Introduction

Houston, Texas has plenty of great opportunities for property investors. Purchasing an investment property for sale in Houston is not always ideal for those who are on a limited budget. So is there an affordable option? There are two words: Rental arbitrage!

If you’re thinking of starting your rental arbitrage journey in Houston, continue reading. In this article, we’ll feature the best areas to do rental arbitrage in Houston. We also added the initial costs, expected Airbnb revenue in Houston, and more.

What is Rental Arbitrage?

Rental Arbitrage is an expert technique where you sublease a property for the sole purpose of Airbnb. This is initially allowed with the property owner’s or landlord’s approval.  Rental arbitrage is somehow similar to house hacking, except that you don’t own the property. Instead, you convince a landlord to lease you a property that you can then furnish and sublease on Airbnb and VRBO.

Rental Arbitrage is an efficient method for multifamily houses, duplexes, or triplexes. You can easily use the money from your short-term rental to pay off your lease and profit some more. If done right, this can be a full-fledged business!

If you own a duplex or triplex property, then it is pretty straightforward. You can live in one part of the house and rent out the other. This process is known as house hacking. Property investors try this method after taking a loan on a property and use the rent to pay off the mortgage. The short-term rent will help you pay for your property’s long-term lease. This helps you keep the difference at the month-end after paying for the long-term lease. 

Here’s a perfect example to understand how rental arbitrage works. Assume that you are renting a duplex in Texas for $1,800/month. You are living by yourself in the property and you decide to sublease an extra room on Airbnb. Let’s say you listed it for $100/day and got 80% occupancy. This will generate approx $2,600/month in revenue. Not only will it help you pay off your complete rent, but give you a profit of $800. This, in a nutshell, is called Rental Arbitrage.

Is Airbnb rental arbitrage in Houston legal?

The good news is that Airbnb rental arbitrage in Houston is certainly legal. Houston’s Construction and Housing Standards Act regulates construction and standards for the design and maintenance of buildings. This includes regulations on habitability, health, and safety. 

As more and more commercial investors enter the vacation rental business, laws and regulations were formulated. The reason for this is to control the general rental market in the region and make accommodation affordable for locals. Check out the various short-term rental laws in Houston:

• Multi-Family Housing Law

This law applies to three or more buildings with multiple independent rental units classified into managed leases and non-custodial leases. 

• Rents Stayed

This arrangement requires the owner to be in the property for the entire stay. The length of stay of the hosted lease may be limited, but during this period, guests can enter all areas of the rented unit.

• Non-Accommodation Leases

Houston’s multi-family housing laws prohibit non-accommodation leases of less than 30 days. The law only applies to “A-class residential buildings” in the area.

• Condominium 

When considering a condominium, the landlord should verify whether the building is an “A” class building. In this case, the multiple dwelling law applies. In addition, the building’s Homeowners’ Association (HOA) may have enacted restrictive regulations that make renting space a challenge. 

• Rent-stable buildings

Rent-stable buildings put more restrictions on landlords, especially if you can charge the amount of rent. One thing to remember is that it is actually illegal to make a profit on such buildings through vacation rentals. 

However, since these units generally do not have specific regulations on short-term rentals, it’s less likely to have problems. The landlord must be considerate of other people in the building and set specific rules for guests to avoid any mishaps. 

Houston has quite a few regulations that need to be scrutinized carefully. Learning about local laws regarding short-term leases will help you worry less about breaching the laws. If necessary, it’s advisable to consult a local attorney’s advice to avoid penalties and be on the right track.

How to start rental arbitrage in Houston?

1. Convince the landlord

Let’s say you want to get into rental arbitrage. You may be wondering, how do I find rental arbitrage properties and how should I convince the landlord? Later in the blog, we’ll be explaining how to find a good property by doing proper research using short-term rental analytics. In this section, we will be focusing more on how to convince a landlord to do rental arbitrage. As you’ll begin your rental arbitrage journey, you’ll come to know that this is the hardest part of the whole process.

You need to be prepared and well-researched about the popularity of Airbnb in your area. Having good communication skills will also come in handy! Here’s one thing that you should always keep in mind: never sublease without informing the landlord. There will be a huge number of people coming in and out when you’re sub-renting, so the landlord will most likely figure out that you are subletting and you might end up getting in trouble.

When convincing the landlord, rule number one is to always talk about the upsides. If you can rent the property on Airbnb, so can the landlord himself. You need to make a deal with the landlord that is beneficial to them. So in return, they lease the property to you instead of renting it by themselves.

Points To Tell An Indecisive Landlord:

• Doing rental arbitrage is a full-time business. It doesn’t generate passive income like long-term leasing. You should try approaching older people who are looking for some sort of passive income.
  They are more likely to agree to a fixed long-term lease. You can also reach out to full-time working professionals or business owners. They will also be happy with a source of passive income until their property is well maintained. This brings us to our next point.
• You’ll take care of the house better than a normal renter. As you are using the property for Airbnb, you will maintain it very well to make sure you get better reviews. Having a beat-up property isn’t good for business and you are more likely to monitor it often. 
  Not monitoring it will affect your revenue a lot. You may end up paying a huge sum of money for damages done by someone else. So telling this to the landlord might instill some confidence in them.
• You can ensure timely monthly rent. You can tell the landlord that doing rental arbitrage is a full-time business with ups and downs. It doesn’t guarantee fixed income at all like long-term leasing. But if they lease it to you, you’ll make sure to pay the lease no matter what. Either from the money made after rental arbitrage or from your savings. You need to ensure timely monthly lease payments to gain the trust of the landlord.

In conclusion, you need to take care of the property and treat it like your own. Make sure to timely pay the monthly lease and keep the situation beneficial for both parties. You can also use a free rental arbitrage email template and propose your ideas to landlords!

2. Ensure the property and gain the landlords’ trust

Being on the safe side is always a good idea. You need to make sure you are using the right tools to ensure that the property is safe and neighbors aren’t bothered by guests. Many landlords will have this concern when renting out their property to you. They will be worried about neighbors raising noise complaints and it’s a legitimate concern. To help you with all these problems, here are some suggestions that you can implement: 

• SimpliSafe– These are home monitoring tools that you can install in the house to make sure no suspicious activity is happening there. Make sure to let the guests know about them and have their consent.
• Auto host– Automatically screens problematic tenants.
• InsuraGuest– This insurance and tech company helps you with risk analysis and gives protection beyond Airbnb and VRBO policies.
• Airbnb Profit Calculator– Give your landlord ease of mind by providing income estimates backed by Airbnb data.

On a side note, you can also integrate the majority of these tools with short-term rental management software such as Hostaway or Guesty.