Is Property Renting Viable?

[S_uthman]

I've been thinking about renting out a property, I don't think it's necessarily Fastlane (or maybe if done in a certain way it can be?), but it's something to do temporarily just to get me out of my lame job at the very least. What do you guys think? Any advice or tips would be much appreciated.

 

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[Kevin88660]

Renting out your existing vacant property will help to get extra income.

Depends on your financial situation details too. If you are still on mortgage loan you need to think twice before leaving your job.

 

[S_uthman]

Renting out your existing vacant property will help to get extra income.

Depends on your financial situation details too. If you are still on mortgage loan you need to think twice before leaving your job.

Yeah definitely, I was thinking of getting in to rental arbitrage actually. I did some research on the forum and it seems like it’s a 50/50 option here.

 

[SteveO]

I've been thinking about renting out a property, I don't think it's necessarily Fastlane (or maybe if done in a certain way it can be?), but it's something to do temporarily just to get me out of my lame job at the very least. What do you guys think? Any advice or tips would be much appreciated.

It can be but it helps if you think big. Apartment buildings, shopping centers, industrial, warehouses, etc...

I feel concern when I read statements about lame jobs. Dig in and tell us why it's lame. Jobs serve a purpose while they are needed.

Rentals on a small scale can be challenging. The cashflow is elusive. Keeping the property up is costly.

 

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[S_uthman]

It can be but it helps if you think big. Apartment buildings, shopping centers, industrial, warehouses, etc...

I feel concern when I read statements about lame jobs. Dig in and tell us why it's lame. Jobs serve a purpose while they are needed.

Rentals on a small scale can be challenging. The cashflow is elusive. Keeping the property up is costly.

I want to get on to a bigger scale eventually, I feel like property investing is what I want to do as my exit plan from work. But of course, I would have to start small and work my way up. Hence, I mentioned that I want to do rental arbitrage first on Airbnb temporarily until I raise more capital to grow and eventually start owning my own property, etc.

In regards to my job, it's just the idea of being trapped in a system and being another chicken in the cage. I want to be free to work on my terms and schedule. It's the main reason I read MJ's books and joined this forum, to be honest.

Also, just to clarify, I want to explore my entrepreneurial mindset and start a business of my own, but it's all part of my bigger plan. I've made a blueprint where I want to start getting into the property and real estate game just so I can leave my job and work for myself. It can also be something long-term for me to invest in and have cash flow going throughout my lifetime. Then, whilst I'm raising capital and gaining an income from that, I can start tapping into entrepreneurship to really get in the Fastlane.

 

[SteveO]

I want to get on to a bigger scale eventually, I feel like property investing is what I want to do as my exit plan from work. But of course, I would have to start small and work my way up. Hence, I mentioned that I want to do rental arbitrage first on Airbnb temporarily until I raise more capital to grow and eventually start owning my own property, etc.

In regards to my job, it's just the idea of being trapped in a system and being another chicken in the cage. I want to be free to work on my terms and schedule. It's the main reason I read MJ's books and joined this forum, to be honest.

Airbnb is a different animal. There are some significant advantages. They must be done right though.

Starting small is fine. I started with a 4plex. But I had a plan which involved rapid growth. 4 years later I had 60 units or more.

I wasn't trying to criticize your plan. Just adding some perspective.

 

[S_uthman]

I want to get on to a bigger scale eventually, I feel like property investing is what I want to do as my exit plan from work. But of course, I would have to start small and work my way up. Hence, I mentioned that I want to do rental arbitrage first on Airbnb temporarily until I raise more capital to grow and eventually start owning my own property, etc.

In regards to my job, it's just the idea of being trapped in a system and being another chicken in the cage. I want to be free to work on my terms and schedule. It's the main reason I read MJ's books and joined this forum, to be hones

Airbnb is a different animal. There are some significant advantages. They must be done right though.

Starting small is fine. I started with a 4plex. But I had a plan which involved rapid growth. 4 years later I had 60 units or more.

I wasn't trying to criticize your plan. Just adding some perspective.

No honestly I really appreciate your comment, I mean it’s reassuring to hear you’re in the game. I’m a complete beginner and from the UK actually. Would you have any advice or tips for someone like me? Any resources to reflect on as well?

Also it would be nice to get your opinion on my strategy and what I’ve said so far, do you think there’s anything I’ve said that could be adjusted or improved?

 

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[Antifragile]

I was thinking of getting in to rental arbitrage actually

I honestly do not believe such arbitrage exists for newcomers.

Arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset's listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.

But real estate is illiquid (even in rental form). Worse yet, it has been a darling of an asset class for investors for years, there are many bright minds in the game and even gaming the game.

To assume you are starting out and you'll find mismatch in pricing is bold and probably more of a gamble than a plan...

• What other ways can you build a real estate portfolio that does not rely on spotting an arbitrage?
• Better yet, why did you choose real estate?
• What did you reject before you decided to focus on RE as your business idea/concept?

 

[S_uthman]

I honestly do not believe such arbitrage exists for newcomers.

Arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset's listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.

But real estate is illiquid (even in rental form). Worse yet, it has been a darling of an asset class for investors for years, there are many bright minds in the game and even gaming the game.

To assume you are starting out and you'll find mismatch in pricing is bold and probably more of a gamble than a plan...

• What other ways can you build a real estate portfolio that does not rely on spotting an arbitrage?
• Better yet, why did you choose real estate?
• What did you reject before you decided to focus on RE as your business idea/concept?

That's interesting, that seems to conflict with what I've read and seen. I might have to reconsider.

To answer your questions:

1) I honestly have not thought about that yet, this idea literally came to mind a few days ago.
2) I chose real estate because it seems like something that will always be in demand, if you play your cards right you can make a lot of money out of it. I'm not interested in stocks, crypto etc that's not for me. So I want to have something I can invest my money in (when I do eventually get into the Fastlane).
3) I never had anything tangible to reject tbh, I was part of a freelancing group, but I couldn't continue for financial reasons, and I want to focus on something I consider more viable as my exit plan from my 9-5 job.

 

[SteveO]

No honestly I really appreciate your comment, I mean it’s reassuring to hear you’re in the game. I’m a complete beginner and from the UK actually. Would you have any advice or tips for someone like me? Any resources to reflect on as well?

Also it would be nice to get your opinion on my strategy and what I’ve said so far, do you think there’s anything I’ve said that could be adjusted or improved?

Thanks.

There are a couple of strategies that I have used.

Value Add:
Find a property that through improvements, will be worth significantly more.

The goal here is to update, add amenities, change the tenant base. Anything that will make the rental worth more to the tenants.

One of my favorite things was to add washer/dryer hookups. Not easy but doable in some older properties.

Right Place, Right Time:

We have the macro economy that affects most of us. There are also micro economies that drive local areas.

Being able to determine where bad things happened but good things are set for the future may allow you to buy depressed assets for future gain.

An example would be temporary job losses in an area that has a desirable future for businesses.

Overbuilt situations where the economy was humming and too many apartments or strip malls were put into play. Thus driving up vacancy and lowering rental income.

Many more influences most of which would temporarily lower rental income.

 

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[S_uthman]

Thanks.

There are a couple of strategies that I have used.

Value Add:
Find a property that through improvements, will be worth significantly more.

The goal here is to update, add amenities, change the tenant base. Anything that will make the rental worth more to the tenants.

One of my favorite things was to add washer/dryer hookups. Not easy but doable in some older properties.

Right Place, Right Time:

We have the macro economy that affects most of us. There are also micro economies that drive local areas.

Being able to determine where bad things happened but good things are set for the future may allow you to buy depressed assets for future gain.

An example would be temporary job losses in an area that has a desirable future for businesses.

Overbuilt situations where the economy was humming and too many apartments or strip malls were put into play. Thus driving up vacancy and lowering rental income.

Many more influences most of which would temporarily lower rental income.

Great I'll consider this moving forward, thank you for your response.

 

[Antifragile]

That's interesting, that seems to conflict with what I've read and seen. I might have to reconsider.

To answer your questions:

1) I honestly have not thought about that yet, this idea literally came to mind a few days ago.
2) I chose real estate because it seems like something that will always be in demand, if you play your cards right you can make a lot of money out of it. I'm not interested in stocks, crypto etc that's not for me. So I want to have something I can invest my money in (when I do eventually get into the Fastlane).
3) I never had anything tangible to reject tbh, I was part of a freelancing group, but I couldn't continue for financial reasons, and I want to focus on something I consider more viable as my exit plan from my 9-5 job.

I am not sure if you've read MJ books yet, typically that's why people join the forum. If you haven't... start there. He does a great job guiding you in creating a business. If you are here, I think reading the books first is a must.

I say this because when I read "this idea came to mind a few days ago" is still focused on the wrong thing, the direction of business creation is backwards. Starting with identifying a need or a problem is 10x better than starting with an "idea".

- Who are you helping with what you propose you want to do?
- Is there someone already solving the problem you identified as an idea?

Take Steve's comment above about Value Add. You see a rental building and there is a central laundry room. You talked to a few tenants and they all complain about the same thing, they wish they had laundry in-suite. It will cost you $20k/room in remodelling and repairs to bring in-suite laundry. It is a small building with only 30 rooms. But it is high turnover/vacancy because not only laundry central room is so 1982 rental... the rooms themselves are stuck in the early 2000s. You think that with a lick of paint and change in plumbing and slight modification to layout, the rooms would rent at 2x the current tenant's rates.

30 rooms - 10 vacancies.
10 rooms x ($20k plumbing/renovation +$10K other upgrades) = $300,000 renovation for vacant rooms.

Building is sold on a Cap Rate.

What is the cap rate? In CRE it is the rate of return expected to be generated on an investment property. Cap rate = Net Operating Income (NOI) / Current Market Value (Purchase Price).

30 room building is currently generating $500/mo/room. Only 20 rooms are rented. $6,000 x 20 = $120,000 NOI. Cap rates have gone up recently with interest rate hikes. And you can get this for a 6% Cap Rate, or $2M purchase price.

Investment:
= $2,000,000 Purchase
+ $300,000 renovation of 10 units

Total in $2,300,000

After renovation, you get 2x on rents for 10 rooms that were vacant and they are now rented at $1,000 per room.

New NOI = $120,000 (old rooms remain rented) + $120,000 ($1,000 x 10 rooms x 12 months of newly renovated rooms) = $240,000

Cap rate remained the same at 6% and you now have a property worth $240,000 / 6% = $4M

You've created value bump of $1.7M. How much of that should go to pay you for what you just did? I assume you did not have the $2.3M to make this happen and so you both had investors and got a bank loan... What is your cut?

No arbitrage, but a good old fashioned hard work to identify a need/problem and get paid for solving it.

Good luck.

 

[S_uthman]

I am not sure if you've read MJ books yet, typically that's why people join the forum. If you haven't... start there. He does a great job guiding you in creating a business. If you are here, I think reading the books first is a must.

I say this because when I read "this idea came to mind a few days ago" is still focused on the wrong thing, the direction of business creation is backwards. Starting with identifying a need or a problem is 10x better than starting with an "idea".

- Who are you helping with what you propose you want to do?
- Is there someone already solving the problem you identified as an idea?

Take Steve's comment above about Value Add. You see a rental building and there is a central laundry room. You talked to a few tenants and they all complain about the same thing, they wish they had laundry in-suite. It will cost you $20k/room in remodelling and repairs to bring in-suite laundry. It is a small building with only 30 rooms. But it is high turnover/vacancy because not only laundry central room is so 1982 rental... the rooms themselves are stuck in the early 2000s. You think that with a lick of paint and change in plumbing and slight modification to layout, the rooms would rent at 2x the current tenant's rates.

30 rooms - 10 vacancies.
10 rooms x ($20k plumbing/renovation +$10K other upgrades) = $300,000 renovation for vacant rooms.

Building is sold on a Cap Rate.

What is the cap rate? In CRE it is the rate of return expected to be generated on an investment property. Cap rate = Net Operating Income (NOI) / Current Market Value (Purchase Price).

30 room building is currently generating $500/mo/room. Only 20 rooms are rented. $6,000 x 20 = $120,000 NOI. Cap rates have gone up recently with interest rate hikes. And you can get this for a 6% Cap Rate, or $2M purchase price.

Investment:
= $2,000,000 Purchase
+ $300,000 renovation of 10 units

Total in $2,300,000

After renovation, you get 2x on rents for 10 rooms that were vacant and they are now rented at $1,000 per room.

New NOI = $120,000 (old rooms remain rented) + $120,000 ($1,000 x 10 rooms x 12 months of newly renovated rooms) = $240,000

Cap rate remained the same at 6% and you now have a property worth $240,000 / 6% = $4M

You've created value bump of $1.7M. How much of that should go to pay you for what you just did? I assume you did not have the $2.3M to make this happen and so you both had investors and got a bank loan... What is your cut?

No arbitrage, but a good old fashioned hard work to identify a need/problem and get paid for solving it.

Good luck.

I must say this really has opened a new door to my mindset. The ability to identify a problem, resolve it and then create value skew is so important. It’s definitely changed my perception on how to go about doing this, but it will definitely require hard work. Thank you very much for this.

 

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[Antifragile]

I must say this really has opened a new door to my mindset. The ability to identify a problem, resolve it and then create value skew is so important. It’s definitely changed my perception on how to go about doing this, but it will definitely require hard work. Thank you very much for this.

Thank @MJ DeMarco
It’s his words haha.

Good luck.

 

[notorious]

I honestly do not believe such arbitrage exists for newcomers.

Arbitrage is the simultaneous purchase and sale of the same asset in different markets in order to profit from tiny differences in the asset's listed price. It exploits short-lived variations in the price of identical or similar financial instruments in different markets or in different forms.

But real estate is illiquid (even in rental form). Worse yet, it has been a darling of an asset class for investors for years, there are many bright minds in the game and even gaming the game.

To assume you are starting out and you'll find mismatch in pricing is bold and probably more of a gamble than a plan...

• What other ways can you build a real estate portfolio that does not rely on spotting an arbitrage?
• Better yet, why did you choose real estate?
• What did you reject before you decided to focus on RE as your business idea/concept?

Rental arbitrage is when you rent out a propery long term, but rent it out via AirBnB for short term. You pocket the difference. Essentially you're a property manager but take all the risk on you.
I'd imagine that the hardest part is finding an owner who will let you rent it out short term.

 

[Antifragile]

Rental arbitrage is when you rent out a propery long term, but rent it out via AirBnB for short term. You pocket the difference. Essentially you're a property manager but take all the risk on you.
I'd imagine that the hardest part is finding an owner who will let you rent it out short term.

I’m sorry for being a stick in the mud on one word, but that’s not what arbitrage is!

What you said above is like calling WeWork an arbitrage, it is not.

An arbitrage trade is considered to be a relatively low-risk exercise. Why? because it’s typically some security that can be traded instantly on two markets and you pocket the difference in pricing.

Taking on long term rental to then sublet it to short term rental isn’t low risk. There is a huge risk attached to this business model.

 

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