By - Wednesday, July 03, 2024
There are a lot of different ways to invest in real estate, but two of the most common are house flipping and corporate housing mid-term rental arbitrage. For investors, both can be profitable, but they meet different needs and present different challenges and benefits. After trying many different ways to make money in real estate, I have found that corporate housing mid-term rental arbitrage gives me a more steady and predictable flow of money than house flipping, which is very unpredictable. Here’s why.
The Nature of House Flipping
When you "flip" a house, you buy it, fix it up, and then sell it for a profit. It is easy to see why: the chance to make a lot of money quickly. But there are some problems with this strategy:
Market Volatility: The real estate market can be highly unpredictable. Economic shifts, interest rates, and local market conditions can significantly impact property values.
Finding Deals: Once a flip is completed, the search for the next deal begins. This can be time-consuming and stressful, with no guarantee of immediate success.
Renovation Risks: Renovation projects often face unexpected issues, leading to increased costs and delays. Budget overruns and contractor problems are common.
Holding Costs: During the renovation period and until the property is sold, investors incur holding costs such as mortgage payments, property taxes, insurance, and utilities.
Tax Implications: Flipping properties can result in higher taxes due to short-term capital gains, reducing the overall profit.
What is Great About Corporate Housing Mid-Term Rental Arbitrage
On the other hand, corporate housing mid-term rental arbitrage gives you a more stable and predictable stream of income. As part of this strategy, properties are rented out and then subleased to business clients for mid-term stays. Here’s why this approach stands out:
Steady Income: Once a property is rented out to a corporate client, the income is consistent and predictable. Unlike house flipping, there is no need to constantly search for new deals.
Lower Initial Investment: Setting up a mid-term rental typically requires a lower initial investment compared to purchasing and renovating a property for flipping. Furnishing a property for mid-term rentals can cost between $5,000 and $10,000.
High Demand: Corporate clients, including business travelers and relocating employees, often seek comfortable, home-like accommodations for extended periods. This demand ensures a constant flow of tenants.
Flexibility and Freedom: With a reliable maintenance team and monthly cleanings in place, managing mid-term rentals is less time-consuming than the hands-on approach required for house flipping. This allows for more freedom and a better work-life balance.
Pet-Friendly Advantage: Allowing pets can attract more corporate clients, as many hotels do not accommodate pets. Charging pet rent, typically $50 to $100 per month, helps cover any potential damages.
Outdoor Amenities: Enhancing properties with outdoor amenities like grills, sinks, and TVs can make them more attractive to corporate clients, further ensuring consistent occupancy.
Why Mid-Term Rental Arbitrage Works for Me
After trying real estate investing while working a 9-to-5 job, I found flipping houses to be hard and tiring. Renovations were hard to do because they required a big initial investment, had to be done by hand, and required constant market vigilance. Corporate housing mid-term rental arbitrage, on the other hand, needed less of an investment, gave faster cash flow, and took advantage of existing relationships with property owners.
This strategy not only guarantees a steady income all year, but it also lets you manage the property automatically and from afar. The predictable nature of mid-term rentals, combined with the ability to enjoy a better lifestyle without the stresses of e-commerce or house flipping, makes this approach particularly appealing.
Conclusion
While house flipping can offer high returns, it comes with significant risks and uncertainties. Corporate housing mid-term rental arbitrage, on the other hand, provides a steady and predictable income flow with fewer hassles. For investors looking for a more reliable and less hands-on approach, mid-term rental arbitrage is a compelling alternative.
Whether you're a seasoned investor or just starting out, understanding the nuances of these strategies can help you make informed decisions that align with your financial goals and lifestyle preferences. For me, the choice is clear: corporate housing mid-term rental arbitrage offers the perfect blend of profitability and predictability.