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The Real Estate UNLOCKED Podcast
The Secret To Making Passive Income with Rental Arbitrage | Episode 06
Ever wondered how you could turn minimal capital into substantial cash flow in real estate? Our latest episode of Real Estate Unlocked has the answers you need! Join us as we sit down with Richie Matthews, a former event producer who transformed his sidelined business into a rental arbitrage powerhouse. Richie's journey is not just inspiring but educational, showing how he and his wife went from navigating a pandemic-stricken market to managing 60 properties with a $6 million revenue stream. You'll learn the nitty-gritty of negotiating rent concessions and targeting multifamily units with vacancies to maximize your investment potential.
Richie shares his personal story of needing a sustainable work-life balance amidst the chaos of the event industry, a need that led him to discover the systematic and scalable world of rental arbitrage. We'll explore how Richie leveraged YouTube and other resources to build a successful strategy, emphasizing the advantages of minimal upfront investment and quick scalability. The episode also highlights the professional tools that can give you a competitive edge, from dynamic pricing software to multi-platform listing strategies, ensuring that you can achieve substantial cash flow in a relatively short period.
But that's not all. We dive deep into the art of furnishing rental units creatively and cost-effectively. Richie offers practical tips on sourcing unique, durable furniture and optimizing setup processes to make your properties stand out. We also discuss high-quality photos, strategic market selection, and the importance of regulatory compliance. Whether you're interested in short-term or midterm rentals, this episode provides a comprehensive roadmap to success, exploring how rental arbitrage can be a stepping stone to property ownership. Tune in for a treasure trove of insights that will transform the way you approach real estate investment.
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What up everyone and welcome back to the Real Estate Unlocked podcast. I'm your host, joseph Marohn, and today we're going to be discussing a very interesting topic in real estate excellent strategy for new investors to gain cash flow very little capital needed to get started. Today we're going to be discussing the topic of rental arbitrage. Rental arbitrage is a unique investment model that involves renting a property, then re-renting it out at a higher price to earn a profit. This is obviously an attractive opportunity for investors, especially for those who may not have substantial capital to purchase properties outright. It's an excellent way for newcomers to dip their toes into real estate without the hefty financial commitments of property ownership. Additionally, rental arbitrage can offer higher cash flow compared to traditional real estate investments, making it a less riskier option for some investors. Now you know how we do it on the Real Estate Unlocked podcast. If we're going to do it, we got to do it right. We can't just bring on anyone to speak about rental arbitrage. We need to bring on the Mr Rental Arbitrage.
Joseph Marohn:Today, our special guest is Mr Richie Matthews. Put some respect on that name. In 2020, richie and his wife started a side business in the rental arbitrage space to offset the seasonality of their event production company. The very next month, the 10-year-old event production business was gone with the pandemic. So they decided to fully commit to rental arbitrage, learning through trial and error. They managed to find success and scale to 45 properties in just 24 months. They now have 60 properties to date, earning $6 million using the subleasing property method. Richie now teaches others how to do the same. So, without further ado I've been talking long enough, everyone if you will, please allow me to formally introduce to you Richie Matthews. Rich, what's going on, man? How are you doing today?
Richie Matthews:I'm doing fantastic. Wow, what an intro.
Joseph Marohn:Yeah, it's something I kind of started doing recently and a lot of people seem to like it, so I'm having fun with it. But yeah, man, how's everything going on in your world today?
Richie Matthews:Fantastic, really, really. Well, just waiting for the slow season to grind down in Southern California. So December and January, part of February is a little bit slow, so we got a lot of time to do a lot of fun stuff on our properties.
Joseph Marohn:Absolutely. Now, do you prefer Richie or Rich? Because you're smelling like money through that screen over there, brother.
Richie Matthews:Richie. Well, yeah, it's like an old name from family and friends and I just go by that, but it's either one I have. You know, richie is typically what my friends and family call me.
Joseph Marohn:So All right, cool, cool. I just want to make sure we're formally introducing you properly. So, first off, greatly appreciate you taking the time to sit down and educate us on this very interesting business model. Seems like a great way for new investors to really get their foot in the door without having to come too much out of pocket, right? Why don't you start off by telling us a little bit about your story first, how you got into real estate, why you chose the rental arbitrage business model and what you're currently doing?
Richie Matthews:Right.
Richie Matthews:So I've. You know I'm familiar with real estate in general. I've invested and invested in rentals long time ago. My wife and I have had rentals and properties that we've we've purchased and rented long term, and so I was fairly familiar with it. But I had I started hearing about this sort of rental arbitrage. I'm not a big fan of the name, but where you lease a property and, with the owner's permission, you sublease it on short-term rental platforms or even as a furnished rental on midterm rental platforms, and so I had heard about it.
Richie Matthews:I was fairly skeptical about it, primarily because the type of people I was hearing about it on YouTube. So I looked closer and did my own homework and realized it really is just a cash flow play, Right. So one could even argue it's not really real estate. It's really just about hospitality. You're using someone else's asset and, with their permission, you're subletting it. And why would someone do that? Why would? This is what I thought in the beginning. I'm like why would a landlord allow you to run a business out of their asset? And one of the reasons why I found, primarily during COVID, was vacancies, and so we lease, by the way, apartments, typical two bedroom apartments, so we're not doing single family homes. As a homeowner, as a landlord, I wouldn't give someone low deposit and rent concessions and things that are fairly commonplace in multifamily and large apartment buildings giving someone a low deposit if they sign a long lease or if they're vacant or if there's other issues with their building vacancies issues. Oftentimes they'll allow rent concessions, so we negotiate them. I look for buildings that are not offering that and then we try to get the rent below market by asking for rent concessions, and the way we're able to do that is contacting buildings that are vacant and otherwise very good markets, and so that was happening big time in 2020.
Richie Matthews:You know, I got a little bit lucky. I discovered that. You know there were a lot. There was a lot of pain in the multifamily world, One of which in Southern California. They were just talking about eviction moratoriums, which became it became the reality, and so we were approaching them as a corporation and that particular state rule didn't apply to us. So we just sort of kind of got lucky with that.
Richie Matthews:But it was also a component of vacancy. A building was vacant. We became partners with them in a way. We picked up two or three or four units in a building. I'm thinking of my very first building that we did. And then the landlord actually came to me and said hey look, we have another very small building in this market and then this one. And so we grew organically with that one building, one or two units at a time. I was so unsure about this whole business model. I was leasing a property, and when I would pay myself back the furniture and typically a modest deposit, then, and only then, did I go back to them and say hey, I'll take another.
Joseph Marohn:And like you, richie, I also have my doubts. But I mean you've obviously, with 60 properties, six million dollars in revenue. I mean you've obviously found a lot of success with doing so. So I mean I'm interested to learn more about this. But something I like to always kind of remind my guests is that the goal with these interviews is designed to guide the conversation from a beginner's perspective, then gradually moving towards more complex questions as the interview progresses. We just want to make sure we're properly covering everything from A to Z. So, with that being said, let's start from ground zero. What is rental arbitrage and how does it work? What is rental arbitrage?
Richie Matthews:and how does it work? Sure Good question. So arbitrage, meaning an arbitrage, is where you make an investment in one market, move it to another market and make a guaranteed profit. That's not this, that's not this. I think that's why I said early on that I have an issue with the Axel word what it's known for, so I actually use the term too an issue with the actual word. It's what it's known for, so I actually use the term too.
Richie Matthews:It's similar in that you're taking a long-term rental and then you're putting it for X and then you are moving it as a short-term rental, as 2X. That's what you're getting at. So we take an apartment that leases for $2,000 and I'm looking to make at least twice that. By the way, that is my formula, and so I look at historical data and see what an Airbnb, two bedroom, a condo or apartment in a certain market will make or has made, and there's research tools out there you can use. You can find out what they've made, and I look for an apartment for half that for a property, get permission, and then I just sublease them and you can just, we use a lease addendum.
Richie Matthews:So we're basically just get going to a landlord. Now you can apply this as a to a single family homeowner, a landlord. A lot of people do that. I don't, for a lot of reasons, and I'm not going to disparage that model. It's a great model to a lot of people, but and it's also a cash couch if during good times. So there's a lot of reasons why I, you know, I think, with the economy the way it is, I, I, I want, I don't want all that seasonality, I want year round travel.
Richie Matthews:So all we do is go to an apartment building and we're like, hey, look, I saw you have five units vacant. I'd like to take all five, starting with one, try us out, and we'll, um, and we're going to furnish it and we're going to sublease it. So we sign a lease contract, just like, if you know, when you have an apartment, you sign it, except for it's under our company. And then, except for, we have a lease addendum that says, hey, we're going to be subleasing this, hey, we're going to be listing this on Airbnb, and all that. And then we go to the city and we have filed for a license. If it's regulated in most cities it's either on its way to being regulated or already is, and in our markets we go to the city and we pay the thing and now we have a short-term rental license. It says we can operate this apartment as a business and the owner has already given us permission to that effect and it's in the contract and you can lease for a year or two or more, and every year they become. If you're in good with the landlord, then you just get a lease renewal. We've got lease renewals on every single one of our properties. The only time I didn't renew is when I didn't want the property anymore, Like, for instance, now there's some studios that are coming up and I'm not a big fan of studios anymore. So that's it.
Richie Matthews:It's a very simple business model and you would ask yourself why would you go through all that effort instead of maybe buying your own property? And then you have all these other benefits, and here's why they're both fantastic models. Ownership is where it's at right. You know you get amortization and debt pay down and you you have an asset that appreciates over time some tax benefits in there. Right Cashflow is typically even for an Airbnb, is usually at the top of the benefits. It's usually one of the. It's an ancillary benefit. Some people are even cool with break even, With our business model.
Richie Matthews:It is all cash flow. It's just about cash flow. And you could argue oh right, I'm building a brand, which we are right, so you have that too. But really, if you're just doing this with one or two units, you want a little side income. It income. It's strictly cashflow, and so that's why it's so important to get in a deal right, Look for certain types of market conditions, and all that without getting in the weeds. That's it. But that's the business model. We're leasing properties and, with the owner's permission, we're subleasing them as a short-term rental or even a midterm rental to nurses and things like that Right and you obviously got a clear foundation already set in place.
Joseph Marohn:But what are the first steps a new investor should take to enter the rental arbitrage space? Great, question.
Richie Matthews:Now there's two considerations. If you're going to do this, You're going to do this in your backyard and I consider that 45 miles around where I live. That's how I did it and all I did was list the cities in that area because I wanted to see if it was legal, and typically cities are the governing bodies Sometimes it's the county. It's typically one of those. To do a little Google search oh yeah, they allow this. And then and then from there I would.
Richie Matthews:I got on hot pads when this was an experiment Fifteen minutes before I would leave my office. My event production company is about two exits away from my home office. My event production company is about two exits away from my home, A couple of minutes. I wanted to kind of check this out and I blasted a whole neighborhood, came back to work the next day and my inbox was full of a bunch of no's and then there were three babies and two of the three said come and check us out, We'll do a tour. I did a tour and one of those two actually said yes to us. Now, now they put conditions on that I didn't agree with. They wanted to screen our guests and things like that, but it was really neat.
Richie Matthews:That proved the concept that, from in a few minutes, that I can do this, so you can do this locally if you want. But that really means that you're in the middle of all that and, knowing what I know now, I actually advise people to do this remotely. And so and the reason why I do it remotely A, you get to choose the very best markets. Not everybody lives by killer short-term rental markets In fact, most of the time we don't. So you find the best markets and then put a team and a system in place, and I don't mean farm it out to a property manager, which are, you know, pardon to all the property managers out there, but it's a very expensive way of going about this. I think and if you, there are some of those guys out there that they can do it for cheaper than great.
Richie Matthews:But I actually I'm a big fan of building your own team, your own culture, and so you can go from the very, very beginning. You could ask more of your housekeeper, For instance. They can just, besides cleaning, they can swing by the storage unit, pick up supplies, let in your guests if they're locked up, so you can ask more of that person. Have a VA. We hire VA virtual assistants in the Philippines. We don't use a service but we just hire people and ultimately I do have an operations team and a management. But in the beginning, doing this remotely, you can do it. They're just have to put a system and a team in place, because who wants to be that person at three in the morning when someone wakes up says you know, something's broken or whatever? And so having a couple of things in place before it gets to that point is highly advisable.
Joseph Marohn:Right, and building a team is absolutely crucial to scaling your business. I absolutely agree with you. I'm actually in the same boat myself where I'm actually building out a team right now. Because you can't do everything yourself, you know you're going to have to have a team in place and a proper structure. So great points on that. What exactly was it about this business model that attracted you towards it, and how did you get started?
Richie Matthews:So I was under the impression it was real estate and I was actually looking into Airbnb. I was also looking for the cash. On cash return. I was thinking, all right, where can I put X amount of money with some effort and be so unique and not correlated to my other business? The answer for me was always add more events. So when I was complaining that, oh well, our best income is in the spring and the summer, I'm like, all right, I'll throw up a fall event or a winter event which is not as popular in our space and type of events we do. They're typically summer type festivals, so our income was so seasonal. So it was really like a way for me to even out our income now that we had kids and so I was looking at that and the various business models. Trust me, I went through at night, I would just get my wheels moving and try to think of, and my answer always was let's just do another event 2020,. We had six major festivals planned in Dallas and Miami and LA. We were two weeks away from the big one in LA. I also added in between those festivals a trade show component of them that we're actually doing pretty well, them that were actually doing pretty well. So that was always my answer.
Richie Matthews:But all that was doing was taking away time because I was trading my time for money. It was a 15 hour, 16 hour a day job that I gave myself. I mean I was doing everything selling the tickets and marketing, and I was hiring the team, and I mean it was a very physically taxing business. I mean you're running around, you're battling with a fire marshal or the alcohol bureau or whatever, and you have thousands of people at your events. So there's always something going on, and so it's fun when you're young. But you know over time to scale that I hadn't never figured out how to scale it. So every time I added an event it was like, how am I going to do that? I'm like, let's just do it. So this business model seemed like that you could put a system and a team in place, and so I was planning on doing something like that because we were about to start doing our events. But when COVID hit I had nothing but time, and so then I was determined to do it myself, and so I would piece together.
Richie Matthews:I would find people on YouTube and I'd piece together pricing strategy. I'd piece together how do you pay housekeepers, do you pay them by the hour or do you hire a cleaning service? So I would get all that information and I tried it all and I'd fail on some of it and I would use what worked and fortunately the failures didn't take me out right, because that can happen. Trial and error is not the way to learn. There's someone did something before you that you can cozy up to if you're, if you can find them, and so trial and error is really not the way to do this. Any kind of business I don't think I knew. Obviously you can make things your own, you can create your own model and tweak it, but starting raw, like that was, was bonkers.
Joseph Marohn:Yeah, and then you touched on a very good point about failure. You know failure is part of the process, man. If you're not making mistakes, you're not learning anything. You actually got to go and create these problems and then learn from them and then fail forward, and you've proven that to be a good perspective of that, and you're doing the right thing, brother. But help me understand the key benefits here. What would be the advantage versus just purchasing a property and leasing it out yourself?
Richie Matthews:No. So if you, if you have the wherewithal and you'd have, you know the the the cash reserves to pick up 40 units, to, to, you know, to pick up 40 condos or a multifamily building, there you go. But for for those that are looking, are looking to perhaps to learn to get, first of all, get a paycheck. You can get one right away. I mean you can put. In my case, I'll just say what I know my first unit was under $5,000, $4,300 worth of furniture, $6 a square foot, a little apartment. We had a $300 deposit. That was it. I got the first month's rent waived and so I was off to the races. I set it up and now the way you host it in 2020 is not the way you should host now, right? So then you know it was like an Ikea explosion. I always say, you know, no pricing software. The design was kind of, eh, and it was only on Airbnb. Now we're on six, seven platforms per listing. Airbnb. Now we're on six, seven platforms per listing. We tie it together with a channel manager. We have a pricing software, dynamic pricing software. We have someone that picks up the phone if you, you know, replies to them in the middle of the night. If someone makes an inquiry, so we're treating it professionally, but then you can go and do some of the, because it's a very young industry right now, and so the difference, the difference is that this is really just about the cashflow. And if you own if you own a bunch of of short term rentals or rentals there's a lot of other benefits there. Right, there's some really beneficial long-term attributes that you can get from owning a property wealth creation and all that but this is just creating a brand in a way. That way I look at it is that, look, we're just trying to get, I'm trying to get up to a certain amount of units, and now that it is all formalized and there's a system, the sky's the limit in how we can grow.
Richie Matthews:Here's another one If you are an investor and you only have a few units, what better way to learn how to become way more competitive with your properties than to do arbitrage, because an arbitrage is inherently scalable. You really need to get to 10 or 20 or 30 units, right, once you do that, because picking up five units is the same thing as picking up 30 if you're growing on cashflow. So once you do that, you know all about how to manage your properties at scale all that stuff so you can easily incorporate your own properties into your portfolio. All that stuff, so you can easily incorporate your own properties into your portfolio. And for that reason, when you own a property, one of the harder things to do is figure out how to manage it, and so that's why a lot of owners go to property managers, and it's awfully expensive, and if something goes down in your property, property manager is not going to treat it like if it's yours, your own.
Richie Matthews:The other big one that we don't know in the arbitrage world is construction. Those are the two things that I'm trying to learn a lot about. Well, now that I know the management side is the construction stuff for investment. But if you're an investor, there's no better complement to your portfolio than a small number of arbitrage units that you can use that cash flow to invest in your properties, to scale your business or to get paid the buildings do the construction. You don't have to worry yourself about the mortgage or the down payment or anything. It's literally what you come in for. Furniture is really what the expense, if you negotiate it correctly, and a very modest deposit. So the difference is that one is just cash flow on steroids, and the other one is an investment, an asset that you are. You are you're acquiring over time.
Richie Matthews:If you Airbnb it, great, then you have a little bit better income. What I'm finding, though, is a lot of owners think they could automatically put it up from a rental as a short-term rental and automatically get better income stream, and some of them, if they're doing it incorrectly, are the ones that you're hearing about this, this Airbnb bust, which I actually you know, I deride. I don't think that's an accurate term. What I think is happening is that a lot of people are flooding into this business because it's so young and and you can, you can perform on average. You can just be an average host and do all right, and I always say name a business that doesn't require marketing no-transcript.
Joseph Marohn:You brought up furnishing and I want to circle back to that real quick, so can you share some insights on furnishing and preparing the properties for rental?
Richie Matthews:Yes. So great question. Because up until now we've only paid out of pocket for that, because I always considered that the investment that was my first risk capital for the first unit and then, when the next one came, we used the capital from the other one and moved on from there. But there are some people that I think there's a company called Cort C-O-R-T. They rent furniture. And there's a some people that I think there's a company called CORT C-O-R-T. They rent furniture. And there's a few people that I know in our program One of the gentlemen is renting for six months and then his idea at six months he's going to replenish it, which to me seems expensive. But I did the numbers and so for $850 a month, instead of paying the $6,000 it takes now to rent a furnishing apartment, a one bedroom apartment. It seems like a way for him to get in and to scale a few. I still prefer the old school just pay for your furniture and then build organically from there. But if you have done the numbers and it's an opportunity, there's an argument to say you can rent furniture. I still think you should buy it. I'd almost rather pay the interest on a credit card if someone doesn't have it that way, or better yet, just wait till you have at least five, 10 grand for cash reserves, but here's the number. So it's about eight to $9 per square foot to furnish will cost for us to furnish. Other people swear it has to be double that. Now, no-transcript lock.
Richie Matthews:We paint accent walls. We're doing a bunch this week. We're doing, uh, pvc panels instead of peel and stick, because the peel and stick is falling in some of our buildings and so we're using different accent walls. We split tested last low season accent walls versus no accent walls on clicks and bookings, and it was a dramatic increase on accent walls. So it's really inexpensive. We have a team to do that. But even if you were to pay labor, you can get at Home Depot. There's peel and stick. You can paint, or you can as long as you have the paint, the building gives you the paint code so you can repaint it when and if you have ever leave. Or PVC panels, which we do now. But we're doing some really neat things in the units that make them look like a condo or make them look a lot nicer, and so that is included in your per square foot. So $8 to $9,000 square foot apartment if you get that one big do the numbers, then you have to pile on top of that your deposit, which is really important. Now that you think about it, I need to get a low deposit and definitely you want to get the first month's rent waived, if you can, if you're in a market.
Richie Matthews:I was on what was it in Memphis the other day on AirDNA, the research tool, and we found a beautiful brand new build, 90 days free rent. I don't know if it was all up front or if it was just over the course of the lease, but it's going on again right now. It's happening in very good markets around the country right now, just in not all markets, not Miami, but in a lot of markets where things are happening. There's a lot of flux and so it's about. I have a shopping list, so I have every item. We know exactly what we're going to get right when we get a unit, and so we stay under budget. One of the things I learned from the event business you have to stay on budget to set up your unit and then you're counting the weeks for your return, and only when you get your investment back do I then go back to the building and say, hey, I'll take that second unit, like we discussed when I took this one, and so on, and so that's really basically how I built this thing.
Joseph Marohn:Yeah, I saw your units, man. They're very impressive. Like you said, they do look like condo. In fact, they actually look better than some condo units. I've seen Very impressive stuff you're doing. I got to ask so, as far as like, are you finding any? You talked about renting out furniture and whatnot. Have you utilized things like Facebook Marketplace to kind of cut costs buying used furniture?
Richie Matthews:things. Remember earlier I said it's like an Ikea explosion. If you, if you design from any one source online stuff all looks the same, then it's going to look like that. And one of the things I learned is, if you go to like I forget the name of it, I think it's OfferUp or Facebook Marketplace there's some folks on there in our markets that were like I was recognizing, I'm like this guy's a professional. What they were doing is they were buying vintage luggage or wine barrels and they were converting it. They were flipping it, they were converting it, after they did their thing to it, into furniture. So we put them in our units and I was like, wow, it looks like they're one of a kind pieces a lot less than the stuff you would buy online anyway, and they looked original. Some of them are a little rough and we would turn in these wine barrel pieces into coffee stations and we were like end tables out of the luggage and so you can go out and buy all the Walmart and the cheap stuff on Amazon. But then if you, if you mix that in there, especially when the things you need are end tables and coffee tables have to be sturdy Kids sit on them. I've learned the hard way. You just can't get that fake marble stuff on Amazon or it will break in the third month. Same with your sofa. So we would get used sofas local and we'd pay for them. Our guy would drive out there in a truck and we'd pick it up.
Richie Matthews:In the beginning I didn't have that kind of time, so I was buying everything online, I was having it shipped to the building. I'd move into the building for a day or two and I would set it up myself. Not how we do it now, not what. How I would recommend Now you can get it sent to a self receiving deliveries, a storage unit and then have it done, or you can organize it that way. But one of the things we still do is I'm always shopping, looking around I like doing that, it's fun and seeing if there's like an artisan out there that will do something for like really inexpensive.
Richie Matthews:Find a really killer mirror for $10. And if you're slowly putting them in there, your units will look great. Take out the vertical blinds, put in blackout drapes, put on an accent wall you know, do even the chandeliers? Apartment buildings have those notoriously ugly.
Richie Matthews:You can get one for really inexpensive that really pops into place and, believe it or not, it doesn't break the bank. It's not going to change anything on your lease other than the paint. You do have to ask about the paint peel and stick. You don't have to ask, and so you can do things in the unit and, assuming you're in there for multiple years, it's a return on your investment immediately. You'll get the money back just because your photos will pop and you'll look different than the rest of the neighbors in that area, condos or not In fact, you're right, by the way, a lot of people who own places. They'll inherit a condo or they'll buy one, and they use their iPhone photos because they think they're going to save a few bucks. And you'll see, the place is not even competitive and you would think there is a condo. They probably have a nicer building, but they're not showcasing it. It's all about the photos for Airbnb.
Joseph Marohn:It's the best photos wins Some of these units that I've seen. They're really impressive. You know, it's like really there's an art to this. You know, and it's very impressive what you could do. And I'm seeing, I'm asking other people and they're spending not that much money on these to get them up to that quality. You know so now. So you said $8 to $9 per square foot and then you're talking first and month less of the security deposit. Is that your total entry fee on the deal?
Richie Matthews:So the furniture, the $8 to $9 is just that. It's your move-in. By the way, I'm including the if you can. So sometimes I've like if I was at budget I wouldn't put on a smart lock on the thing because that's $400. I'd come back a few months later to get into a deal and then get paid back. I want an eight to $9. It used to be five to $6, but now it's eight to $9. So that's just that. Let's just say, for a 900 square foot apartment at $9 is $7,200. So that's my setup costs. On top of that, typically a four or $500 deposit. If it's a two bedroom, that's a. That's a competitive deposit and that's it. And um, and I'm, I'm including my if it's a day labor into that the eight to $9, but I also have a team, so I have people that set up that are on salary, so I'm not including that. So if it is just you, you'll have to include yours. But in ballpark that's what it is.
Richie Matthews:If you're coming in, really, if you're getting a killer deal, I mean I'm finding like on my shopping list I have like $9 toasters and I'm like every dollar I was trying to take off. But then you do need to go. You'll see the value of the first month's rent free in your cash. On cash analysis You'll see that you're like whoa, that really matters, and your first deal usually sets precedent with that owner. So if you get a good deal on the first time not always, but that typically is your template going forward when you get more units, same thing if you don't get it. If you don't get it, so you do the math, that could be a significant amount of money and it also can make your numbers work. So I look for 2X my rent. So if I look for $1,500 net per door, so if I'm at $1,300 and it's a 12 month lease, I'm like that's four weeks. Right there I need to negotiate.
Richie Matthews:So getting in a deal as you know, in real estate it's no different. Here you make your money when you get in. And then, once you're in, what if the economy takes a hit? What if there's a ton of new hosts that come on the market? Then you're like I'm good, I could stay at 50% occupancy in pencil. And so the problem a lot of people get in so expensively and so they need 70%, and that's not a reality these days in a lot of markets. So there's a lot of people hurting out there, whether they purchase properties or they're doing arbitrage. So I'm a big fan of just wait until you get a good deal, find the market conditions, express the value that you're going to bring to the table.
Richie Matthews:You know what I always say to the landlord. If they're on the fence, I say so we leave the units and show condition. And they're like what does that mean? I said well, what's the condition of a prop or one of your apartments when you get the keys back after a three-year lease? So I'm like we leave ours. They have to be in show condition. I go. You know we got a person checking in. You know can't mess around, so we're doing most of the light stuff, obviously, if an appliance busts on you, but we're, we're taking care of your caretakers, of your asset. We're mindful of the neighbors, and here's our references. You can talk to the people around the corner where we have 15 units with yeah Great info.
Joseph Marohn:What are some common misconceptions about this business model?
Richie Matthews:I think it's regulations. I mean, the positive unintended consequences of regulations is not really discussed. So just like the state of Texas gets businesses to move from California, the cities are no different. They're competitive. And so when one city makes a draconian law, like Dallas, there's probably other correct me if I'm wrong, but there's other markets around there they're like no, no, no, we don't have a ton of hotels, we don't have a big tax base, transit, occupancy taxes, the tax you pay when you check into a hotel, you pay that to the city, you pay to this hotel, the hotel pays the city. Same with short-term rentals. So if a city doesn't have a lot of that tax base, they're typically more welcoming and they exist all around major cities and so there's a lot of positive unintended consequences.
Richie Matthews:This business should be regulated. Who wants to, you know, you know. Have a if you're living in a suburb, have an Airbnb house next to you. Then vacation markets different story. But in that I don't, and so I do believe it should be regulated. I'm only, I only exist in in commercial zones.
Richie Matthews:I actually used to be way before the regulatory discussions in my markets. I used to make sure that I could see at least a motel or a hotel from my front door in my apartment building, because then I knew it was a commercial zone. They're not going to sweat us eventually when they do regulate this. And lo and behold, they passed a law last year in one of my markets. Some consider it tough, but to this day you still can pull a permit, a tier three permit, in the city of San Diego. So I think there are positive unintended consequences. Now there are some where they literally will just cap it Los Angeles and Dallas and New York, and perhaps even one day San Diego will eventually cap it. And so you know. That's another reason why now is the time.
Richie Matthews:So I think there's a misnomer about what happens during regulation. Like with all laws, there are conditions. Some of them have conditions that you might not like. You know, a thousand dollar application fee or whatever. Some of them they're fine, they're just a way to do business. And so I think the regulations around this business and everyone fearing that they're going to shut you out, I just haven't seen it. I haven't seen it in any of the markets that I was in that weren't regulated. They are now regulated. It didn't affect us. We just had to get our license, pay our fee and make sure that we're making sure that the platforms are paying our taxes for us.
Joseph Marohn:And you talked about commercial zones and you touched a little bit about different cities. How important is location? How do you identify profitable properties?
Richie Matthews:Locations. I say location is not just good at how you stay booked, but it will even. If you pick the right markets, you can find some conditions in the market that will actually help you get the deal. So some people, a lot of people, consider the acquisitions in this business a beast because, for a few reasons, lead generation is the lifeblood of every business small business, and especially in ours. So some people think they can contact a few apartment buildings and say, oh, they're not down for this, they're not allowing this, that's just because they don't have a lot of output. And so, through a lot of output, you get more opportunities and you ultimately get a better deal. I don't think you should, just because of a building, says yes, a lot of people are jumping at that. I think that's just the beginning. You now need to negotiate and if you'll tell if they want you, if they really need you, if you can provide value, your deal will reflect that.
Richie Matthews:Have a lot of vacancy, and so I think finding a market for the reasons I stated earlier where there's something going on in the economy, where vacancies are ticking up and the rents are dropping even solid markets I mean there's some really good markets around where I live, very nice areas. I mean you say the area. They're like oh, that's a really nice area and they are, and they're by the university and they're by the medical center and they have year round travel. But rents are finally going under $2,400 for a one bedroom in that market. So I pounced, so it was too expensive last year. So I went in there and we picked up more units this year in there six more and so you can wait for market conditions to be favorable for you if you're astute enough.
Richie Matthews:Now, real estate is a local business and if you think about it, you really get to know your area. But just because I live here, what? If I really like San Antonio, I could focus on a certain market and I could become an expert in there. I could learn about the nuances of different markets. Who's building, what's going on in any market. You don't have to do this locally, and I think that's the other big mistake. But it is about the market. I do believe that.
Richie Matthews:So the research tool that I use is AirDNA. There's a few others out there. I was using a few others back in the day. I bit the bullet and I paid there. They have an enterprise level subscription Gives you all kinds of data for if you're a real estate investor, if you're looking for Airbnbs, whether you're arbitraging or not, so excuse me. So I like AirDNA and so I just look at their market research tool. It gives a lot of predictive data. It also looks at historical data, but then I'm looking for markets with high vacancies that are showing strength on Airbnb and as a short-term rental.
Richie Matthews:But, by the way, I think one of the big future trends is having the ability to go midterm. So if you're talking about regulation in markets where they're like, nope, you can't do short-term rentals. New York City, for instance, if you've got the midterm rental game down, you could go marching in one of those markets and own it. You could do really well in a market like that, because then the city, they can't say a word to you, it's none of their business what you're doing. So you could do a furnished rental. You could arbitrage it. Here's another one Some buildings, a lot of the apartment buildings, will say yeah, sure, we'll allow corporate leasing, short-term rent or subleasing, but we won't allow your guests to stay under 30 days and so we walk away.
Richie Matthews:Well, guess what? What? If you were a midterm rental person. You can get yeses from the best buildings if they allow corporate leases and when I say corporate leases I mean 30 days or above and then if you know how to book your property, then 30 days, then you can dominate that market. One of the components to learning how to book the market is having its B2B business. So you get in with insurance relocation companies or nursing recruiters who they need to house traveling nurses right, because there's a shortage of nurses and they're traveling all over the country. So those were a good one for a while. Their budget's a little bit low these days. We like the military, the Navy. We did a contract with the Navy, got a bunch of our properties booked up, and so if you can get that side, the B2B side or get someone on your team that knows that you can actually go find inventory in a market after you're confident that you can get a contract, Right, and I want to make sure we're providing a lot of value for all the listeners.
Joseph Marohn:So what we're going to do is we're going to just go ahead and flash your login info to AirDNA on the screen for that enterprise subscription. I'm kidding, I'm kidding. So, richie, are you searching for single family homes or are you looking primarily for rental units?
Richie Matthews:Just apartments, yeah, just apartments, for the reasons I stated. Most single family homeowners. They're maybe easier to convince to do this business model right Because they're not a company and people can change their minds quickly, unlike a big company. A big company is opposed to it, like Graystar, for the longest time one of the largest apartment owners in the country. They're a real estate investment trust. They did an about phase during COVID. They said, okay, now we'll allow this. It's a building by building decision. We're in them, so you can do, you can go, you can convince a building because a lot of times they'll do it. But it's typically harder to get into a building.
Richie Matthews:But the reason why I like apartment over single family homeowners is because we can get in the deal cheaply. You can scale quickly. A three bedroom apartment is a different thing than a three bedroom house to furnish. You have hallways in the garage and a backyard and so it's very expensive, and so I like the house model. I have people that I know who own end arbitrage and they they're telling me they're Forex rent.
Richie Matthews:But that's usually during good times, right? So so when, the, when, the, when everything is happening in the economy, I'm of the opinion that we're going to see a big pullback next year in a lot of ways, and so for me the apartment model is great, because you can get in inexpensively and scale and just watch your costs, and so for me that's the model. Who knows, maybe if in a year or two, when things turn around and we get a better economy, better people are running the thing, then we can then go to the single family home model, which I was very tempted to do. Came really close in Palm Springs last year, came furnished and everything, but in the end they were unwilling to they didn't. They were like no way we're going to give you half, you know like a half deposit or your first month's rent free. And so we came close, though, and so I walked, and so for me it's just the apartment model.
Joseph Marohn:Okay, great info. So can you give us a few strategies on how you're locating these properties and how do you find landlords that are even willing to do?
Richie Matthews:this. So if you're just starting this out today, go to HopHeads or Zillow. Zillow owns HopHeads. I like HopHeads because you can stay in the map view and contact all the buildings in the property. Once your account is opened up, it will send a default message to them, so you just think, hey, I'm interested in your property. And then you're doing that based on markets that are showing high vacancy and you can check those. You can check those no-transcript and if it's two times what the median rent is, you've got a pretty good cash flowing market. And then what you do is just make sure it's legal, do short-term rental permits and then name your city and most of the time their city landing page will come up if it's legal, because they've got a lot of money, so they've got a slick website and then you can get on their website. I like to call them Now you've checked if it's legal, if it will cashflow.
Richie Matthews:There's one more step I like to do before I contact the apartment building on hot pads is I'll look on Airbnb and I'll look at the competitor landscape. I want to see if it's just flooded with like professionals and, conversely, if you see a market that's doing really well but it's a lot of condos and the photos are terrible and they're on maybe one platform you can tell. You can click on the host on Airbnb. You can see all their listings, you can see if they're professionals or not, and so I like to do it as a qualitative way of looking at a market. But after it's cash flowing and all that, then the next step I get right on air on hot pads and I blast an entire neighborhood. Takes about 20 minutes. You can do that on hot pads map view and then the conversation moves over to your inbox and then there's a certain email sequence or scripts that we use, where you're basically saying one thing we're just trying to find out if they allow corporate leasing, and ultimately it leads up to a phone conversation when they're a qualified lead and they sound like they want to play ball, and we get on the phone and basically explain our model and get a for sure, yes, and I stop it there. I do not negotiate. You end the call because typically you want to get the manager and after that you're like yes, I'm interested, let's move forward. They're going to give you the application and then, once you're approved, then I negotiate, believe it or not. I do that. A lot of people do it the other way. They're like well, that's a waste of time. What if they don't want to play ball? Because think of all the people that contact those buildings. And so the further you get down their fall, the further you're related. Every time you're talking to them or communicating there's a touch point. They now know you as real, so they know you're a serious person. You fill out the application, you pay the $45 fee. I like to ask them if they'll give it back if they don't approve us. But whatever, you fill that out. And now you're like before you generate the lease, after they say, hey, you're approved, say hey, I'd like to talk to you guys today.
Richie Matthews:I run my numbers of the unit now in my calculator comps occupant. Now I run it. I have a calculator. Anybody wants it? I'll give it to you for free. It's a basic spreadsheet, but I build out my calculator.
Richie Matthews:I don't run the deals early because you'll be just spending time running numbers all day. I wait until I get a firm yes and then I look at the number and I look at that and I determine if I'm going to negotiate hard or not. So I'm like Ooh, I have to get 1500. I'm going to have to, it's going to, I'm going to walk if they don't give it to me. So then I'll get on the phone and I'll ask them I have a whole pitch on how I asked for for low rent and it's counter to anything anyone's saying out there, people asking a landlord can you lower my rent, can you give me free rent? All that? They'll say no 99% of the time.
Richie Matthews:There's a certain terminology in the apartment world called rent concessions. I use it against them. It's their own language, it's how they advertise it. Their marketing departments came up with this term and I'll use that. And I present a very reasonable request to them, given the amount of units are ultimately going to take from them. And and you just put it in perspective and what we're asking for, I typically ask for six weeks front. I want them all up front and and and that's usually a 50, 50 and and if they don't agree to it and the numbers already work, well, there you go, you can take the deal. If, if the numbers don't work, unless you get it, then you know where you stand with them and and I say you hold out. And so that's really all I do. That's the nature of our entire growth and it's just something I've learned over trial and error of what has worked and what hasn't worked.
Joseph Marohn:Right, and are you always fully transparent with the landlord? And what does that first initial conversation look like?
Richie Matthews:Hang up or like no way get out of here, you know, but this business model is becoming more and more known. So, as it's becoming more known and as a tool for certain, some apartment buildings have a certain number of units they have as inventory dedicated to what they call corporate leasing, corporate rentals. That's not us. It's a version of that model, but ours is slightly different, right? Because instead of having one guest over the term of the lease, we have multiple people at different terms and we're advertising on a bunch of platforms. That's the part most buildings don't really like. But again, if they're feeling some significant pain and their owners are coming to the leasing manager and the regional manager saying, lease this up, and you come along and they're like well, wait a minute, I never thought of this guy's asking for all of our vacancy. You just are solving a potential massive problem for them. You don't know if they're financing at the term. You don't know if they're trying to sell the business. We don't know. So it's, it's not, it's. I'm not going to say luck, because I don't believe that. I do believe if you're out there and you have a lot of, you're generating a lot of these, having a lot of conversations. Ultimately, you're going to find luck in that you're going to meet someone at the right time and you're going to need them. They're going to need you and that's where it's a good deal.
Richie Matthews:We've gotten deals where they said no to us and later on they said they came to December. A year ago. This month, two big buildings that said no to me the actual properties came to me. They said no to me twice. They came to me with four weeks in hand, which we parlayed to eight weeks yeah, gray Star Building. So we got January for free and February, march and April. We had the other four weeks spread out of those. So it was an easy way to get in during low season into the building. I just told you, the one with the midterm rental guy is expensive $3,750. And so we got in that way and it was a building that said no.
Richie Matthews:A leasing agent had just got hired from them. She worked with us in another building and she was smart enough to go hey, you guys are vacant. I got this guy that can help out, and one thing led to another, and so you know, if you're offering value again, I'll just go to that if you're, if you're able to help them, but there's a hard no. A lot of them are just like no way we've had a terrible experience. You know they have Airbnb If you use that word, which I never do, it's just one of the platforms we're on has a bad reputation rightly so to a lot of people, and so you know.
Richie Matthews:You just have to learn what your approach is and be completely transparent from the first conversation, well, from the second conversation. First conversation said I'm interested in your apartment. Second, we let them know who we are, what we do, and then I have a kind of a sequence of events, ultimately just spelling it out and giving them a lease addendum that spells it out in black and white what exactly what you're going to do there, and so if you've communicated properly with them up until that point, the deal shouldn't blow up. It happens, though.
Joseph Marohn:Deals blow up? I bet it does, but for every 99 no's, you're going to get one. Yes, right, so what platforms are you using to advertise on? Is it solely Airbnb, or are you using Furnish Finder? What other platforms are you using?
Richie Matthews:Yeah, yeah, so 70% of American hosts are on only two platforms Airbnb, vrbo typically. That's a colossal mistake. That's got to change for those people, because in two or three years they're not going to be doing so good. So we saw the writing on the wall, so we're on Expedia.
Joseph Marohn:We're on Furnished.
Richie Matthews:F're on furnished furnished finder. We're back on bookingcom. It's a little bit spammy and definitely scammy, but it's a massive engine. It's the largest platform in the world, and so we have a gal that we just hired from the philippines who says she, she's like no, no, I'll manage it. We, we do a few things in our the way we screen out the bad. We've had people like we've had a bad experience we're on a couple of times and we pulled a plug on it. So we're back on bookingcom.
Richie Matthews:Here's the big one. Google Travel is the elephant in the room and they're a completely different model. If you think about everything, everything is sort of watered down. Airbnb. Google Travel is not. I buy my flights on Google travel. I ultimately go click on the airline thing and I go right to their landing page. It has all the data loaded up from Google travel. Same with hotels. You can do that. Now Google travel does for Airbnbs, and so it's a, and they have the search giant behind the machine behind them. So so we're on Google travel and the greatest part is it syncs with our, our channel manager. Hospitable as a software we use, and so it syncs with our channel manager. Hospitable is a software we use and so it syncs. So I love Google Travel. We've gotten a lot of bookings from them. We're not on the top of their page for some reason, but we're working on it.
Richie Matthews:We are on the top of Airbnb. We're super hosts, premier hosts on Vrbo and do really well on these other platforms, but every platform has its own little uniqueness to it. So what you say on Airbnb is a little bit different. On Furnished Finder, on Furnished Finder, we're looking for people that work at night, that want to sleep all day. So we're talking about blackout drapes and box fans and it's high AC and it's in a quiet part of the building, different than if you're pitching.
Richie Matthews:You're trying to appeal to a family that's coming to see SeaWorld. So you know, know, your customer is business 101. So every platform has a slightly different customer. So we want to throw the widest net. I'll leave you with this If you only use bookingcom to book your travel, or if you only use Google travel, for that matter, and don't use Airbnb for the hosts out there that are only using Airbnb, we won't ever see you. So it just makes common sense that you go on as many platforms as possible while these platforms battle to see who's going to be the player. Airbnb, up until now, has been the dominant player. They still are, but these other platforms are taking away market share.
Joseph Marohn:Now, you're really thinking outside the box here. That's great. Let's talk a little bit about the lease agreement. Should I be signing this lease myself or putting it under an LLC?
Richie Matthews:Only an LLC Never sign a personal guarantee in any business arrangement, and it's no different in this, especially in this, I would say, because stuff happens. Actually, we have insurance through platforms, but we also pull our own insurance. Proper insurance is one of the few, if I think maybe the only one that not only does short-term rental insurance but they do rental arbitrage business insurance. So you are protected. You're protected as an owner if somebody falls off the balcony or whatever, and so for that reason we use proper. I'm using multiple channels and that's just smart business.
Joseph Marohn:All right, and then are we creating a separate lease agreement for our tenants and, if so, where can I locate this agreement?
Richie Matthews:So I use the leases. So most apartment buildings won't use your own lease because first of all, once you send them your own lease, they have to give it to your attorney. That's a cost.
Joseph Marohn:No, you're using a denim right, but I meant for the tenants that you're renting out to are you creating a separate lease agreement for them? Yeah, say you're renting out to. Are you creating a?
Richie Matthews:separate lease agreement for them. Yeah, so if they're booking any in my markets, anything over 14 days as a resident most markets in the country it's 30 days over 30 days. If you stay any properties, typically you become a resident, residential, your laws that apply. So then you have to be careful and that's one of the benefits of short term rentals. We don't have to deal with evictions and all that craziness. You could literally pull someone out of an apartment if you wanted to. It sounds crazy. You can. You can turn off power, all the stuff. You go to jail if you did it as a landlord. You can actually do. But you have to be careful when you find out if they are in fact a resident and there's all kinds of little slippery ways Receiving mail can be considered a resident, so we don't allow that.
Richie Matthews:There's a lot of little things and so in our markets 14 days, so we don't allow anything beyond 14 days. If someone wants to book 14 days, instant book is off. Then it goes to. We have to approve it manually and if we do, we just send them to hospitable and they book it on hospitable. We have our contracts, so we have our leasing agreement. It's a month to month leasing agreement and at that point we screen them and that's just the key. You screen somebody. It's going to be a rare event. If you properly screen a tenant and put in some real effort and check their. You verify all their stuff. They're saying who they are. If you check that, you'll mostly dodge a bullet. It's where people you hear these horror stories when something was going on, something was wrong in the properties. You hear about these on some. I heard one in LA about the Airbnb guy who had a tenant.
Richie Matthews:Yeah, that was because he I don't think he had a proper zoning for his property. He probably didn't screen the guests. So you know, you just have to screen your guests. We've had close calls, though, we've had professionals, but we, you know, I'd like my, my team's, my team's great what, but we, you know, I like my, my team's, my team's great.
Joseph Marohn:What about the maintenance and repairs? Are we responsible for that, or is the landlord Landlord?
Richie Matthews:all day long. So we we have replaced refrigerators though Sounds hypocritical, but we've had. There've been situations where, over like 4th of July weekend, something happened and my operations manager goes here's the choice. We have a $2,000 reservation. It's a major amenity. The fridge broke, the building's not going to get back to it because they're on vacation until next week. We need a fridge, so we either lose the two grand or I can go buy a used one for $400 and install it today and say go get it.
Joseph Marohn:It's an easier fix.
Richie Matthews:Yeah, it's a business decision. But no, the building will fix it. They put in a ticket. It's usually a pretty seamless situation. They come in. You have to interrupt. Your guest stays. If anything on your side breaks, if the drapes fall because you didn't put it in the stud and it falls, well, then we have to. Hey, can we fix it after you check out, or do you need us over there? No, it's too bright. We need you to fix it up. Okay, and then we send someone over.
Joseph Marohn:Okay, so we talked a lot about the pros to rental arbitrage. I want to focus a little more on the cons. As you know, tax incentives are huge and it's primarily one of the main reasons why most investors get into real estate. What do you believe are the primary drawbacks or missed opportunities for investors when there are no tax incentives in place to support this model?
Richie Matthews:Right. I think once you get to a point where you're doing this at scale and you have the capital resources and the wherewithal to go and invest versus pick up another 10 units, I think it's very valid to say it's a better deal to go after similar property types that you can invest in, which is kind of why I'm really interested in creative finance and sub two and seller finance and stuff. That's what I'm looking at. Simultaneously, though, the cash on cash return, the amount of money that you put in. I haven't found a better place where you get your money. Back To your point about tax. It's a misnomer, though. I mean there's not a misnomer about the tax benefits of owning. It's humongous. However, there are tax benefits. So all the furniture that I pay for an apartment I can depreciate in year one. And if you think about it this way, what's your risk? Beside the term of the lease which we sign, early termination clauses in most of our properties we get 60, 90 day early termination clauses. So that is your risk. Beside your furniture, well, if you get to write it all off as a business, so you get that and you still own the stuff. So where's the risk? So, to risk to reward. There's nothing like it in this business if it's structured correctly.
Richie Matthews:But I recognize that the wealth creation part of this is missing. You can make a lot of income. A million dollars somebody considers the net that we'll do this year is a lot, but for owning a property it's so more significant and it compounds over time and it grows. And so I always say it's apples and oranges. I don't really compare them. I do think that they are a compliment to one another. If you really wanted to get your real estate game down, throw a handful of arbitrages or 10 units into the mix and you'll be able to make more money on the stuff you own, because A you won't be farming it out to a property manager. You'll get your costs down, and so that's one way you can go.
Richie Matthews:Look into a market. I'm looking at San Antonio, so I'm like, hey, I'm going to lead with five to 10 arbitrages, get to know the terrain. I'll start buying one at a time in that market and then I'll just throw that into my team that's working there. So I have to think of, oh, who's going to manage this one unit? Cause one unit is the worst. It's the most difficult having one unit in a remote market.
Richie Matthews:But if you already have 10 arbitrages which you can get in relatively inexpensively in way under a year I did mine. I did had nine units by August, so you know less than a year. I started in February. If you have nine, you have a little mini team in place, got cashflow from that and you could purchase a property in that market, or two or three. So I actually think it's a, if you think of it that way, I think it's a humongous compliment and I don't believe in the it's either or type thing. There does come a time to what I said earlier, that if you're trying to think of where to deploy it and I definitely like owning these days, but I think the complement to the two is great and if you're just starting out, I think start out in arbitrage first, especially now.
Joseph Marohn:Yeah, it's just another tool in the tool bag, right. So, being versatile, great point. Now do I need to make sure my margins are higher than a typical long-term rental, considering I'm only getting cashflow and not gaining any equity on the property?
Richie Matthews:Yeah, so it. So for us, like I said earlier, this is you don't sacrifice cashflow like you can do in owning it because you have all those other benefits. This one you have to make sure that you're making at least $1,250 for a one-bedroom net net, or $1,500 for a two-bedroom, which is why I'm shedding certain types of properties like C buildings or studios and those, because I'm watching the profits going down on those. So my sweet spot are two-bedroom apartments B buildings, not A, because A's are too expensive and harder to get into. B, b minus in city centers or submarkets of city centers that have year round travel, business, work and leisure. That's my model. That's it. That's all I do, and it's not easy to find those markets, but they're out there and so you just have to look hard. Market research does take a minute and fully analyzing a market for all the things that I said before, including that rents are dropping in order to get a good deal.
Joseph Marohn:That's really where it's at before including that rents are dropping in order to get a good deal. That's really where it's at.
Richie Matthews:What are some of the common challenges faced in the first year and how do I overcome them? The temptation to pick up more units when the building hounding you Without exception, every building that I've ever been in when they've said, okay, we're going to work this out, we'll do one and if it works out, we'll give you more. Almost always they've always said Rich, Rich, hey, we got a unit coming available next week and I just like literally setting up, and so they are always coming to me and it's very tempting to pick up the next unit and go into your own pocket and pay for it and like, yeah, yeah, I'm going to make the money back. What I'd rather do is let the business grow on cash flow. So once I get paid back, I on cashflow. So once I get paid back, I'm proving the concept. I'm proving that the building will pay me back six weeks, eight weeks, and then I get another unit and then another unit, and I do it that way. Maybe two Check out what the law is.
Richie Matthews:You can do a Google search, get on the city's website and then you can just do your homework and run the numbers. There's all kinds of free calculators out there. Mine is that you join my Facebook group, you can. It's a creative Airbnb. I'll give you the calculator for free. It's a spreadsheet and I'll show you how to use it, and so if you do that, you'll be. You're way ahead of what other people are doing to get in this, in this business. So I think the mistake is people just rushing in because they're hearing about the profits from guys like me when it's different and all over. Your needs are different than mine, and so on. So if you need more money than that $1,500, real estate, might you know, this might not work for you. Then a single family home model might even be better, because those guys are making a ton in good markets.
Joseph Marohn:That's all great advice, and we talked about being versatile. You know what would you? Would you say this is like a good entry point into real estate, with the long-term goal of owning properties. Or would you say someone can build their entire business model around rental arbitrage.
Richie Matthews:Well, Sonder is a publicly traded company with 10,000 doors around the world, and this is their model. They don't own properties. So you could definitely could and you would argue that what we've done so far in a few years is a viable business model that can support any family which it has and it does but I ultimately do think it's a compliment to an investor portfolio. I think both of these is great. Some people do three. Some people own properties, get the management down for their Airbnb arbitrage portfolio and then they do it for others as a service, like a co-host. There's some people who do that.
Richie Matthews:I think that co-host model is broken. I think they need to fix their fee, but once they get their fee down at 10%, if they're good, then I suppose some people would do that. I still prefer building your team, but you could do that as a service if you get this down. So I don't think of any of these as one against the other. I think it's just timing, where it is in your life, what it means to you. But you could do this as a standalone business and build your own hospitality brand out of this.
Joseph Marohn:And that's what I love about creative finance having so many multiple tools in the tool bag and just being able to adjust to any market shift or whatnot. But how has the rental arbitrage market evolved in the recent years and what are your predictions for the future?
Richie Matthews:I would say what has changed is just not just an arbitrage, but it's changed in general with Airbnb and the short-term rental business is that the days are over that you can just set it and forget it and not treat it like an actual business and market. And maybe not right now People are surviving. That shouldn't be, but I think in in the next year or two that a lot of those folks are going to have to either level up their game, farm it out to a property manager or fix the way that they they operate their system. For arbitrage itself, there's good news. One is that more buildings recognize this as a benefit to them. Others may not, but there's more that say yes to it and some of them are vocal about it.
Joseph Marohn:There's some out there saying, hey, look, we're good with it, right, and then you have a mentorship right. Where can people find that?
Richie Matthews:So you can go to Seven Figure Airbnb, which is the creative Airbnb community. It's just a Facebook group. It's less than a year old. There's about 2,500 of us in there 2,400, I think, of us in there, 2,400, I think of us in there. I'm giving away a bunch of free content and all that. But then if you just DM me say hey, I'd like some information about your program, I'll actually do a screen share, take you into the actual platform and show you the different choices you have.
Richie Matthews:If you're like me and you want to do this by yourself, our Facebook group is a great free resource. You're never sold to. You're basically getting getting all kinds of stuff. There are other people in there crushing deals. We got a student that just got her 10th rental arbitrage. Got another one. Yeah, b short just flew to san antonio, got three. He got eight weeks free rent, 200 deposit. So again, people in there. They're sharing their wins and they're kind of explaining what they did and what, how they got it and all that stuff. And I have free zooms. I'm having one tomorrow on Rental Arbitrage 101, how to find all the stuff we talked about today.
Richie Matthews:I'm actually going to get into nitty gritty and show all that stuff. I'm doing those regularly now a couple of times a month, and so Facebook group and I'm not the only one. There's other great Facebook groups out there but our mentorship is an eight week mentorship and there's 10 months of support and it of support. So, and and it's a real mentorship it's me, and so you'll never, ever speak to anybody else on our team, which I don't know of any other mentorships out there that are doing that. I think that model is broken too, but it is a real mentorship. But I'm teaching something very specific. It's not single family homes and vacation markets in the outer banks, it's for apartments, b apartments, and I'm showing how I'm actually helping close your first deal. So if you want that, look me up.
Joseph Marohn:Awesome man. You're doing all the right things, brother, that's for sure. Now, so I know we covered quite a bit on this topic today, but I'm pretty sure we just barely scratched the surface. With that being said, I want to make sure we didn't leave anything important out that you think we should have covered in this episode. Can you think of anything that was left out and absolutely crucial that we talk about today?
Richie Matthews:No, I think we covered a lot of ground, so I'm really thankful for you spending all your time with me on this.
Joseph Marohn:Absolutely, and I appreciate you coming out and sharing all this knowledge to all my viewers. Richie, where can people get ahold of you?
Richie Matthews:Same thing you can go to rich at I stay USAcom. I stay USA is our hospitality brand. You can email me or you can go right to the Facebook group and I'm in there, so you can just DM me once you're in the group and say hello, and it's a creative Airbnb.
Joseph Marohn:Awesome. We'll go ahead and make sure we drop your tags on the screen right here. Well awesome, richie. It was an honor to have you share all this knowledge with us. I'm sure so many people are going to find a lot more insight on this topic. Now, if you feel rental arbitrage is for you, I highly recommend you guys reach out to Richie, join his Facebook group. As you can see, not only is he very knowledgeable on this topic, but he's actually doing it himself and finding a lot of success at doing it. I'm sure he can get with you and get you on that path as well. Now, if you guys found value from this interview, show your boys some love and make sure you're subscribed to the channel. Hit that like button and drop a comment down below what you enjoyed most about this episode. Appreciate all the support and stay tuned because, guys, I'm just getting warmed up over here. 2024, I've got a lot more gems lined up for y'all. Best believe we're going to keep bringing you that fire. Thank you, rich.
Richie Matthews:All right, take care, thank you.
Joseph Marohn:Joseph for having me.
Richie Matthews:Thanks for watching.