What is real estate arbitrage, whether it is legal, the pros and cons, how much does it cost to start this business, and what are the common arbitrages you can start today? I will share everything in this article. Its popularity is growing rapidly over the years, which allows beginners to make money through investing in prominent real estate with less risk than ever before.
What Is Real Estate Arbitrage?
Real estate arbitrage means when you purchase an investment property and sell it at a higher price simultaneously, or you can lease a below-market-value property and rent it for a higher price. The main idea here is to earn money in a short time.
Here you have to find an under-market value property with good profit potential that is not meeting its full potential till now and profiting from the opportunity. Here, you have to become more choosy when selecting a property, as your profit will depend on its future potential.
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Is Arbitrage Legal?
Yes, it is legal in most states as long as you follow the law. But, some states have restricted it or banned it completely for the negative effects it creates. Check your local laws before launching this arbitrage business, and please talk to a lawyer for more detail on this, as I am not a lawyer.
Pros of Real Estate Arbitrage
- It has a low upfront investment cost. No down payments. Just flip, wholesale, or rent.
- It offers faster growth opportunities. You can scale your arbitrage business faster and cheaper.
- It is a good way to make a good cash flow in the rental arbitrage as soon as you get into the deal.
Cons of Real Estate Arbitrage
- There will be legal problems when doing arbitrage business, especially when dealing in rental arbitrage like Airbnb and wholesaling.
- Managing rental units, finding good homes to flip, and building a good wholesaling network will take time and money.
How Much Does it?
In short, it will cost you about $10,000. It means you do not need massive cash for a down payment and closing costs. That cost may include the lease costs, furniture and decor, and listing photography. Plus, there will be no major property maintenance expenses. Anyone can start this rental arbitrage business.
Different Types of Arbitrage
Flipping houses, wholesaling real estate, and master leasing is the three common types of arbitrage. You can decide which one will bring you a good ROI. Here is the list for you.
1. Flipping Houses
House flipping means when you buy a property and sell it with a profit within a short time, most likely within a few months. Here you have to make necessary repairs to the property before selling it. Some people say it is a fix-and-flip business, and they have to fix the house and make it look new.
But you also can flip houses without rehabbing them if it does not require a repair. But a small clean-up will always be required. Flipping houses is very common, and people make good money from it using this arbitrage.
2. Wholesaling Real Estate
Wholesaling real estate is another popular arbitrage investment strategy. It means a property owner contacts a wholesaler agent to sell his distressed property and help him find a buyer. The agent creates a fixed agreement and then sells that agreement to a buyer by making a margin from that deal. Although, you can buy that house yourself if you have the money. But most of the time, they find a buyer and sell it for a profit.
3. Leasing Arbitrage
Leasing arbitrage is even more popular because of Airbnb. Here you can be the tenant and then lease that house to somebody else, like a sublease. But you need the permission of the landlord. You can also rent out part of the property to occupants on Airbnb. Master leasing is an investment strategy to earn monthly positive cash flow.
So this is what the real estate arbitrage is, and it’s legal, but you have to check the restriction on your state. It does not cost that much and can create wealth for you if you choose the right neighborhood. Hope this article has cleared the overall concept of arbitrage. Thanks for making to the end. See you soon.