Real Estate Arbitrage

by Mr. Cheap

I alluded to this idea months back, but Telly didn’t like it, so I dropped it (whenever possible I like to do what Mike or Telly tell me). Recently its come up with a couple of friends, so I felt it was worth revisiting.

A friend is planning to move to another area, but she has a rent controlled apartment that she rents for $100-$150 below market price. One thing I suggested she consider is hanging on to the apartment and subletting it to someone for closer to market rent. This would let her keep the place (in case she comes back to the area) and make a little cash at the same time.  EDIT:  A COMMENTER POINTED OUT TO ME THAT THIS IS ILLEGAL IN ONTARIO (look under section 3a) – Its probably worth checking your local laws before doing this.

Another friend rents a professional office but only uses it 4 days a week. As part of her lease, she’s allowed to sublet days. Renting out 3 days from the office would almost pay the monthly rent.

These aren’t really arbitrage situations, since they aren’t risk-free. They ARE situations where you can increase your risk a bit (if anything happens with the subtenant you’re going to be in the middle of it) in exchange for some cold hard cash each month. The nicest thing about the situation is that your income and expense are very clear (and as long as you’re able to promptly get a tenant and they don’t cause you any problems, its cash flow positive). In one sense, you’re buying living (or working) space in bulk and reselling it.

I’ve toyed with the idea of renting a 3 bedroom apartment in Waterloo, taking the smallest room and renting out the other two individually. If you get $450 / room and could rent a 3 bedroom apartment for $1,150, you’d be living quite cheap ($250 / month for your share of the rent). Again, you’re in the middle of it when one of your roommates puts his head through the wall: Welcome to the life of a landlord!

Living with other people isn’t always a joy, but being the person on the lease would give you total control over WHO you were living with.

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