's why i i've been yesterday i've been saying short-term rentals not airbnb the whole time because airbnb is just the marketing platform that i use to acquire customers it's not my business at all and so um now from when covert hit i had to pivot really hard to attract different kind of customers people who were going to do 30 day minimums to at least break even to keep me afloat and that's what we did i started reaching out to my entire network i've been saving people's information from the first the first reservation i got and i know every cup um customer who stayed with me every restaurant whose house employees who i've housed contractor companies nurses who stayed with me i have all their info and so i blasted everybody i said hey we have available units i reached out to the city and i said hey i have 23 units in your city um do you guys have workers who need a quarantine let me know i'll have some and i'll give you guys a really good discount right because it's a city we want to i actually got like three four reservations from the city um for um cops and um firefighters because they got covered and they have the quarantine um and so my my entire business and then i negotiated with some of the complexes that we were in um a uh a rent uh so we were paying a percentage of the rent based on the revenue we brought in and then it was going to be deferred and it got deferred for about eight months we've paid them back now which is awesome um and uh that that helped out a lot so my operating expenses dropped so i think like 25 which is great but if the entire pivot was um i have money to cover the next month of losses but after that i need to be able to re generate the revenue to at least break even um again i pay myself this is why when you do this one thing i want everybody understand is when you get into the short short-term rental world especially arbitrage you're in the hospitality business and you're building a business you're not doing passive income you're not doing real estate passive income no long-term tenants you're building a business and you have to treat it as such right and so i treat it that way i pay myself a very small percentage so anything on top of it i can save right i pivoted and i house different customers because as a business as an entrepreneur you have to be able to solve those problems and so i started housing people long term 30 days i started offering very steep discounts to my breakeven number right in summers in some circumstances some of my units were at 300 at a loss but that's okay because as long as i stayed afloat during the pandemic the uncertain times once everything came back i knew it would come back and look it came back hard i've had just june and july were two of the greatest months i've ever had in the last five years right i mean it blew everything out of the water it was insane i was telling tony some of the numbers on my two bedroom apartment and i was like as i was speaking about it like i'm getting chills thinking about it i was blown away at these numbers and i'm like and all because i pivoted and i was able to stay afloat and work that that that system to be able to house different customers instead of focusing only on airbnb and relying solely on airbnb does that make sense actually rafa way to like pivot your business model to still make it a viable thing even in the midst of the pandemic man like but but the point you made rafa about it being a business and not just being like passive income i think is a an important distinction for listeners to to understand right is that like this isn't like you're taking fifteen thousand dollars and putting it into an apartment syndication where you're you're a limited partner you're just getting a check every quarter this is an active business where you need to be hands-on you know managing the guests managing the cleaners managing the handymen making sure the leases are getting you know just all these different pieces of it so it is an active business uh and i just want to make sure that the people understand that now i guess along the same point right you kind of talked about how you negotiated with some of the landlords during covid and it makes me wonder how how are you actually structuring the leases with these landlords when you go into these agreements are are they are they in rafa's name are then your llc's name like just how are you structuring them like like walks through that whole process yeah what are the terms of the lease okay yeah uh man you guys are bringing up all the good points so um the the lease is all my leases are under my llc every single one nothing's under my name um number one just because of the protection right um i don't want to be liable or responsible that's why we have the corporation but the leases it's just a regular regular tenant lease there's nothing special about it the only thing that we do is we add a subsiding clause or a subletting addendum to that lease that's it super super important i can't stress this enough to everybody who listens to this podcast and says hey i want to go try arbitrage make sure your lease is structured not just because if the manage if you're cool with the manager and the manager says yeah i love it let's do it let's give it a shot and then they say hey we can't change it but it's okay i know what you're doing no problem don't do it please don't do it because i guarantee you that if the property manager says hey we'll rotate some property managers rotate managers and they decide to rotate this manager and the next one comes in you you have to educate a whole new person convince them if that person says no you don't have it on paper you got the boot you're at the door right um not to mention um if you have that that addendum or that that little clause in the lease that lets you do because that's essentially what we're doing is we're subletting right um and um and if you have that little that little paragraph that little form of protection um when when somebody let's say another opera this happens to me all the time and another operator jumps into the building and just causes havoc in that building right and now they say hey all the corporates got to go it's happened to me this is another dark set of shorts and rentals i just posted a video about this on my instagram because i just got the boot to leave on one of my complexes i could have fought that place i could have said hey no i have the lease it's here i have permission to do this you need to kick out whoever's causing problems not me right but the reason i didn't do fight em is because i have five units in that building and i'm they're giving me permission to keep three and i gotta get rid of two which is fine right but i could certainly come in and go hey no look my lease says that i'm allowed to be here um what's the problem right certain i'm still only of uh uh i still only have the freedom to be there till the end of the lease regardless they can kick me out at the end but at least i'm not having to scramble and figure out what i'm going to do in the middle of a you know six months left on my lease to figure out where i'm going to move my furniture do i got to go get storage so i have to go find another complex whatever it is so very important make sure you guys have that that the least structured properly so that it's on paper to make sure you're operating correctly rafa this is like a a master class on on rental arbitrage man you were dropping so many gems rather i i love it man i love it um i want to take us into our next segment here which is our deal deep dive come on you got to stay with me ash come on where are we going we're going to next seven which is our deal [Laughter] all right so rafa we want to get into the nitty-gritty of one of your rental arbitrage units do you have a specific deal in mind that we can kind of talk through um yeah so i went over that one bedroom um i can go actually we can go over this eight unit complex as a whole if you guys want beautiful yeah let's get that one so i'm gonna i'm gonna hit you with some like rapid fire questions just kind of set the table um and then we can kind of go into it from there so what kind of property is it i think we already answered this but what kind of property is it it's a eight unit apartment complex um all one bedrooms one baths beautiful and how did you find it so actually remember i was telling you guys that once you get in with a good investor they just start throwing these things at you um he's been remodeling this building for the last year and a half and he needs to get rid of his vacancy and so i said hey it'll end on the first if you give me the entire thing and he gave it to me and how much was it so um for this building so here's the here's the great thing about being in good relationship with the owners um in this building i'm paying him for four units is 2100 for four units is two grand so i'm paying 16 400 a month for this building but i negotiated one month's free rent so my startup cost is gonna be virtually only the the furniture furnishing and um i negotiated a thousand uh thousand per unit deposit so i'm technically going in with um eight thousand dollars to start at this building i have 30 days top rate for free to make that money back and then some to cover next month's expenses so how are you funding the these like all these setup costs is just money that you've generated from your business are you working with partners you getting a loan what does the funding look like so currently now it's all it's all of my um funds it's all my business funds when i first started um tony it was um i i have a funny story about that um so my third unit that i started i was like they the the conflict was hey we have a third unit you want it and i'm like yes i want it i said yes and i had no idea how i was gonna do it because i had no money um i was i had two units operating i was using that money to to cover those expenses and to it was i didn't have enough money to open up their unit so i called my dad and i was like hey uh you guys got some money laying around that i can borrow so i can open this unit and funny story he goes yeah i got about 10 grand under the mattress and i'm like what are you like under the mattress like like literally he's like yeah the mattress and i'm like can i borrow that like what is it doing under the bed he's like well i don't know i just haven't deposited it i was like give me the money i'll make some money off of it so i took it and i opened the third unit so um and i i've opened three units with my parents um i've opened um two units with the buddy of mine just like talking about short-term rentals he's like hey i invest with you and i said sure i mean i'm trying to grow i think i was like on my eighth unit at the time and he gave me some money we opened two units i offered them a split share a percentage on the revenue on the profit that we make on that on that um and i've done working capital loans working capital loans i've used to open one unit i pay them back within the year um and i've talked to friends i even have a friend who i helped start short-term rentals and she was too busy to open more i was like how much money you got laying around because i knew she had money because she's got short-term rentals so she's like i got i got about 24 grand i was like give it to me i'll give it back to you in a year i know she said i have 20 grand i was like give it to me i'll give it back to you in a year with four grand on top of it she's like serious i was like yeah i'll pay you 24 grand in 12 months and she gave it to me i opened two units she got a 24 grand back and i have two units running they're still running it's been rough you're like a wizard man like like you got all these different little tactics man the world of arbitrage but i think the important point here is that there are so many different ways to to fund your real estate interest no matter what avenue or path you want to go down all right man so keeping it rolling with our with our deal deep dive here as we know we know how you funded it the next question is what did you do with it but if anyone's been listening to this entire episode i'm assuming they know what the answer to that is but what are your plans with all these units that you're you're taking over right now yeah so um actually these eight units four i'm handing two over to my brother the guy that you saved me from that ticket um and then two um to a buddy of mine who i want him to start on short-term rentals um and so uh they're gonna take two and two each in the front i'm gonna take the four back um that's actually a nine unit complex the bungalow but um i'm gonna take the four in the back and all all eight are gonna be um operating short-term rentals that should go live uh somewhere on the first of october or the middle again they're still building it but um they're finishing touches but it's all gonna be short-term rentals cash flowing us um handsomely hopefully for the next couple years what do you estimate that will be the revenue for a year say uh for these units i'm i'm honestly these units are probably going to do a little bit better because they're it's a brand new build um they're very small and we're going after a very niche customer which is all business travelers um they they tend to stay long-term i also have a lot of different people that we can use to to get them filled through out of direct bookings so these units are probably going to be doing about anywhere between fifteen hundred to two grand profit a month um that's awesome average on year per per year yeah yeah that's the that's that's the numbers that i included did you learn any lessons from doing this deal yes actually huge lessons in this deal so i was actually supposed to take over this building in the beginning of june um the contractors and the owner i guess he had a lot of setbacks so i've just i've been sitting on this unit vacant for june july august going into september now and um i could have invested all this money that i invested here in other locations and taken advantage of the summer months instead i got i got comfortable because it was handed to me and i said hey i'll just wait and i then they said it'll be ready 30 days and then i waited and it'll be ready three days and then i waited um so biggest lesson is number one if not all opportunities are ready to go immediately right this is a great opportunity but i could have taken it and done something somewhere else while this was getting ready instead i got comfortable and i spent all the money to get everything going in this units in these units and now um we're just sitting here waiting for them to go live that was a big big thing for me where i was like maybe don't sign leases until the unit's 100 ready to go because we're waiting just for things to be finished i was just gonna ask you yeah i was just gonna ask you what would be your recommendation to anybody that if they come into that scenario but you just answer that drop in all kinds of knowledge today man well that was our deal deeply that was our deal deep dive um but before we get out of here rafa we want to ask you the same four questions that is asked every single week on the podcast here it's time for the phase ready for these four questions man yeah let's do it all right so number one what is your favorite real estate book uh favorite real estate book i mean it's gotta be rich dad poor dad everybody answers that i hate saying that too but man that's what got my entire wheels rolling on this it's it's such a great mindset book it's what started everything and what would be your favorite business book oh that's a good one um multipliers multipliers is huge um what's that one i don't know what that one is so it's basically yeah it's about how to um be a better boss be a better leader be a better um it's it's bring people to grow with you instead of being the guy who's directing and telling everybody i've learned a lot of lessons from that one i used to be the guy was like no i want it this way go do that go to now it's like how do you think it should be solved how would you do it come tell me and let's see if it works instead of you know doing that yeah ashley's a terrible boss so that's why she's never read that book before you know our producer should read that book because he's always bossing us not taking our innovative ideas eric all right question number three what are your hobbies um i love sculpting so i actually have uh i sculpt um miniature collectibles like little five-inch figures i love anything to art related um uh yeah it's it's my one of my things i love painting and sculpting um i actually have an art page on instagram too um where uh i post up all the little pictures i've sculpted like robert de niro like just random characters things that inspire me when i get inspired i go out and sculpt something um other than that my bulldog i have an english bulldog i love playing with what sets apart successful investors from those who give up fail or never get started what would your what would you think that would be so man i love that question in all honesty uh in my opinion it's um being comfortable when people are comfortable they don't do anything else outside of their zone for example when i started short-term rentals i was working i've told you guys in the beginning i was working at a casino after my second unit i quit i said i'm going all in 100 had i not done that i would have probably still been at that job and i probably would have had maybe six units at the end of three years right instead i went all in dove into it was sink or swim and um got out of my comfort zone and i said i got this has to work otherwise i'm gonna have to have to find another job and when when even now i get comfortable in this space where i don't really want to do anything else because i'm doing well um talking about this building right i got comfortable and i could have found another opportunity maybe or worked with other people when other people are out there thinking hey i want to get into real estate investing but i'm doing pretty good i my check covers the mortgage all my expenses are paid i'll do this as a side gig when it's when it's convenient for me and then it ends up being never convenient for them and they end up never doing it you get what i'm saying and so being comfortable is one of the biggest things and that i think is what stops people from actually doing stuff when you're pushed to do something is when people are going to come in hey i'm sorry when you're pushed to do something it's when you're actually going to step up and go sink or swim i got to do it or i don't know what the heck's going to happen so hopefully that answers that that's such a great point and i see that in a lot of investors where when they're put into a situation where they have no choice but to do something they have to take action they have to make it work because either they quit their job they borrowed all their parents money under the mattress or whatever that is is and and that really depends on the type of person some people don't work well under that pressure and so maybe it's not best you quit your job and just jump full time into real estate but really if you see what kind of person you are that for myself too i agree that put under pressure then i will get it done because i have no other choice to do it yeah so rapha thank you so much uh for joining us today can you tell everyone where they can find out some more information about you and possibly reach out to you yeah the easiest way is to get ahold of me on instagram uh it's rafa underscore l0za i have a facebook group i open it's called airbnb the big break where i talk about this stuff people can join it there ask questions um i'm pretty active there other than that um yeah just add me on facebook or instagram um my website's nightinraine.com um it's being rebuilt right now and if anybody wants to invest give me a call i'm actually looking for investors to purchase some small complexes to do short-term rentals with as well so well rafa thank you so much uh we've provided great value today and we really enjoyed having you on to the podcast thank you for having me it was an honor thank you guys for joining us i am ashley care and i am signing off with my co-host tony i'm gonna look for my mom's money under her mattress listening to bigger pockets radio simplifying real estate for investors large and small if you're here looking to learn about real estate investing without all the hype you're in the right place stay tuned and be sure to join the millions of others who have benefited from biggerpockets.com your home for real estate investing online

Channel: BiggerPockets

Views: 107,867

Keywords: biggerpockets, real estate, real estate investing, investing, rental property, investing in real estate, income property, bigger pockets, passive income, rental arbitrage, airbnb arbitrage, vrbo arbitrage, short term rental arbitrage, what is rental arbitrage, flipping leases, whats rental arbitrage, airbnb someone elses property, airbnb without owning, short term rentals, airbnb rentals, airbnb property, how to get started in real estate, real estate 101, build wealth, rent

Id: K96Y9JMBqyM

Length: 54min 35sec (3275 seconds)

Published: Tue Oct 19 2021