Rental Arbitrage is TikTok’s latest get-rich-quick scheme
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Sitting by the pool in Dubai or making calls in luxury apartments, the 38-year-old shows off his luxury lifestyle to his 37,000 followers on ICT Tac. His videos all have captions that say things like “the four things that guarantee millionaire status” or “the EXACT steps I took to get my first Airbnb without owning”.
Watch a few and you’ll quickly understand the basics of his system. Essentially, he makes deals to rent homes from landlords, outfits them with IKEA furniture, and converts them into Airbnbs. By doing so, he can raise the rent and pocket the difference – and he reckons the profits can be huge.
“A very good average property will probably make four thousand dollars a year, and a very good one can make north of ten,” Ryan tells VICE.
Presentation : rental-rentalalso known as rental arbitrage, the parasitic investment strategy that is being touted on social media as a way for the growing number of people who cannot afford to buy their own homes to invest in l ‘immovable.
Arbitrage and rent-to-rent videos rack up hundreds of thousands of views on TikTok, Instagram and YouTube, where budding entrepreneurs sell it as a money hack that can lead to “passive income” and “financial freedom”.
The idea is that people sign long-term contracts with landlords to rent out their properties, guaranteeing the landlord an income for a period of time. With the landlord’s agreement, they then convert these places to short-term rentals or multiple occupancy homes (HMOs), which means they can rent them out more than they pay and recoup the difference.
Doing this isn’t strictly against Airbnb’s terms of service, although they recognize that hosts need permission from the person in charge of the building – but while rental arbitration is being sold as an opportunity lucrative to cash in on property without owning anything, there are tons of risks, legal issues, and ethical concerns that influencers selling it are less likely to talk about.
On the one hand, you might be wondering how responsible it is to encourage people to convert rental properties into short-term vacation rentals in the midst of a housing crisis.
In May, Zoopla reported that rents in the UK were growing at their fastest rate in 14 years and increased by 11% over the past year, thanks to a rental housing shortage and growing demand as people return to cities after the pandemic. Add to that the ever-worsening cost-of-living crisis, and rent-to-let is starting to look pretty predatory.
“Young adults desperately need affordable housing,” says Dan Wilson Craw, deputy director of Generation pension. “We are in this situation in part because politicians have encouraged property prices to continue to rise, which has made property ownership more lucrative than jobs that actually benefit society. Because of this, it’s grotesque, but somewhat inevitable, to see these entrepreneurs feed off of this desperation.
Ryan, who says he owns a portfolio of 300 properties, about half of which are rent-to-let deals, is less concerned about the ethics behind rental arbitrage. He blames bad tenants and government regulations that protect tenants for making rent-to-let an attractive option for landlords.
“I’m just looking at it from a business perspective, obviously,” he told VICE. “I’ve always wanted to be self-sufficient since I was young. And you know, I strongly believe that everyone, or most people, has the opportunity in life to do better for themselves.
TikTok tycoons dress rent-to-rent in the hyper-aspirational buzzwords of other get-rich-quick schemes like Forex and crypto trading, making it an attractive and accessible way to earn big bucks . People like Ryan use their videos to sell rent-to-let courses, where they say they’ll let go of the secrets of their success – obviously paying.
Another influencer selling the rent-to-let dream is Samuel Leeds. In 2020, Leeds were the subject of a BBC Upside down investigation which featured several past clients who complained that they were mis-sold expensive real estate investing courses that had little more content than the free courses it offers. He highlighted the case of army veteran Danny Butcher, who took his own life after taking out a loan to pay for training at Leeds.
Later in the same year Leeds were featured on the Channel Four show Joe Lycett has your back, where the comedian sent someone undercover to film one of Leeds’ free crash courses. There, they found hard selling techniques, such as time-limited discounts and sessions that lasted for hours.
Leeds continues to take courses on how to get into rent-to-let through his company, Property Investors. From course on his website which cost up to £11,995, he has two specially designed for hire-to-hire. The first is a £995 ‘Rent 2 Rent accelerator’, while the second is a course on how to start a serviced accommodation business – aka Airbnbs – for £1995.
In his annual report 2021property repair scheme [PRS], which helps arbitrate complaints between the real estate industry and consumers, identified a single area that has seen a surge in complaints over the past year – rent-to-let agreements. This is because many rental businesses had struggled during the shutdowns and rising rent arrears resulting from the pandemic.
Sean Hooker, Recourse Manager at PRS, says they have recently seen a number of complaints relating specifically to short-term rental agreements. “This model seems to have gained traction as the traditional rental industry and in particular HMOs have become more regulated,” he says. “We are also concerned about budding real estate investors [who] are attracted by courses and training in real estate investment strategy, which at the moment are completely unregulated.
James Mayall, a solicitor at Osbornes Law, says the legal issues surrounding rent-to-let mainly affect – tiny ready-made fiddles – the original owners of the affected properties. There are various scams and illegal practices surrounding rent-to-let that can cause landlords to lose money or get caught invalidating their insurance or mortgage contracts.
But Mayall also acknowledges that there are big risks for anyone legitimately trying to make money from rental arbitrage, because it relies on a steady stream of income in a market that doesn’t always provide it.
“If there is another pandemic, or if the rental market suddenly collapses, or if Airbnb goes bankrupt, then these people will find themselves without income on apartments, but with the responsibility towards all owners to continue paying the rent,” he said. “If they did it in their own name or through a suitable company, you can very quickly end up with huge monthly bills and no income.”
Rent-to-rent encourages people to treat life like a giant game of Monopoly – literally suggesting that they take viable homes and turn them into mini-hotels. But like all forms of landownership, rent is a zero-sum game. Whether you own the place you’re renting or not, there’s always someone holding the wrong end of the stick.
“We need much better regulation of the rental market and that includes regulation of the Airbnb industry, which is so lucrative that it takes homes away from people who need housing,” Craw says. “At the end of the day, the government needs to go further – provide enough housing so that everyone is well housed. Only that will put an end to the desperation and wipe out the excessive returns that this arbitrage currently offers.