Airbnb Arbitrage EXPOSED… The MASSIVE Risks

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hat's up guys, it's James here and in today's video, I'm going to be breaking down some of the really common myths and stabilize and really bad analysis that I see around rental arbitrage. I'm sure a lot of you guys who are watching this video are familiar with the concept of rental arbitrage where you rent a property, furnish it and then flip it onto Airbnb or short term rental. And there's a lot of people out there that are really heavily promoting this method for growing an Airbnb business. Now I've got experience, I've actually done rental arbitrage. In the past, I've also managed a substantial number of properties for other people as a percentage management fee model. And I actually own properties on Airbnb myself. So I've got experience playing in the different ways that you can get into Airbnb, whether it's rental arbitrage, property management, co hosting, or actually investing in these properties. So I've got my own experience that I can kind of shed some light on these different methods. And one of the most common things that I see people doing that I think is a huge mistake is comparing rental arbitrage versus actually owning a property. And I hear a lot of people saying whether it's you know, people out there who are promoting this stuff, or people that come on to phone calls with me, and they're talking me about it, they're looking at and they're going well, I can invest, you know, money into a down payment for a property and own that property. Or I can take that same downpayment money, and I can put it into, let's say, 345 rental arbitrage units, and make a way better return on my money. And so I just want to kind of break down why I think that that way of thinking about investing is absolutely flawed, it's probably the worst way that you can really think about it, and just doesn't logically hold up for a number of reasons. So I want to break that down for you guys here. I really want to keep this channel honest and really share with you guys my own experience about what does work and what doesn't work. So you're not being led down the wrong path. And that being said, I also have some free trainings linked in the description down below, they're completely free to get you started. So if you are looking to start managing other people's properties, you want to build a business, and you're not so much interested in investing side of things, you want to actually build a business managing other people's properties and earn a full time income doing that, then there's a link in the description for a free training on how to do exactly that how to earn a full time income managing other people's properties on Airbnb. And I show you how to do that without using the rental arbitrage model. So you don't have to take on all that unnecessary risk. And then the other train that I've got linked in the description down below is a training for any of you who are looking to get started investing in properties. So if you actually want to buy short term rental vacation rental properties, you want to get started investing. And even considering that then I highly recommend you check out the free training that's linked down below for how to build massive cash flow and wealth investing in short term rental properties. That's a fantastic training that I've just recently put together, it's going to go through the three core steps I think are absolutely crucial for any short term rental investor know in order to get started successfully investing in short term rental properties. So I highly recommend checking either one of those out depending on where you're at and what your goals are. Now let's just go ahead and jump right into it. Let's start by kind of debunking this idea of, you know, I can go and take my downpayment money put into rental arbitrage properties and make a way better return. There's a few things that are very, very fundamentally flawed with that way of looking at it. So if you look at any prominent investor, any prolific investor throughout all of history, they're all gonna have a focus on two main things. Number one is making money. And number two is not losing money. In other words, they're always gonna be focusing on protecting the downside. Even if you look at Warren Buffett, he's famous for saying I have two rules for investing. Rule number one is don't lose money. And rule number two is don't lose money. Now, that is not because he's trying to be cheeky, of course, he is trying to be a little bit cheeky with that. But he's not just saying the obvious, he's saying the thing that a lot of people don't think about thing that you have to consider when you're looking at investment opportunities is that you have to mitigate your downside exposure, it's much more important to mitigate your downside exposure than it even is to optimize your upside potential. You know, we can look at anything from Dogecoin to whatever other penny stock investment you get into. And any of those things are gonna have a high potential reward. You know, if you look at different shit coins out there, they're going to have a high potential reward. But that doesn't come without a high potential for risk. Now, let's look at a potential investment where you put in $100, and you lose 10% of that investment, you lose $10. Well, you now to gain 10% back would only get you back to $99, you'd actually have to gain more than you initially lost on a on a percentage basis in order just to get back to breakeven. Now that's just with $100. But imagine if you're looking at 1000s of dollars, and you're looking at bigger differences in percentage losses or percentage gains, it works against you. So if you lose money, you haven't just lost that 10% You've lost that 10% And now you have to rebuild 1112 13% Just to get back to break even. That's why it's so important because the call compounding also will kick in, and it's going to really pull you back, it's way more important to not lose money than it is to gain money. So with that being said, let's take a look at rental arbitrage. And compare that to real estate investing. With rental arbitrage, you're putting that initial investment into rent, which holds no value whatsoever, it vanishes right before your eyes and into furniture, which heavily depreciates best case scenario, let's say that you can sell that furniture a year later, for 50% of what you originally bought it for, that is not an appreciating asset that is depreciating. So you're putting your money into two things that do not hold their value, one of them the value literally disappears within 30 days. And the other one, the value is substantially reduced every single day that investment, let's call it for the sake of this gets actually put to use. So you're putting that money into something that holds no value. And you have as a result of that exceptional risk. If that property sits vacant for an entire month, you lose money, you are losing literally almost all of your investment that you have in it so far, if you you know, get a property, and you've got, let's say $7,000 into it first month's rent, and let's say you don't pay last month's rent, you just have $3,000 into rent, and then $4,000 into furniture, you've got 7k in there, well, a month later, that investment, if you were to just cash out your investment, it would be worth maybe $2,000, if the furnitures worth half what you paid for it. And if you didn't bring in any money in that month, then you will have just taken a massive loss on a percentage basis. That means you lost over 70% of your initial investment within 30 days, that's highly risky. I'm not saying that's always going to happen, I'm just pointing out that the risk potential is very much there. Whereas if you buy a property, you actually invest in a property, you own that property, then you're putting this money into an asset that holds its value and historically will appreciate over time. Now, again, it takes investing in the right type of property. And just like with rental arbitrage, you invest in invest in the right property. And so it's not to say that the model can't work, it's just to say that it doesn't really compare, because with a property that you actually own, you are buying an asset that appreciates in value, it holds its value, that initial money that you have an equity in the property is much more likely to hold its value and to go up than it is to go down. Whereas you're virtually guaranteed for that initial investment to go down in value and almost virtually disappear with rental arbitrage. So you're just really not comparing apples to apples. And then let's look at the other side of the equation, which is the amount of time and energy that that takes. Now, if you're investing in rental arbitrage, I would argue you're not investing that is a full scale business that you are building that is a lot more on the side of entrepreneurship than it is on the side of investing. So yes, you could go and take, let's say you're putting $50,000 into a down payment on a property that can afford you a lot more rental arbitrage properties than just that one property that you're buying. Let's say that you go and get five or six properties on rental arbitrage for that same $50,000. Well, now in order to make that additional return, which by the way comes with additional risk, you also now have to put in five times as much energy. And on that five times as much energy, you're going to be getting a better return. But you're not actually building equity, you're not having appreciation, you got all this additional risk is associated with your investment. And so yes, you can have a greater upside, but you are guaranteed to have a greater potential downside, there's no two ways about that. And you are also guaranteed to put much more time and energy into that investment than if you were to put it into investing in real estate actually purchasing the underlying asset. So it's just really not apples to apples drawing a comparison between the two just doesn't make any logical sense. In my mind, at least, let me know in the comment section if you disagree with that. But really, it is just two different options and two different strategies. Now my preference is to either do investing or do active business. So if I'm doing investing, if I'm actually putting on my investor hat, then I want to look at maximizing my upside, wow, minimizing my downside, I'm looking for asymmetric returns, I don't want to go and put a whole bunch of my hard earned money into some volatile asset that's liable to lose almost all of its value within 30 days, I want to invest in something that I know is going to hold its value long term that's going to appreciate in value long term ideally, that I have full control over as well. And that is going to give me a really great return. Now that's the other thing that I didn't mention even didn't even bring up the difference between rental arbitrage and investing in properties. When you invest in a property you have much more control over that property than if you're doing rental arbitrage. If you're doing rental arbitrage, it's pretty easy, frankly for a real estate investor, the actual property owner who owns that property to just come to you one day and say, hey, look, I don't want you doing this anymore, the neighbors are upset, I don't want to do this anymore, I just don't like you, I don't like dealing with you, they can come and pull the rug out from under you. And then all of a sudden, you're left high and dry, you don't have any retained value in that investment. So you're just completely shut down. And if you haven't made profit, then Sucks to suck, you know, you're kind of just left high and dry. And if you have made profit, well, it's being cut off. Now you have to relocate that furniture somewhere else has all this headache and all this loss potential returns that you could have gotten. And so yeah, sure, you could argue if I have the right legal agreement in place, then I can sue that person. But now you're dealing with a lawsuit, like let's get real, that's not anything close to what you want to be doing with your time. So really, it's just that is not investing, investing looks more like buying a property because you have more control, you're protecting your downside, you're absolutely able to optimize your upside, but while taking into account minimizing your downside, and it's way more passive doing it that way. versus active business, which rental arbitrage would definitely fall under that category. And if I'm doing that, I again, I don't want to be risking a whole bunch of time and money and building. So it's sort of a house of cards. If I'm building a business, I want to build something that's built to last. And so number one, I don't want to be, you know, risking a whole bunch of my money, I don't want something that's cash intensive to grow mean that I have to constantly take those profits and reinvest them into the business just so that I can grow the business. And I don't want something that can leave me in a financial hole so deep that I can hardly get myself out of it. If the property owners decide to change things up if the city decides to change their regulations like we're seeing happen in a lot of major cities right now. So really, what I want to do is I want to go and find a method where I can build the business without investing a whole bunch of my own money and without taking on that substantial risk. That's why I really like the management fee model. As an alternative. The management fee model allows you to go and manage other people's properties, leverage those assets without having to pour your money into them, you can take a percentage of the overall revenue and you don't have to put up money for first month's rent, last month's rent furniture, none of that and that's a nice Win Win between you and the property owner Again, links in the description down below. If you're interested in investing in properties for short term rental, then I highly recommend you check out that free training right now for a limited time we have an opportunity for you to set up a call with my business partner Riley after watching that training and the call with Riley is also completely free it's going to be 45 minutes or an hour long strategy session with Riley will help you to put together a plan of attack for investing in short term rentals. So I highly recommend that you check out that while that offer is still around. And then also if you're interested in managing other people's properties you want to do the more active side you want to actually build a business then I highly recommend you check out that link in the description down below for a free training on how to earn a full time income managing other people's properties on Airbnb is Airbnb is based selling I've been doing for over six years now. So I highly recommend you check out the training I do offer a whole bunch of amazing strategies tools resources that are really going to help you out to expedite that growth growth curve to get to where you want to be. So I highly recommend you check out the resources I've left you for free down in the description below. With all that being said if you got value from this video if you liked this insight if you like the honesty around it, then give me a quick like just hit that like button give me a thumbs up on the video I really appreciate it helps you to grow this channel. 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