Katie Lyon became a landlord not by buying property, but by renting a 600-square-foot studio in Cedar Rapids, IA, for $695 per month.

“It’s right over a Jimmy John’s [sandwich shop], so it always has a faint smell of turkey,” she says. Still, the apartment’s proximity to hospitals and offices gave her a hunch that it would fetch $1,800 a month as a sublet on Furnished Finder. And if this gamble didn’t pan out, “at worst we’d be out $700,” she reasons. “It was a low-risk experiment.”

At first, the landlord balked, agreeing only after Lyon assured him that the apartment would house traveling nurses, interns, and data center workers rather than serve as a bachelorette party pad. She was right—and, since then, her budding business has expanded to eight rentals that sublet for about double what Lyon pays the landlords.

The rise of rental arbitrage

Lyon’s experiment has a name: rental arbitrage. Instead of buying property, you rent it, then sublet it for more. It’s one of the cheapest ways to break into real estate, which is why both beginners and veterans use it to, as Lyon puts it, “date a market before getting married.”

Daniel Cabrera at Sell My House Fast in San Antonio used rental arbitrage to gauge demand in the city before buying. “I paid $1,850 in rent and averaged $2,650 in sublet income each month, netting $500 to $650 in the better months,” he recalls. The biggest risk? Vacancies. If your projections are wrong, you eat the difference. This is why he suggests, “Run a break-even calculator and proceed only if the numbers will at least net you $400 per month.”

Another pitfall is that although landlords may say they’re okay with it, that could change if a guest ends up trashing the place. This is why Cabrera recommends getting written consent, adding, “If the lease language is fuzzy, the risk is not worth the spread.” The best way to get a landlord on board if they’re wary? “Bring a business plan, proper insurance, and offer higher rent or a revenue share,” says Derek Carlson at Realty ONE Group in Odessa, FL. “If it feels like a side hustle, landlords shut it down. If it feels like a business, the conversation changes.”

While some landlords may refuse (or be part of HOAs that may not allow sublets), others will embrace rental arbitrage. In fact, one of Lyon’s landlords was so impressed with her operation, he asked her for advice on trying it himself. “He’d also reached out with other properties he thought this could work well for, saying, ‘Hey, do you want to take this one on, too?’” Lyon says.

Learn more about rental arbitrage here.

Finally! Rates on 30-year fixed-rate loans dipped below 6% to 5.99% Monday, according to Mortgage News Daily—the lowest level since 2022. Here’s how much more house you can suddenly afford.

💲 Investors are paying big money to save around $50k in taxes. See if this “powerful” tool is right for you.

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Health insurance, 401(k)...and a house: The hottest new employee benefit? Down payment assistance. And weirdly, you may have it already.

Plot twist: This investor paid $50 million for land where he’d planned to build 516 homes. That is, until he received a $700 million offer he couldn’t refuse.

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La dolce vita: An American couple bought a house in Italy for $13,150—and didn’t stop there.

At 1000 Ocean Avenue in Brooklyn sits a historic landmark locals call “the scary house.” It’s for sale for $2.3 million—and according to Compass listing agent Laura Rozos, there’s a reason it’s still on the market.

Q: What’s the story of this house? “It was built in 1899 by architect George Palliser. Over the years, various families have tried to fix it up but never progressed—a classic story. One couple was there for 15 years and lived in one bedroom with a makeshift kitchen. The last owner had it for three years but didn’t anticipate what it would take to navigate the Landmarks Preservation Commission. That’s why he’s selling.”

Q: How bad is the home’s condition? “It’s known as the ‘scary house.’ It’s like a horror movie in there. There’s a room filled with taxidermy. A flying goose hangs from a chandelier. Squatters jump the fence to get in. The renovation would cost a minimum of $2 million. Based on comparable properties in the area, I think the after-repair value would be over $6 million.”

Q: Have you received any offers? “We have received offers, but nothing accepted. This house needs somebody who has a passion for restoration and experience navigating landmarks.”

Q: What do you hope happens to this house? “This house has generated such a response from the community. I’ve lived two blocks from this house for 26 years. We are all distressed that it’s deteriorating. It’s such a shame. Everybody is rooting for this house. Everybody wants it revived and restored.”

Click here for more photos of this tragic mansion, and learn what it takes to renovate a landmark property below.

Much like a hot, high-maintenance date, America’s 2,600 historic landmarks and districts may look stunning, but require deep pockets and vast reserves of patience. Since the Landmarks Preservation Commission must approve alterations, “costs and timelines exceed expectations,” warns Robert Kaliner, a developer at RoundSquare Builders, who recently renovated John Lennon’s landmarked former NYC townhouse.

Red tape aside, pre-war surprises may also be hiding costly issues behind the walls, from asbestos to knob-and-tube wiring that can “boost renovation budgets by 20% to 30%,” warns Cody Schuiteboer, president and CEO of Best Interest Financial.

Bottom line: Don’t fall for one of these beauties until you’ve done your forensic due diligence, and be sure to take advantage of the 20% in savings offered by the Federal Historic Tax Credit and other grants. Or else, just accept that this project could be more of a labor of love than a moneymaker. As Kalinar points out, “Many people buy artwork or antique cars to get enjoyment from the asset, and do not care about returns.”

Got a question about real estate? Share it here, and we’ll answer it in a future issue.

This week, we head to Los Angeles and hear from Casey TeVault at Casey Buys Houses about how he’s managed to turn a profit in this monster of a market for 15 years.

Average home price: $933,111 (Down 2.4% YoY)
Homes that sell over list price: 35.6%
Homes that sell under list price: 54.5%
Average rent: $2,750

The pros: L.A. is famed for its Hollywood ties, sun-drenched beaches, bustling business scene, and sky-high home prices. But TeVault insists there’s still money to be made in this market. “Investors here are playing the long game,” he says. “The demand for housing has continued to grow.”

The cons: Next to New Jersey, California has the least landlord-friendly laws, which are even stricter in the city of Los Angeles. And since L.A.’s infamously bad traffic forces many commuters to live close to the city, “There’s no more room for building. This is why we see so many knock-down rebuilds,” where investors demo small homes to make room for multi-family buildings or add ADUs.

His advice: Certain suburbs offer proximity to L.A. along with affordable prices—for buyers and investors. “My top four Los Angeles suburbs are Glendora, Diamond Bar, San Dimas, and Covina,” says TeVault. In Glendora, he recently bought a three-bedroom, two-bathroom house for $505,000, spent $186,000 on renovations, and sold it for $827,000.

Have a real estate market you’d like to highlight? Share it here, and we’ll feature it in the future.