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Is Airbnb Arbitrage Still a Way to Grow? Talking Vacation Rentals With Jorge Contreras Transcript

John (00:00):

What’s up everybody? It’s John from Vacation Rentals with John today. We have Jorge Contreras with us, and he has a pretty unique story and unique insights on the Airbnb game. Jorge, thanks for joining us, man.

Jorge Contreras (00:11):

Hey, I appreciate the opportunity. Thank you for having me on

John (00:15):

Always. And I read up on your story and it’s inspiring how you entered this business, but can you share your story for our listeners?

Jorge Contreras (00:22):

Yeah, so the way I got into the Airbnb business is we were actually traveling to Hawaii in 2016 with my, my best man for my wedding. One of my best friends from high school, and his wife booked us at an Airbnb. I had no idea what it was. She handled all the booking. And then a few months later, one of my students from my previous business, I used to be a professional dancer, she told me she was making three and a half times more on Airbnb compared to what she was making from her long-term rentals. And she was doing this on four units. It was two duplexes out in Fresno, California. So I was like, wow, that sounds incredible. I gotta look into this Airbnb thing. And so I did for a few months. I had some time since I had leases that were ending at the end of at the very beginning of 2017. So in March of 2017, I launched my first four units on properties that I already owned. And I went from making 1500 per unit with long-term to 3,500 per unit. That allowed me to quit my, you know, let go of my previous business that I was referred to as my job <laugh>, because if I wasn’t there, would it make any money? And that’s kind of how I got out the, got out of the rat race and kind of got into the business.

John (01:39):

Gotcha. And I was reading up on your stuff, watching some of your YouTube videos, which is super helpful by the way. A lot of the content you have on there, it’s, it’s good stuff. And you do a lot of with arbitrage, so with arbitrage strategies, like I’ve never executed on one, several of my friends have, but most of the people I know personally, they like purchase their properties, either cash or finance. Can you share a little bit about your experience with arbitrage?

Jorge Contreras (02:03):

Yeah, yeah. And you know, currently we, we have a portfolio of 18 units on Airbnb. I own eight of them. We sublease or do arbitrage on seven, and then I manage three of them. So we do a lot of a, a combination of different strategies and subleasing the way that you know, came about is, so again, I was able to quit my, you know, a k a nine to five because of the properties that I already owned on Airbnb. And then in 2019 we were pregnant about four months in, and my wife was working a law enforcement career where she was working eight to 16 hour shifts, and it was a federal job. So even if she was gonna be off in about 15 minutes, her boss would say like, Hey Lucia, you gotta stay for another eight hour shift.

(02:52):

And there was nothing she could do, and if she declined it, like she could get fired. That’s how cutthroat they were. And you know, we, we knew that with the pregnancy and you know, some health challenges she was having, it was going to impact her health. And even the baby cells, I was like, man, how do I replace her nine to five based on my calculations, I was gonna need at least three Airbnbs to replace her, you know, six figure income. But I didn’t have the money to go and buy three properties. So I started learning about arbitrage and we went ahead and launched. We ended up launching about seven subleases in 2019, which, you know, three of them as I had predicted, allowed us to replace your nine to five. And she basically quit. It’s been four years now that she never had to go back to her job.

(03:41):

And so that was really powerful for us. And I started helping other people. I started realizing that, you know, arbitrage was the most effective way or the fastest way to replace your nine to five because even though I am 100% more a fan of owning, I believe that should be everyone’s goal. That’s how you get the depreciation, that’s how you create long-term wealth. That’s not even up for discussion. But the challenge is, most people like us in that situation didn’t have the, the capital to go put, you know, 15, 20% down on three properties plus furniture renovations. You’re talking like half a million dollars at the time. So I was able to go and arbitrage, you know, these you know, seven properties with what I, with the same amount of money that I probably would’ve purchased one, but it just helped us accelerate our cash flow and it was just a, a life changing experience.

John (04:31):

Gotcha. And it’s definitely less risky. I mean, you’re not holding this humongous loan on several properties and you can scale, right. But what I would think is if, if I could find those opportunities, you know, everyone would probably want to find those opportunities too. Are you finding, with social media, I see a couple of influencers they post about this particular strategy. Are you finding, like, as more people are getting aware of it, is it harder to find opportunities or do you have like a secret sauce that others don’t, you know, that helps you identify in these opportunities more often and more frequently?

Jorge Contreras (05:06):

Yeah, honestly, I don’t think there’s a secret sauce. I think it’s just gonna be a numbers game. Like you look at people that do wholesaling or flipping or even cold calling to, you know, get listings to sell as an agent. And you know, if you, if you, if you contact, you know, a hundred people, you might get 20 to call you back. You might submit three offers and might close on one, right? So like in wholesale and in flipping, you’re looking at like a 1% success rate. And that’s kind of the, the goal, right? Is you wanna make sure that you close on the one that makes sense. And so similar to arbitrage, it’s just gonna be a numbers game. If you call 20 landlords you might only get a hold of like 14 and out of 14 three might be interested and two might say yes.

(05:52):

So I think it’s, it’s really gonna come down to just getting those reps in. It’s gonna be a numbers game really more than anything, but it has become a lot more popular, right? It’s a, a low barrier to entry. It’s like you don’t need any degrees, you don’t need any licenses, you don’t need any certifications. It’s like, hey, if you can get a 0% credit card and you have some decent credit, like you can do this <laugh>. So it just opens up the pool of the amount of people that can do it. So in that sense there’s a little more competition, but there’s still a lot of opportunity just because as the amount of host is increasing, I also believe that the demand is increasing. Like, I, I always like to look into the reservations and I feel like more than half the time it’s a brand new guest staying at an Airbnb who has never stayed at an Airbnb. So I think as long as the demand is there it’s gonna be a great opportunity.

John (06:50):

Absolutely. And like part of what makes your success is like you keep your calendars full. So how are you keeping your calendars full across all those properties right now? Lots of hosts now they’re having trouble just getting one or two bookings a month. So how are you doing it?

Jorge Contreras (07:04):

Yeah, absolutely. I think a lot of this has to do, like I was just telling somebody earlier before this call was inquiring about Airbnb and they’re like, don’t you think like single family homes are more risky than apartments? Like, shouldn’t you do apartments better? And I was explaining to him that the days of you launching, like whether it’s a house or an apartment that’s in a soso location, a soso type of property with no amenities, like those days are long gone and over. Like, if you have a very basic listing that doesn’t stand out, that’s not unique, that’s not creating an experience, you’ll most likely lose money. I believe that today you have to have like, you know, very specific types of properties and very specific locations with very specific amenities and very specific like design and even like finishes. And they’ve gotta be renovated.

(08:01):

Like you gotta just go for like the best of the best. Otherwise, you know, you’re just gonna, you know, not stand out. Like I feel a lot of Airbnb owners today. So I think what we’ve done a really good job at is we always go for like single family homes that have three or four bedrooms. We always get properties within one to three miles from like the downtown where you’re gonna have the year round conferences, concerts, business events, you know, going on. Or we might be right near the beach, right? Where there’s a lot of tourism, or sometimes it’s a combination of being, you know, somewhere in between the beach and the downtown. And then on top of that, the property itself has to be like, completely renovated. If it’s not renovated, then I’m not gonna rent it. And if I’m buying it, then I’m, of course I’m willing to renovate it and do like the birth strategy, right?

(08:54):

Where buy it, I rehab it, I rent it out, refinance it, repeat, put it on Airbnb, do it again. But so yeah, if I buy it, I’m willing to renovate it to do some force appreciation. If I’m doing arbitrage or a management deal, it must already be renovated. If it’s not renovated. I’ve had bad experiences where we have this like dilapidated, outdated property and we just get a bunch of partial refund requests and it ends up killing your returns. So it needs to be renovated. We also need to be able to sleep like eight to 10 people ’cause that allows us to charge 10% of whatever the rent or mortgage payment is. If my mortgage or rent is 4,000, I need to be charging 400 a night. And the way I justify that is hosting eight to 10 people in a great property, in a great location with great amenities like a pool, jacuzzi, spa. So again, these properties definitely take like 20 to 30,000 each of an investment, but they’re the same properties that make me 30 to 50,000 a year in net cashflow.

John (09:55):

That’s solid, Jorge. And that 10% rule, it sounds, it sounds like a good way to kind of do a back of the envelope map to see if something’s going to make sense. And it seems like what you’re saying is it comes down to the selection because if you just pick the wrong location or you pick the wrong type of property, you’re like ss o l from day one and it’s just an uphill battle after that. Or you should just like, sell the place or, or something because it’s like, if you’re not selecting the right place, it just becomes difficult to have a full calendar. And you have so many properties. So how are you keeping your businesses efficient and automated?

Jorge Contreras (10:31):

Yeah, for sure. You know, the efficient part, you know, as much as I’d like to say we’re efficient, there’s always room for improvement. You know, like I was <laugh> in the, we’re launching a new property here in LA next to one of my other LA properties, and I decided to stop by, ’cause it’s a house I used to live in. And when we moved out, we like renovated, it looked really, you know, it looks really good. So I was like sending videos and pictures to my wife, and as I’m walking in there’s just like a bunch of boxes, you know, just sitting like in the living room. And I’m like, what are these boxes doing here? So I messaged our manager and he’s like, oh yeah, can you, can you you mind putting those, you know, in, in the closets he ordered like fans in case, you know, ’cause it gets really hot, you know, in southern California in the summer.

(11:17):

And you know, you never know, like sometimes there’s a power outage or anything and we wanna at least make sure they have vans as a backup. So I was like, sure, I’ll do that. But it’s like, you know, these, these boxes shouldn’t be in here. Like why didn’t the cleaning crew put ’em inside? So the reality is it’s never gonna, like, we’re always making improvements, but it’s never gonna be perfect. And I, I know that it is difficult. Like I have a property manager that is really hands-on, very detailed, perfectionist. And even then, like I would say we’re probably at like a 80 to 85, maybe 80% efficiency. There’s always room for improvement. But one the things that helps is I tell my cleaners like, Hey, when you get to the property, if you notice any leaks or repairs, like please let us know asap.

(12:02):

But again, even then it still slips. ’cause When I went into the backyard, I opened that we have like a game room in the back and I pulled the doorknob and it literally just falls out. And I’m like, oh my God. Like, what the heck is going on here? So I messaged the cleaner and I’m like, Hey, like whenever, as I, as we talked about before, whenever your cleaners notice something, like let us know so we could fix it. And then she’s like, yeah, she’s like, they should have, you know, told me, I don’t know what happens. Again, there’s just, there’s always gonna be an efficiency. So I think the, the, the way to be more efficient is, you know, these cleaners go in and out. Sometimes they’re cleaning two, three properties a day and they’re trying to rush because we got people checking in at three, four o’clock.

(12:45):

So I think the key here is like, at least once a month, somebody should go and walk the property. ’cause If you don’t, and it goes six months, 12 months pass by, you’re gonna notice that there’s just all kinds of issues with your listing and all kinds of complaints and a refund request. And so, yeah, I think that’s the key is somebody needs to walk the property. And for me it’s usually our manager. I, I usually don’t walk the properties unless I just happen to go be in the area or I’m like shooting content <laugh>.

John (13:17):

Yeah. But, but you, you have someone that’s that’s competent doing it. So it’s having that right team because if this is a people business and it’s, if, if you just rely on the cleaner, the, if the cleaner’s on point, it’s not an issue, you know? But if you don’t have anyone looking after them and they’re forgetting all these little things, all those little things accumulate, just like you said about the door handle falling off, I, I can’t tell you how many times I heard that same exact thing happening across tons of properties, my friend’s properties, properties that I have. And it’s just because a cleaner, like you said, they’re rushing and, and they can’t get to everything, but if no one’s checking them, who’s gonna let you know? Your guest is gonna let you know <laugh>, and then the guest is gonna be upset, leaving bad reviews. So it makes sense what you’re saying. Like, we can never be at a hundred percent efficiency, but we, we want to strive to get close to that. And my, my question is like, there, everyone’s talking about the Airbnb’s collapsing or it’s like there’s an Airbnb bus because there’s so much supply in your business. Are you seeing the rates go lower too? Or is it, are you kind of just not paying attention to all that negativity and just going on as, as usual?

Jorge Contreras (14:24):

You know, the, the, the rates are are definitely less like if you think about it, right? In 2021 the government, you know, we had a really low interest rates, which means everything is much more affordable. You could buy more house, more car, you know, credit cards, like just everything is more affordable. On top of that, people were sick and tired of being stuck at home, right? So it create 2020 created like this rubber band where it just kept pulling, pulling back, pulling back, pulling pull, pulling back, and people were sick and tired of being stuck at home. And in 2021, people wanted to get out of their houses, even if it was just a local staycation. On top of that, the government was giving away free money. So everybody was like, you know, buying houses, taking out car loans, getting into more credit card debt, going out out on Black Friday, even if it wasn’t Black Friday, you know, for the whole year.

(15:17):

And people were just staying at Airbnb’s like crazy. And we had the biggest the biggest year ever, like 2021, man, I had properties where in our peak times of summer months here in SoCal, we were bringing in like 14 to 18,000 on properties where we have rents or mortgages of two to 3000. Like it was insane. Just insane, right? And then 2022 happened, and obviously by then we had had multiple interest rate increases from the government. On top of that, they stopped giving away free money, right? And when interest rates go up, the margins for a lot of companies start to diminish. They’re making less profit. They start, you know, letting go of people cutting hours. So now people are making less money. So 2022 was still really good, but I feel like it was like maybe 10 to 13% less revenue than in 2021.

(16:15):

And everything I just mentioned has continued to happen. So in 2023, right, right now we’re in August, you know, interest rates are like seven and a half, seven and a quarter, the highest we’ve had in 22 years, they’re no longer giving away free money. We have a, a high, a higher unemployment rate than what the government is telling us. So people are holding on to the little money that they have and there’s much more supply of short term rental. So for all those reasons, I I, I feel like there’s like another 10 to 13% drop from last year. So maybe like a 20 to 20 something percent drop compared to 2021. Like we’re, we’re still making a profit and the, and it’s still way more profit than we would if they were just long-term rentals. They’re just not what they used to be in 2021 or 2022.

(17:10):

 But everything around, like, around the Airbnb bust, I believe that is true in certain areas. Like an area where I truly did experience a Airbnb bus was in Joshua Tree, California. I had this really beautiful property, four bedrooms, two bath, 2,800 square feet on 2.8 acres with a pool of jacuzzi, a water slide. It was just a really amazing property. Two, two to two and a half miles from Joshua Tree State Park. And my mortgage payment was about six grand, and we were losing about 4,000 a month, right? And luckily somebody reached out to us and wanted to buy the property cash to actually live in the property. And it, we ended up taking like a, a $40,000 loss on the sale, plus like, I don’t know, maybe another 16,000 in mortgage payments. So it was a, it was a good learning lesson.

(18:05):

But that is definitely, again, from my experience, a city that did experience like a bust. And I can’t say all properties. Like I have one student out there who’s been breaking even, like, she’s not making money, but she’s not losing money. And it’s a really small property, like a two bedroom, one bath, 600 square foot with a little cowboy pool. So some people are, you know, performing, you know, different than others, but overall, I’ve seen that area really take a tank. And so I feel like tertiary locations like that are, are struggling secondary locations. As long as you have one of the better properties, you’re still doing good. But if you’re in like really strong primary markets, like most of my portfolio is in like in the areas of Los Angeles, like, we’re still making, you know, as low as 1500 and as high as like 4,500 depending on the season, the month and all that. So the numbers are less for us, but we are not experiencing a bust in our portfolio except that one property that we sold.

John (19:09):

Well, your numbers are spot on because across my businesses I am seeing like that kind of revenue decline. And I mean, we have ups and downs in business, you know, like sometimes it’s up, sometimes it’s down. This is just one of those things that we’re getting hit with the supply issue and, and lots of other things. Everything you said, it’s spot on. And I just think like it’s, it’s more important now to be super efficient and, and improve and spend that money to make sure that the businesses grow and not just like do the same thing that’s not working, but reevaluate, readjust, and move on. And you, you mentioned your students, so if, if we have a listener that wants to learn from you, how can they contact you? How can they find out more about what you do?

Jorge Contreras (19:49):

Yeah, best place is reach out to me directly on Instagram. My Instagram handle is @ the Jorge Contreras, so that’s t h e and then Jorge, j o r g e, Contreras. There’s no underscores nothing like that. No dashes, just my name.

John (20:05):

That’s perfect. And what I’m going to do, Jorge, I’m going to put a link to that in the show notes. So anyone who wants to connect with you, they can go to the show notes and get in touch with you and your businesses and learn more. Okay? And thanks so much for doing this with us because these insights so helpful. A lot of it confirmed the thinking I had and I learned a ton from you today. So thanks for coming onto the show and, and spending your time with us today.

Jorge Contreras (20:28):

Absolutely appreciate your time, Jonathan, and we’ll be in touch. Thank you so much.

John (20:32):

Thanks for listening everyone. And if you’ve liked this content, please take five seconds of your time and go to the podcast platform of your choosing and please leave a review. It helps us get the show in front of more listeners. The more reviews we have, that’s just how the algorithm works, gets show in front of more people. That means more potential listeners to join our growing family. And that also means joining the Facebook group. So if you haven’t joined the Facebook group, I’ll include a link to that in the show notes and hopefully you could join there and we can get some dialogue going and we can all level up our vacation rental game. So until next time, friends, take care.

Vacation Rentals With John is one of the fastest growing short term rental podcasts. The show has been growing in popularity because of its no BS, to the point lessons on how to grow and operate a vacation rental. Join the facebook group. To listen to any of the past episodes, check out this page.