She became a landlord without buying a house

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.