Rafa is a short-term rental investor from Southern California. He has been running Knight & Reign Properties, a hospitality company, for roughly four and a half years. Over the past few years, he has built around 58 units, and 24 are now in operation.
In this episode, Rafa explains his strategies for successful short-term rentals and what we can do to follow in his footsteps.
Rental arbitrage is when you find a property, lease it from the owner, furnish it, and then charge a nightly premium cost to people traveling. You can list the property on websites like Airbnb or direct booking platforms like Vrbo.
According to Rafa, the simplest method to get started is to go to apartment complexes and meet people who own properties or have vacancies. In his case, he usually approaches them about expanding their business in that location and utilizing the said property to do so. He ensures that his objectives and target market are clear to the owners so that they understand how he intends to use their property.
About five years ago, he wanted to transition into real estate investing from his collections business. While he was thinking of getting into real estate investing, he decided to get a job in a Casino. While working there, he realized that he needed a method to earn some extra cash because he didn’t want to work for the rest of his life.
As he was slowly getting familiar with real estate investing, he quickly realized that unless you understand the world of real estate investing, it’s tough to go out and start cash flowing from any property, especially in California. He started doing some calculations on a property he was interested in; however, he came up with extremely little returns that would not cover the closing fees, so he realized it would not work out.
He opened up to his former business partner, which gave him the idea of renting properties in Airbnb. After this, he signed up for a mentorship program that focuses on short-term rentals. While starting, they had to overcome several obstacles before they obtained a two-bedroom apartment to lease. They worked with an interior designer to transform the unit because they wanted it to stand out.
After generating profit on the property, he decided that short-term rentals were what he wanted to do for a living. He borrowed some money and acquired another unit, and after nine months, he had 14 units in two different buildings. And it just went from there.
When asked how much money should be set aside to transform a property, Rafa said that there is no one answer. It all relies on the property’s condition when you initially get it and how you want it to appear after remodeling.
Based on his experience, he has paid $5,000 to $8,000 on renovations and $8,000 to approximately $10,000 on rent for a two-bedroom apartment. As for a one-bedroom apartment, he had once paid just $5000 for all of the modifications. Lastly, he spent as much as $21,000 to as little as $8,000 to upgrade a three-bedroom unit.
For a traditional rental, it acts as a passive investment. According to Rafa, if you set up your property for a long-term rental, you probably won’t have to worry about it for a year. On the other hand, for Airbnb arbitrage, you’d have to deal with a number of tenants over the course of a year.
Second, for Airbnb arbitrage, you’re at the mercy of your lease since you don’t own the property. There may come a point when the owner decides not to renew your lease for a variety of reasons, such as wanting to rent it out to someone else or attempting short-term rentals themselves.
According to Rafa, in this business, there is a professional operator and a man who does this as a side gig, which is two different things.
The guy who does this as a side gig might be someone who just owns a property, or maybe someone who simply wants to make a little cash on the side. For this type of investor, there’s a great chance that they are not equipped to handle the tough decisions in the business because they are not giving it their full attention. They’re not treating it as an actual business. One of the mistakes they might be making is incorrect pricing. For example, they found a place to lease for $2,600 a month. They decide to rent it out for $2,900 bucks a month because they think $300 is sufficient profit. On the other hand, a professional operator would most probably do $500 for it. When an Airbnb is appropriately managed, priced, and furnished, with a sound security system in place, it can be a very profitable business.
Short-term rental insurance is becoming more popular nowadays. They usually only cover specifics like the things in your property that you want to be covered for rental income loss. In Rafa’s case, he seeks his insurance needs from a company called “Proper Insurance.”
According to Rafa, you have to be knowledgeable of the laws of the city where you want to set up your Airbnb because you wouldn’t want to get stuck paying for a unit that you can’t rent out because the restrictions prevent you from doing so.
When asked what websites he uses to list his units, Rafa said he solely utilizes Airbnb, Vrbo, and his own website to market his units. However, there are a lot of other websites that people can use, especially if they’re seeking for a specific population.
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