HOW RENTAL ARBITRAGE WORKS - TRANSCRIPT

I would like to provide some clarification on the margin that I charge and how it's possible doing rental arbitrage. I implied if you pay $2,000 a month in rent you should charge $3,000 a month or make that your goal at least to charge that for your short-term rental per month cost or that's what you're collect would be so you wanted to know like how is that actually possible to get someone to pay that much money for a month-to-month well let me walk you through the landscape of the business and that this will help you out so when you're looking for a lease let's say you're I’m in downtown Houston right now but just choose any city you go to an apartment complex downtown and say I would like a lease and here's my budget let's say your budgets $1,700 the building will say okay so here's the building's layouts floor plans that we have that are at $1,700 a month and you can get that $1,700 a month if you sign the lease for a 12 or 15 months then that would be how you achieve the $1,700 a month now let's say you go back to that same building and you say okay I'd like to stay here I'd like this unit but I would like to sign a four month lease that same leasing agent will say okay so for four months what we have is the rate will be twenty two or twenty three hundred dollars a month for four months lease for this unit that's unfurnished no bills paid you still have to get your own electricity if you want less than three months that starts to get short-term for them and the rate starts to go up if you do a month-to-month lease which some buildings don't even allow right you cannot get a residential month-to-month lease if they do allow it they'll charge somewhere a ballpark double of rent so you're looking at three thousand a $3,400 a month with some property management companies to get a month-to-month the reason why is because the building suffers risk if you sign a lease for a month and then don't renew it then they have to go through and make sure that the place is fine and then list it again and try to get it occupied so they're down days get rolled into their cost that you pay when you pay your rent so what does this mean for people looking to stay short-term if you pick up a lease for a year a premi value you become the one that's at risk of the day's not getting filled up right so you're going to pay your $1,700 a month the building is happy because they get that lease you know 100 percent occupancy on that lease for the whole year and now you are the one who's stuck paying the rent you know didn't no matter what happens so now you take it you furnish it let's say that adds another three hundred dollars a month in hard costs over the course of your lease which makes your lease instead of seventeen hundred with furniture you cost us two thousand a month if nobodystays you lose two grand a month right so you charge your cost plus your premi and if a person wanted to say at the building month by month anyway no furniture they're still going to pay three two thirty four hundred so now you can charge three to thirty four hundred with furniture and you're a value right that's that's really now you're competitive with the building itself but you're offering that extra premi which is the furniture and you're going to pay the Internet and the electricity corporate housing companies they actually use this thousand dollar markup models that I listed or that I refer to in this previous video so what they'll do is when shell or GE comes and says we'd like ten apartments for three months what can you get for us what they'll do is they'll go and they'll secure a bunch of leases for two or three months they'll rent the furniture get the electricity set up all that stuff and then they'll take their hard costs and they'll add a thousand dollars per month for each unit as a profit and they'll get the company to pay that price and that's how corporate housing companies they make their money is they take this post cost markup of about a thousand and that's their target and that's actually where I got that number from so you can use that same measuring stick pretty much in any other city to know that corporate housing companies they are profitable and lively businesses with that margin so the thousand dollars above your cost is actually not a hard number to achieve one of my actually in the same building that I’m in I have a two-bedroom apartment my costs are like my rent is just under two grand so my other costs you know with utilities and stuff is probably about twenty two hundred I spent about seven thousand dollars on all the furniture etc and I had a one month booking I think goes like 27 days and my collectors like 4400 are just under 4,400 on Airbnb so I’m more than doubled my money for a month on booking so people are glad to pay this money so don't worry about that also in this building there's a company that this corporate housing they don't do Airbnb but they do like corporate housing like I mentioned and the leasing agent at this building told me that their base nightly rate how they calculate it is I think a hundred and ten dollars per night so if you get a month-to-month lease with them you're paying a hundred and ten dollars a night which is thirty three hundred dollars a month plus for your corporate housing so if you make that your goal that thousand dollars a month markup and you can get leases at a good value you willhave no trouble making you know a profitable business out of it and having a high percentage on occupancy so the only guideline to come away from here is don't pay too much in rent for an apartment and if you'll as long as you follow that one rule you should be fine of course do your market research and see what other people are charging and how other people are doing.