What is Rental Arbitrage?
The simple definition of rental arbitrage is renting a property as a temporary place for hosting guests who need a place for a certain period in exchange for money. You provide a service for transient guests in your area or city, and you get paid.
But how to do that? Well, rental arbitrage, in other words, is the act of rental arbitrage, which is similar to subletting in that you rent out an already rented property. Here’s how it works: You lease a long-term rental property (usually for at least a year).
Afterwards, you list your property on platforms such as Airbnb, LUKE STAYS, or various other vacation rental services so that it can be rented out on a short-term basis to travellers.
It sounds easy to do and quick-money scheme. Still, when you go deeper into rental arbitrage, it will turn out it needs a lot of work, skills, and industry understanding. You should also calculate the risks and taxes.
The Future of rental aribtrage 2022 and beyond
In this post, I will discuss the future of rental arbitrage and what does the future hold for rental arbitrage. If you are someone using this business model to generate your income or taking it as a side-hustle, you should read this post as it will give you insights.
Ryan Luke, founder and CEO of the property management company, Luke Capital Group, is an expert in short term rentals and serviced accommodation. He is discussing what the future will hold for the rental arbitrage or the rent-to-rent business model and its potential success.
Furthermore, Ryan Luke is constantly researching and studying the Real Estate industry worldwide and spreading the work of Luke Capital Group across the world. Currently, Luke Capital Group is operating in the UK, UAE, and Europe, with goals and plans to spread over Australia and the US by the end of 2022.
Let me illustrate what Ryan Luke is discussing about short term rentals and rental arbitrage.
As a way to get started in the property industry, rent-to-rent is known in the UK, or rental arbitrage, as it known in the rest of the world, can be a great strategy to start from. In particular, if you have limited to no funds.
A combination of the power of strategy and the short-term rental game provides a great opportunity to make a profit from hosting guests at other peoples’ properties. In other words, your monthly rate will be much higher than what you pay to the landlord and to operations.
However, like any industry that offers a good service, there are people who try to jump on the bandwagon. Unfortunately, a few unprofessionals and unethical people ruin things for the majority that operate ethically. Oftentimes, the news will run an article about a guest that has destroyed a property. This in turn makes landlords very nervous of renting their properties out to a short-term rental service.
Consequently, the acquisition part of the process becomes significantly more challenging. But not impossible.
importance of trust in rental arbitrage
The importance of trust is evident in any business. However, in this business it is even more important. With your guests, you need to ensure the money is protected; this has now been certified by [global verification platform] I-PRAC.
I-PRAC, International Property Rental Certification, is a global trust accreditation & certification operating in 28 countries verifying short term rental operators as legitimate, trustworthy & professional ensuring trust and confidence and 100% payment guarantees to business travellers and guests.
Visit the I-PRAC website, to know on I-PRAC and how are all guests and hosts are protected.
Luke Capital Group is proud to be a I-PRAC approved, as all of the operations are protected. As a result, all landlords and franchisees are protected, as well as guests and hosts on Luke Stays. Additionally, it is a big step in the right direction in terms of identifying who is trustworthy and who is not.
Yet, there is a role to be played by the other end as well. Landlords must have the confidence that the operators will take care of their properties, pay the rent and manage the properties according to the contract they have with the landlord.
As we are emerging from the pandemic, landlords have lost some of their trust. Many operators struggled to remain afloat and handed keys back to tenants, especially those that offered guarantees.
What did Ryan Luke acted during that period?
He personally paid every single rent during the pandemic as he knew it would serve his business in good stead moving forward and it has done exactly that. He is a firm believer that what goes around comes around.
Ryan Luke knew that if he supported the landlords when they were experiencing times of difficulty and expectations of rents not being paid, then it would pay him back. It did just that – Luke Capital Group became the first choice for all of their other properties and any new acquisitions that they had purchased as well.
what is coming for rental arbitrage model
As long as you keep the landlord happy, the rental arbitrage game should be able to survive for decades to come. Ryan Luke thinks it will only grow, and it is not going away.
As hotels have become self-check-in automated Airbnb style properties, travellers are now seeking more than just a hotel room. This introduces the potential for renting out apartments, villas, houses, etc. as they are equipped with everything a guest needs for a comfortable stay, which typically includes lounges, televisions, kitchens and a home away from home.
The reality is that most cities are making it more difficult to rent in this way with maximum stay rules and / or outright bans on this style of renting. However, there are still many cities that do allow this, and properties outside of the cities can work just as well as their city counterparts.
Furthermore, he believes, particularly in the UK, that many governments did landlords no favours during this pandemic, increasing tenant protection rules while leaving landlords stranded. Despite the large number of short-term rental operators returning the keys, there were also quite a few landlords who did not receive any rent from tenants; the tenants were protected for months from any rent payment at all before they could be evicted legally.
Consequently, this has opened up the market for professional short-term rental businesses that can echo trustworthiness and brand recognition. Ryan Luke think these are the players who will prevail over those who treat it as a hobby in the future.
Viewing The Professionalism Of The Short Term Rental Property Market
After the pandemic, the game has changed significantly. The standards that your property must meet, and the efficiency of your operations to check in and out guests has dramatically improved, leaving only professional hosts able to compete long term.
There is a growing body of regulation already in place in many cities around the world. Ryan believes that this is beneficial not only for short term rental hosts, but for guests as well. It helps ensure that guests are protected, that they are staying in safe environments, and that the hosts are offering an experience that is both value for money and protects both their personal and property assets.
Nowadays, the property market is booming and landlords are finding tenants very quickly, especially in the UK, where the housing shortage just keeps getting worse. As the councils cannot approve planning quickly enough, there is plenty of competition and rents will be higher than once. However, we are also seeing an increase in the demand for short term rental properties, so the average daily rates will be higher as well. Due to this, it is possible to pay the high rents and still make this a very profitable business.
The process of renting from a landlord is quite simple, and if you focus on finding out the landlord’s needs and pain points, you will more than likely be able to negotiate a win-win solution and acquire a lot of properties through this strategy.
Ideally, landlords would prefer a long-term tenant that looks after the property every day of the week. That’s what we can provide as professional operators, and that’s what will help the industry thrive in the years to come.
~ Ryan Luke
What does the future hold – ryan’s thoughts analysis
As more and more properties are developed, and as more and more landlords decide who goes into their properties, Ryan sees the short term rental game combined with rental arbitrage continuing for decades to come.
Using the rental arbitrage strategy, he has recently expanded my business internationally and found it to be exactly the same. Landlords have the same issues and want to move away from vacant properties that may have been damaged by tenants in the past. Ryan can provide landlords with a long-term strategy, low risk, and lower costs as professional operators, Luke Capital Group.
It is essential to deliver the product and service that you are selling online [unfortunately, many do not], otherwise the business model is flawed and your success will be limited.
It is here that the rental arbitrage game fails because the host cannot generate enough income to pay the rents and has to give the keys back to the landlord. That causes a negative perception of the industry for the rest of us that are operating professionally.
Overall, Ryan believes this is a great game which has allowed him to not only enter the short-term renting space, but has also allowed him to build an asset portfolio with the cash flow derived from his rental arbitrage investments.
By putting all the pieces of the puzzle together, anyone who is willing to work hard and act as a professional brand will have great success in the coming years.
He finds it very rewarding, as many other hosts do, because the industry is in harmony with a lot of people’s plans for their lives.
This sort of business model allows you to run it from your phone, pretty much anywhere in the world, and is very flexible, which is why it is so popular.
After you read this post, whether you are using this business model, or you are someone that want to start using this business model and make extra money, Ryan Luke is teaching and coaching all people, experienced or not, on how to build property empire and cash flow machines.
Ryan Luke is providing courses and mentorship programs to everyone who wants to use the rental arbitrage business model like professionals, like Luke Capital Group. You can find them in the SHOP at his website.
Visit his website, Ryan K Luke, and start learning everything you need about property business.