3 Reasons Why Airbnb Renal Arbitrage SUCKS

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What's up guys it's James here and in today's video I'm going to break everyone's heart who is on this Airbnb arbitrage bandwagon here I'm going to talk to you about three reasons why Airbnb arbitrage sucks, why I stopped doing it and why I generally don't recommend that people do it with one teeny tiny little Asterix there and I'll tell you what that little Asterix is in this video as well because there is one exception when I do recommend Airbnb arbitrage.

But other than that, I'm gonna break everyone's heart in this video and share you guys share with you guys why I think the Airbnb arbitrage sucks for three different reasons so if you want to have your heart broken if you were just watching some soldier coming home videos and you're in the mood to just cry some more than make sure you stick around for this video because that's what we're gonna do. All right, in all seriousness though, I do get a lot of people reaching out to me talking about Airbnb arbitrage is Airbnb arbitrage that and I really want to set the record straight on a lot of these common misconceptions about Airbnb arbitrage, and genuinely share people.

You know why I don't think it's a great model why I think it sucks for a couple of reasons. Because ultimately, I want to help you guys I don't want you guys going out and doing things that are going to lose you money or put your money at risk or waste your guys time, I only want to give you guys the best strategies here. So hopefully this video helps you if you if you dislike it, then just hit the like button. It's actually opposite day if you don't like what I'm talking about, hit the like button instead, that'll really show me If you like it, it's not opposite day. So press the like button. I just want like I don't want the dislikes. I was just trying to trick you guys but press the like button if you like it.

Also, if you guys are interested in learning the alternative method that I use for making money on Airbnb using other people's properties without you know using my own money without doing rental arbitrage, I've been able to earn a six figure income on Airbnb. If you want to learn my strategies for how to do that, then just click the link down below in this video, check out my free training where you walk through the exact step by step system to earn a full time six figure income managing other people's properties on Airbnb without this sucky rental arbitrage model.

All that being said, let's talk about the first of the three reasons why in my opinion, Airbnb rental arbitrage sucks and not his cash flow. Airbnb arbitrage is a terrible business in my opinion as your main business now I'll talk a little Asterix at the end here. But if you're going out and you're growing a business, and you're hoping to get to six figures keep on going keep on going keep on going, then Airbnb arbitrage sucks from a cash flow perspective. Because in order to grow your business, you have to keep taking your profits off the table. You cannot to use them to support your own lifestyles terrible lifestyle business.

Because when you make let's say in a month, you've got it up and running and you make $3,000. Well, where's that money going to go? Because if it goes in your pocket, then that means that you don't get to grow your business that month, you actually need to use that money to pay first and last month's rent and a security deposit and pay to furnish the next property. So if you're making $3,000 a month, really, you're making nothing because you have to wait two months, maybe even three, just to be able to save up enough out of that profit to then go and pay it into another listing to pay first month's rent, last month's rent security deposit and furniture to bring that new listing on board.

Now Sure, there are some ways that you can avoid some of those costs. But at the very minimum, you're probably going to spending two to $3,000. Just to bring on a property under management and grow your business. Now, I like businesses where I can grow them, at least initially sure, if you want to do things like paid advertising to grow your business longer term, really pour fuel on the fire, that's great. But ideally, our cost to acquire a customer outside of marketing and advertising should be zero or next to zero. That's a really great lifestyle business. I'm not saying that objectively, that's the only way to grow business. I'm just saying for a lifestyle business that you want. If you're looking to replace your income, that's great, because you can do it easily.

You don't have to go and buy inventory, you don't have to go and pay to rent a place. So that's my thoughts cashflow wise, really crappy business because not only do you have to keep reinvesting your profits. So it takes a very long time to be able to actually make money from the business that you're putting into your pocket and that you can live off of. But also, you also have these huge overhead costs, you've got 1000s of dollars 10s of 1000s of dollars in rent roll looming over your head that if for whatever reason, things start to slow down for you. You're on the hook now so you eat last. I don't like a business where you as the owner eat last. I like businesses where I as the owner eat first.

So at the end of the day, though, with a rental arbitrage business, you've got to pay rent, you've got to pay those cleaners. You've got to pay everything else first and you get paid last. I don't like that cash flow wise, that business sucks. Now the next is because of risk risk. Huge in a rental arbitrage business, I'm not talking about the liability risk of you know, what if a guest does this or that or the other thing, I'm talking about the risk of the rent, you've got a huge 1020 $30,000 per month overhead if you're scaling this business, and you've got a bunch of properties that you're renting. Now, what happens if the city decides that they don't want to be as friendly to short term rentals anymore?

Well, overnight, let's think about what happened. Let's run through a hypothetical because this is exactly the hypothetical that I ran through initially, because I started growing a business doing rental arbitrage, I then ran through this hypothetical, realized how huge the risk was, and got out of it in favor of a different model. And again, that model, that link is down in the description below, if you want to check out exactly how I was able to build a six figure income without any of this overhead without any of the cash flow crappiness.

Without any other risk, that link is down in description down below. But think about it, you've been growing a business for six months, nine months, 12 months, you've been constantly taking the profit that you're earning from that business and reinvesting it into more and more units. Now you've got yourself up to let's say, 12 units, let's say you did a property a month, you've got a dozen units in your portfolio. And now the city comes along and says that in 30 days, or 60 days, short term rentals are no longer going to be allowed. Now, you might think, well, that's never gonna happen to me, but it does.

And what happens if by the same token, the property owner for some of your properties comes and says, Hey, I don't want to let you do short term rental anymore. This is especially risky if you're one of those people out there is looking at doing this without getting the landlord's permission first, well, let's look at it, you've got a business that so far has a bunch of unrealized profit potential, you haven't actually made any profit because you've been reinvesting it back into the business. So you've got a bunch of profit potential, but it's all unrealized at this point.

Meaning that if you were to hold your properties and stop growing the business for another 12 months, then yeah, you'd make some great money. But if your business were to get shut down in 30 days, or 60 days, you'd be really up a certain creek without a paddle. So that is a really bad place to be, let's say the city comes and shuts you down, they say, well, within 30 days, or 60 days, now you have to stop doing short term rentals. Well, now you're on the hook for a year long leases on these properties, let's assume best case scenario that you can get out of those leases with 30 days or 60 days notice, which is virtually going to be impossible to do.

But let's assume that with all of them, you had a clause in your agreement, where you're going to be able to sure, Great, well, now you've got two months with these 12 properties to make your profit and then your business is dead in the water, everything shut down, and you worked for 12 months, 14 months. Now, in order to make two months worth of profit, you're gonna make a very small amount of money for the work that you put in. And that's the risk that you want to run with rental arbitrage. If the same exact thing happened with the model that I use, then you would still be making profit for all 14 of those months. And there's all different kinds of ways to mitigate these risks.

So ultimately, it's just a whole bunch of unnecessary risk with the rent that you have over your head. With city regulations with building regulations, there's just a huge amount of risk looming over your head. That's why I don't like it for the second reason. Now, the third reason that I do not like rental arbitrage business, and I think the model sucks, overall, is depreciation. That is the big one right there. Now, I've heard other people talk about how you can build equity in this business that you can then you're building equity in a business by increasing your cash flows, you're building the equity in your business.

So you could you know, even though you don't own the properties, you could sell the business for money down the road. And that's true, you can build equity, however, you're constantly taking your cash and putting it into assets that are depreciating, or that are much, much less valuable than other asset classes. So if you look at if you're comparing a rental contract on a on a property and comparing that the value of the equity in that to the equity that you'd have you actually bought a home and owned that property. Well, it's not even close to comparable.

So the equity you have is far, far smaller. Yes, you can build it more quickly. It's far, far smaller and a property that you don't own. And you also have to think about the fact that a huge amount of your cost on each property initially is going to be the furnishing of that property. Now furniture is a depreciating asset. In fact, it's an asset that as soon as you buy it, it depreciates by generally about 50%. And not to mention the fact that would just be a total nightmare to have to try to liquidate a whole bunch of furniture, sell that furniture. So you're putting a whole bunch of your money into an asset that doesn't retain its value.

So if we're looking at different models for building a business, then totally there are you know, you have to look at things different ways. But if you can structure things differently where you don't have money going in rent, you still have an agreement with a property where you have that cash flow, the cash flow is what a potential buyer of that business is essentially paying for, they don't really care about the other stuff, their risk is going to be a negative impact on the valuation of your business. So if you have two businesses that are both bringing in $20,000 a month, then the one that has the lower risk profile is going to be worth a lot more.

So you can build much more equity in a management style business where you don't have all that risk looming over your head. So the equity from business standpoint is much greater there. And if you are looking at comparing it to buying the properties, then again, you actually own the property, you control the asset, you have the asset, you have equity in it. So the equity is really not apples to apples if you're comparing the equity and building a business versus the equity and owning real estate and owning a property. So all that to say there are three main reasons and a lot of other ones as well, why I think that rental arbitrage sucks as a business model.

Now, there is an Asterix and I promise that there will be an Asterix on this video, because it's not something that I always recommend not doing. There are a few scenarios of times when I actually do recommend that people use the rental arbitrage model. And that is when they find what I call unicorn properties. Now generally, the only way I know of define unicorn properties is to actually be in the Airbnb business managing properties because unicorn properties are not obvious. Otherwise, they wouldn't be unicorn properties, everyone would see them everyone would know about them, and they'd go for a huge premium.

But unicorn properties are the properties that I've found. That'll produce a 2x 3x 4x return on your initial rent payment every month. So if you're paying $2,000 a month, let's say you can easily earn 4000 6000 $8,000 a month on them, they are few and far in between, I'm talking about maybe 1% of the properties available on the market, do not expect to be able to do that with an average property. But if you do find properties like that, that are huge knock out of the park winners, then that can be a really good opportunity to go and pick it up for rental arbitrage. Why?

Because number one, if you're only picking them up every once in a while, you know you're only picking up maybe one every couple of months, and you have another business managing other people's properties with a co hosting model I talked about the train down below, then your risk profile is a lot lower because you don't have as much rent looming over your head and you've got a huge margin for error because your unicorn properties your cashflow is much greater because it's a small, small part of the overall cash flow of your business. And they cashflow exceptionally well if it's a unicorn property.

And the depreciation is not as impactful because again, that property is so hyper profitable, that you can bear to spend some money on a depreciating asset, knowing that you're gonna weigh more than make up for that in the additional profit from the unit and that you're not gonna be sinking 10s of 1000s of dollars into that every single month, you're just going to be going and furnishing one property every few months. Now like I said, the only real way that I've found to actually come across these properties is you're constantly looking at properties and saying no to 99% of them when it comes to rental arbitrage.

Why would you look at that and not put some offer together for the properties that don't make sense that aren't unicorn properties for rental arbitrage. Well we show you in the train down below how to go about managing those properties that are not unicorn properties in a way that can still be a huge win for you a huge win for the property owner have no risk no upfront capital that you have to invest in the property and earn crazy cash flow on these properties and an awesome business model that is a great lifestyle business.

So if you want to learn more about that then just check out the link in the description down below. If you again if you if you hated this video then just press that like button just really stick it to me press the like button if you liked it then you have an extra job because you're probably gonna people here that love arbitrage you're gonna dislike the video so I need you guys who do like the video to then like double like it so like it tell your friend tell your friends friend to come out here and like the video because we I all I need is likes on this video. Just kidding.

It really seriously let me know your thoughts if you think differently in the comment section just let me know just post a comment tried to get Rayji with it just let me know I'd love to get you guys feedback. love to get your guys thoughts. If you agree, let me know I want to hear it. I want to know if other people are on the same page as me here. And then as always, if you are new to the channel or if you are a regular viewer, but you're just lagging on subscribing because you want to tease me then just click that subscribe button already. I've been waiting forever to subscribe to the channel, we post two new videos every single week.

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