Mid-Term Rental: Shifting Investment Style with High Cash Flow In Volatile Interest Rate Market

Released Saturday, 15th June 2024

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Mid-Term Rental: Shifting Investment Style with High Cash Flow In Volatile Interest Rate Market

Saturday, 15th June 2024

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In this episode, Taylor shares his real estate journey, starting with house hacking to live rent-free and moving into rental arbitrage, where he leases and sublets properties on Airbnb for a profit. He emphasizes the importance of education, networking, and proactive strategies, detailing the predictability and high cash flow of rental arbitrage, along with tips on background checks and leases for long-term stays. Aiming to manage 100 units by age 25, Taylor also discusses using credit for business funding and his plans to expand into luxury vacation rentals.

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Transcripts:

Aldo: Taylor, how are you doing?

Taylor: Pretty good, man. Thanks for having me.

Aldo: So, I want to start off because we're both young guys, but I think you're killing it in the game. You have an awesome story of how you started investing in real estate. Let's start with that. Tell us about your first house hack, what house hacking is, and let's go from there.

Taylor: Sure. My wife and I live in Colorado and have always been here. We got interested in real estate through financial independence about four years ago. That’s when we set our goals to do house hacking and real estate investing. About three years ago, we closed on our first property. It’s a house hack, which basically means we bought it as our primary residence, lived in it for a year, then moved out and had it fully rented out. It was a six-bedroom house, so we lived in one room and rented out the five others, living totally rent-free. After a year, we moved out and did the same thing again, but this time with a seven-bedroom house. Soon after, we started getting into rental arbitrage, and this year we’ve expanded that significantly.

Aldo: That’s impressive! When you first started the house hack, you were pretty young, right?

Taylor: Yeah, I was 19 when we closed on it. Purchasing a house at that age, especially in an expensive market like Denver, was a big step. It involved a lot of preparation—over two years, in fact. We managed to put down only 3%, covered all closing costs, and kept our initial costs low by living frugally and working side hustles. I also got into wholesaling real estate, which helped with the funds. Despite the challenges, having a great real estate agent who specialized in rent-by-room arrangements really boosted our confidence.

Aldo: Moving on to rental arbitrage, how did you get into that, and what exactly does it involve?

Taylor: Rental arbitrage is essentially where we rent properties at a set rate, fully furnish them, and then re-rent them on Airbnb. The goal is to charge higher rent than what we pay the landlord. For example, if we rent an apartment for $1,800 a month, we aim to make at least $3,000 a month from it on Airbnb and keep the difference. Currently, we have 20 rental arbitrages which fully fund our lifestyle.

Aldo: With such a strategy, what do you look for in properties?

Taylor: We target upscale, modern apartments with amenities like pools, gyms, garage parking, and security. These properties can significantly outperform more basic accommodations because of their desirability in the market.

Aldo: It sounds like a solid strategy. Who typically rents these properties?

Taylor: Our renters are often here on business, internships, or other mid-to-long-term stays. Colorado’s appeal as a tourist destination also brings in a lot of digital nomads and people looking for higher-end temporary housing.

Aldo: Lastly, any tips for someone starting out in real estate investing or rental arbitrage?

Taylor: Start by getting educated—read books, listen to podcasts, and attend meetups. Networking is key, and always be ready to adapt your strategies to the current economic conditions. For rental arbitrage, start by understanding what works in your specific market and build from there.