Rental Arbitrage in San Diego | What You Should Know!

Rental Arbitrage in San Diego | What You Should Know!

What is Rental Arbitrage?

Rental Arbitrage is a business model that focuses on leveraging other peoples properties through sub-lease agreements and renting those properties on platforms like Airbnb, VRBO, or Homeaway. In essence, rental arbitrage hosts will rent properties from the long-term rental market and resell them on the short term marketplace.

Assume you are renting a duplex in San Diego for $1800/month. You are living by yourself on one of the sides and you decide to sublease the other on Airbnb. Let’s say you listed it for $100/day and got 80% occupancy. This will bring in approx $2600/month in revenue. Not only will it help you pay off your complete rent, but give you a profit of $800. This is, Rental Arbitrage!

Rental Arbitrage can be carried out in a multifamily house, duplexes, or triplexes. You can easily use the money from your short-term rental to pay off your lease and also profit some more.

Why San Diego?

California's second largest city and the United States' eighth largest, San Diego boasts a citywide population of nearly 1.3 million residents and more than 3 million residents countywide. Within its borders of 4,200 sq. miles, San Diego County encompasses 18 incorporated cities and numerous other charming neighborhoods and communities, including downtown's historic Gaslamp Quarter, Little Italy, Coronado, La Jolla, Del Mar, Carlsbad, Escondido, La Mesa, Hillcrest, Barrio Logan and Chula Vista just to name a few.

San Diego is renowned for its idyllic climate, 70 miles of pristine beaches and a dazzling array of world-class family attractions. Popular attractions include the world-famous San Diego Zoo and San Diego Zoo Safari Park, SeaWorld San Diego and LEGOLAND California. San Diego offers an expansive variety of things to see and do, appealing to guests of all ages from around the world.

San Diego as a Holiday Destination!

In San Diego's East County, the terrain varies from gentle foothills to mile-high mountains and the historic mining town, Julian, down to the 600,000-acre Anza-Borrego Desert State Park, offering nature-conscious visitors endless opportunities to hike, camp, fish, observe wildlife and much more. In San Diego's North County, the agricultural community produces quantities of flowers and magnificent produce. Wine growers are also making a mark by growing and harvesting quality grapes that become excellent wines, which are served at some of the most elegant restaurants and resorts in the region. Along the west, 70 miles of Pacific Ocean coastline not only supports year-round outdoor recreation, such as surfing, boating, sailing and swimming, but also important scientific research at the Scripps Institution of Oceanography. To the south, it's a whole different country, Mexico, featuring its own cultural offerings in various towns along the border and coastline, including Tijuana, Rosarito and Ensenada.

San Diego's arts and culture and culinary arts are booming. The hottest, new culinary arts talents prepare award-winning meals throughout the region's 6,400 eating establishments. Balboa Park, the largest urban cultural park in the U.S., is home to 15 museums, numerous art galleries, beautiful gardens, the Tony Award-winning The Globe Theatres and the world-famous San Diego Zoo.

San Diego County also features 92 golf courses and a variety of exciting participatory and spectator sports, beachfront resorts and luxury spas, gaming, a dynamic downtown district, annual special events and unique holiday offerings, multicultural festivals and celebrations, colorful neighborhoods and communities, a rich military history and much more.

San Diego County promises a truly remarkable vacation experience for everyone. This makes it the ideal place to embark on Rental Arbitrage.

San Diego Rental Arbitrage

What should you know about Rental Arbitrage in San Diego?

Legality and Regulations in San Diego for Short Term Rentals (STR)

This year in February City Council approved guidelines governing short-term rentals or rental arbitrage. The guidelines require a permit to work a STR unit, set up limits on the quantity of licenses a host might get, make reasonable cover up on the total number of entire homes STR units, and make an authorizing interface to follow, oversee and uphold all parts of the STR. Licenses will be needed to work a STR in the City of San Diego starting July 1, 2022. The Short-Term Rentals ordinance will separate city short- term rentals into four categories:

  • Part- time rentals- Leased for a total of 20 days or less each year. The proprietor or long-lasting occupant doesn’t have to live nearby during the short- term rentals.

  • Home-sharing rentals- Leasing a room in the home for over 20 days out of each year insofar as the property owner resides on sight. Home sharing incorporates duplex properties and qualified adornment abiding units and granny flats when the host lives nearby.

  • Whole-home rentals- Rentals for over 20 days out of each year where the owner doesn’t stay nearby. The quantity of licenses won’t surpass 1% of San Diego’s complete lodging units outside the Mission Beach Community Planning Area.

  • Whole-home rentals in Mission Beach- The quantity of licenses given won’t surpass 30% of the Mission Beach Community Planning Area.

  • Visitor two-night least stay required.

Renters who have effectively observed San Diego’s rental laws in the past will benefit. Also, the legalization has a good-neighbourhood policy wherein the two hosts and visitors could be fined up to $1,000 for disregarding rental regulations.

What is the initial cost of starting rental arbitrage in San Diego?

You can expect to spend anywhere between $3,000 to $5,000. This cost consists of everything including Deposit, Furnishing, Amenities, Legal Paperwork, LLC Incorporation.

You may wonder, “But doesn’t this contradict the Low upfront cost of Rental Arbitrage?” Well, these estimates vary from city to city. There is a possibility to do Rental Arbitrage for even less than this depending upon your situation and the type of property you lease.

Still, the amount is much less than investing in a new property and getting a mortgage of thousands of dollars. Plus you won’t be on the hook for property maintenance expenses and being stuck for years with debt.

But this doesn’t mean Rental Arbitrage can be done with no or very tight budget. There will be some upfront costs that you would have to bear. Having some extra cash is also a good thing to have. It will help pay off the lease in not-so-profitable months in case bookings don’t happen right away.

Expense 1: Rental Deposits

A rental Deposit will be your first and major expense. You would need money to be able to sign a long-term lease with the landlord, for which you will need a Security deposit, First and Last month’s rent.

Expense 2: Furnishing

It is ideal to aim to lease a place that is at least semi-furnished. Furnishing a Vacation Rental from scratch can add anywhere from $3000 to $5,000 to your initial capital. Not choosing the right property can make Rental Arbitrage not so low cost, so choose wisely.

If the place is semi-furnished, then your best bet is to shop for bargains for the rest of the stuff. You can go and find low-cost supplies at places like Home Depot and IKEA. Sometimes even Walmart can have a hidden gem if you look closely.

Expense 3: Photography

iPhones have good cameras. And so do most other cameras. All you need to do is do a bit of reading on taking good vacation rental photography and you are good to go! It definitely helps to know your way around Instagram marketing.

Expense 4: Cleaning Services

This is not a starting cost, but you will end up spending on cleaning eventually. The best way to save money is to learn vacation rental cleaning tips and tricks and do it yourself initially if you have the skills and experience.

If you have no experience or you don’t want to invest time in cleaning a place. Then your best bet will be to hire a professional cleaner.

Expense 5: Legal Consultation

Maintaining a professional relationship with a Real Estate lawyer can be very helpful in the vacation rental business. It is also advisable to have a short-term-rental-agreement in place.

Airbnb regulations keep updating and you would need some legal guidance on the way to adjust your business accordingly. They can also come in handy if you face any legal issues with the landlord or guests. They can help in damage claims and insurance as well if any mishaps occur.

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