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How Rental Arbitrage Works | Margin on Rentals Explained | Short Term Lease Tips - YouTube
Channel: Sean Rakidzich
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welcome back Airbnb family so a
subscriber posted a comment asking for
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clarification on the margin that I
charge and how it's possible doing
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rental arbitrage so in the video that he
posted the comment I stayed it's I
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implied if you pay $2,000 a month in
rent you should charge $3,000 a month or
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make that your goal at least to charge
that for your short-term rental per
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month cost or that's what you're collect
would be so you wanted to know like how
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is that actually possible to get
somebody to pay that much money for a
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month-to-month well let me walk you
through the landscape of the business
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and that this will help you out so when
you're looking for a lease let's say
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you're I'm in downtown Houston right now
but just choose any city you go to an
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apartment complex downtown and say I
would like a lease and here's my budget
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let's say your budgets $1,700 the
building will say okay so here's the
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building's layouts floor plans that we
have that are at $1,700 a month and you
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can get that $1,700 a month if you sign
the lease for a 12 or 15 months then
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that would be how you achieve the $1,700
a month now let's say you go back to
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that same building and you say okay I'd
like to stay here I'd like this unit but
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I would like to sign a four month lease
that same leasing agent will say okay so
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for four months what we have is the rate
will be twenty two or twenty three
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hundred dollars a month for four months
lease for this unit that's unfurnished
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no bills paid you still have to get your
own electricity if you want less than
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three months that starts to get
short-term for them and the rate starts
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to go up if you do a month-to-month
lease which some buildings don't even
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allow right you cannot get a residential
month-to-month lease if they do allow it
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they'll charge somewhere a ballpark
double of rent so you're looking at
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three thousand a $3,400 a month with
some property management companies to
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get a month-to-month the reason why is
because the building suffers risk if you
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sign a lease for a month and then don't
renew it then they have to go through
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and make sure that the place is fine and
then list it again and try to get it
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occupied so they're down days get rolled
into their cost that you pay when you
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pay your rent so what does this mean for
people looking to stay short-term if you
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pick up a lease for a year
a premium value you become the one
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that's at risk of the day's not getting
filled up right so you're gonna pay your
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$1,700 a month the building is happy
because they get that lease you know 100
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percent occupancy on that lease for the
whole year and now you are the one who's
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stuck paying the rent you know didn't no
matter what happens so now you take it
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you furnish it let's say that adds
another three hundred dollars a month in
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hard costs over the course of your lease
which makes your lease instead of
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seventeen hundred with furniture you
cost us two thousand a month if nobody
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stays you lose two grand a month right
so you charge your cost plus your
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premium and if a person wanted to say at
the building month by month anyway no
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furniture they're still gonna pay three
two thirty four hundred so now you can
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charge three to thirty four hundred with
furniture and you're a value right
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that's that's really now you're
competitive with the building itself but
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you're offering that extra premium which
is the furniture and you're gonna pay
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the Internet and the electricity
corporate housing companies they
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actually use this thousand dollar markup
models that I listed or that I refer to
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in this previous video so what they'll
do is when shell or GE comes and says
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we'd like ten apartments for three
months what can you get for us what
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they'll do is they'll go and they'll
secure a bunch of leases for two or
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three months they'll rent the furniture
get the electricity set up all that
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stuff and then they'll take their hard
costs and they'll add a thousand dollars
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per month for each unit as a profit and
they'll get the company to pay that
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price and that's how corporate housing
companies they make their money is they
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take this post cost markup of about a
thousand and that's their target and
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that's actually where I got that number
from so you can use that same measuring
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stick pretty much in any other city to
know that corporate housing companies
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they are profitable and lively
businesses with that margin so the
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thousand dollars above your cost is
actually not a hard number to achieve
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one of my actually in the same building
that I'm in I have a two-bedroom
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apartment my costs are like my rent is
just under two grand so my other costs
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you know with utilities and stuff is
probably about twenty two hundred I
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spent about seven thousand dollars on
all the furniture etc and I had a one
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month
booking I think goes like 27 days and my
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collectors like 4400 are just under
4,400 on Airbnb so I'm more than doubled
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my money for a month on booking so
people are glad to pay this money so
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don't worry about that
also in this building there's a company
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that this corporate housing
they don't do Airbnb but they do like
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corporate housing like I mentioned and
the leasing agent at this building told
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me that their base nightly rate how they
calculate it is I think a hundred and
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ten dollars per night so if you get a
month-to-month lease with them you're
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paying a hundred and ten dollars a night
which is thirty three hundred dollars a
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month plus for your corporate housing so
if you make that your your goal that
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thousand dollars a month markup and you
can get leases at a good value you will
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have no trouble making you know a
profitable business out of it and having
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a high percentage on occupancy so the
only guideline to come away from here is
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don't pay too much in rent for an
apartment
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and if you'll as long as you follow that
one rule you should be fine of course do
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your market research and see what other
people are charging and how other people
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are doing by following the webinar that
I posted earlier on market research and
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happy hunting guys use it be successful
make a lot of money and of course any
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other questions leave it in the comments
so thank you for watching Airbnb
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automated and I will see you on the
other side
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