Making money in real estate typically requires owning the property, right?

Coming up with a large down payment, securing financing, dealing with tenants, handling maintenance and repairs.

The barriers to entry aren’t exactly low.

But what if you could skip all that and still bring in serious cash flow by renting out apartments and homes without buying them?

When Richie Matthews and his wife were looking to supplement their seasonal events business in late 2019, rental arbitrage seemed like an ideal side hustle.

Little did they know that just a few months later, that tiny side hustle would quickly scale into a business managing 60 units and generating over $2.5 million in revenue and $700k in profits. He now runs his company, iStayUSA.com.

Tune in to Episode 588 of The Side Hustle Show learn how to:

• Test unfamiliar models with tiny experiments before going “all in”
• Identify profitable properties to rent (and get approval from landlords)
• Build scalable systems and processes
• Diversify marketing channels and revenue streams

• Factor — Get 50% off America’s #1 ready-to-eat meal delivery service w/ code sidehustle50!

Getting Started with the First Unit

Richie had heard about the concept of rental arbitrage—renting properties long-term and then subletting them on sites like Airbnb. He was skeptical, but the model seemed promising:

• Low startup costs compared to other real estate side hustles
• Strong cashflow potential from the rental rate spread
• Ability to test with just one unit before committing further

He decided to start small by pursuing one apartment in downtown San Diego. After plenty of “no’s,” he finally convinced a building manager to give him a chance on a one-bedroom unit that had been sitting vacant.

She even agreed to four weeks of free rent upfront as a concession. In February 2020, Richie signed the corporate lease and got to work setting up that first apartment.

“It was an IKEA explosion in there,” he says of the $4,300 furniture budget, about $5-6 per square foot.

Six weeks later, he’d earned back his upfront investment through Airbnb bookings.

With proof of concept in hand, Richie added three more units in the same building over the next couple months.

Pivoting in the Face of COVID-19

Then in March 2020, COVID turned the world upside down. The events company he and his wife had spent 15 years building was decimated overnight as festivals and gatherings were banned nationwide.

At the same time, the promising side rental arbitrage business was just hitting its stride.

Facing disaster on one front and opportunity on the other, Richie and his wife made a bold decision—they would go “all in” on growing the short-term rental business as fast as possible.

Over the next 6 months, Richie negotiated leases for a total of 9 units across 3 buildings in different cities, as landlords looked to diversify their tenant base against a backdrop of possible eviction suspensions.

Occupancy and rates were down everywhere, but the cashflow spreads still worked as many travelers like healthcare workers continued moving about. For instance, they started hosting traveling nurses and teachers conducting classes via Zoom.

Evaluating Markets and Properties

As Richie evaluates potential markets and units, he has a set of criteria he analyzes:

Unit Types

Richie focuses his search on 2-bedroom apartments rather than houses or studios. Two bedrooms best accommodate different types of travelers, from families to nurses to consultants. He avoids studios because overall demand is lower.

The apartments themselves tend to be 10-15 years old —not brand new construction where he’d be paying for all the landlord’s latest upgrades and amenities, but still nice enough to furnish and sublet.

Market Selection

His market selection relies heavily on predictive data from sites like AirDNA indicating rental demand. But he also requires evidence of:

• Strong business travel – Is there a major company HQ or sizable office workforce?
• Mid-term rental demand – from large hospitals and/or military bases
• Year-round tourism and vacation travel

Financials

His goal is a minimum 2:1 rental rate spread—if he’s paying $2,500 / month for the lease, he wants the unit generating around $5,000 / month on average. He used free tools like Mashvisor and the Pro plan on AirDNA to estimate unit performance.

He also cross-references direct comps by studying similar listings on Airbnb in the neighborhood. How are their calendars and photos? Are they getting bookings? This helps him gauge market demand.

Building a Process-Driven Business

As Richie added more and more units, he knew he couldn’t keep running everything solo. He started systematically building an operations team to take over day-to-day management.

He brought on a dedicated Operations Manager locally to handle issues and oversee teams. For remote front desk help, he hired virtual assistants in the Philippines to handle guest communication.

For cleaning and turnover services, he recruited and trained his own housekeepers rather than outsourcing to a vacation rental management company. He pays them hourly rather than per turn.

The team developed extensive systems and processes over time:

• Guest screening protocols
• Security monitoring with Minut sensors
• Noise violation enforcement
• Emergency contingency plans

Richie says that discovering the ability to build repeatable systems and processes was hugely important in being able to step back from daily operations. It’s allowed the business to scale efficiently to 60 units while improving profit margins along the way.

Diversifying Beyond Airbnb

Airbnb was Richie’s first platform for listing and renting the units, but over time he has expanded to multiple booking channels. Currently, Airbnb represents 60% of his bookings, with the rest split across:

He also cultivates referral partnerships to drive additional mid-term rental business—nurses, relocation firms, military contracts, etc.

Richie sees this channel diversification as vital in an evolving regulatory environment where cities like San Diego have considered restricting short-term rentals.

He also believes niche opportunities abound for services catering specifically to short-term rental hosts looking to professionalize and scale up their own listings.

The Technology Stack

As the business has grown, Richie has incorporated various software tools and platforms to optimize different parts of the operation:

Pricing/Calendar:

• PriceLabs – dynamic pricing engine to maximize occupancy

Rental Websites:

Property Management:

Market Analysis:

Guest Screening:

• Built-in Airbnb host tools
• Custom caller screening questions
• Security deposits

Security Monitoring:

Financial Snapshot

Once up and running, Richie’s target profit is $1,250 – $1,500 per month per unit after all expenses. 

So while the upfront legwork is extensive, the model can cashflow very nicely within a reasonable timeframe. With 60 units currently, Richie’s business brought in over $2.5 million in revenue last year and over $700k in profit.

Not bad for a “side hustle” that started with a single vacation rental unit!

Additionally, Richie founded a Creative Airbnb with Richie Matthews Facebook group connecting hosts globally to discuss best practices. He spends more time mentoring others as his personal role normalizes toward an owner-operator focus.

The goal becomes perfecting systems for productivity and guest satisfaction before releasing them publicly to help fellow rental managers.

Regulations and Controversies

A major issue facing the short-term rental industry is the affordable housing crisis affecting many communities.

When landlords or tenants lease properties solely to list them on Airbnb, it reduces supply for long-term residents and drives up rents overall.

In response, cities like San Diego have considered severe restrictions around short-term rentals. This is something hosts must consider and prepare for.

Richie aims to be conscientious—he pursues listings primarily in buildings that already have high vacancy rates rather than displacing existing long-term tenants. He also signs flexibility into his leases so he can pivot if regulatory changes happen.

Proper insurance is another key – most standard renters insurance policies will not cover short-term rental activities, so hosts need special insurance. Richie uses Proper which runs about $90 per unit per month.

So while municipal regulations exist or could be coming in many markets, there are also tailwinds—some cities actually encourage short-term rentals now as a way to generate more hotel/accommodations tax revenue for local coffers.

Key Takeaways

Richie’s journey serves as an inspiration for anyone looking to turn side hustle skills into a profitable business:

• Test unfamiliar models with tiny experiments before going “all in”
• Stay nimble and embrace opportunities, even in uncertainty
• Build scalable systems and processes early on
• Diversify marketing channels and revenue streams
• Focus on profitability metrics rather than solely revenue growth

The short-term rental arbitrage model clearly works and scales nicely once up and running. However, hosts must carefully consider market selection, regulatory risks, and business processes in order to succeed long-term.

With effort and persistence, one of those experiments could blossom into a thriving full-time business over time!

Episode Links

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