- Humza Zafar turned to rental arbitrage to build a business listing his leased apartments on Airbnb.
- Zafar says he now operates 106 units across Philadelphia, Detroit, Austin, Dallas, and Des Moines.
- He scaled up by putting profits back into the business and using credit cards to purchase furniture.
Humza Zafar, 25, grosses about $150,000 a month based on his latest three-month moving average from renting over 100 units on a short-term basis through Airbnb. Records viewed by Insider indicate that in December 2021, revenue was $137,000; in January 2022, it was $150,000; and in February, it was $162,000. This revenue reflects the three slowest months of the year, Zafar said. Peak season can average 40% higher.
Before he went into real estate, Zafar was an electrical-controls engineer at the Philadelphia International Airport, a job he landed after graduating with a bachelor’s degree in electrical engineering from the University of Windsor in Ontario.
“My assumptions in school of what life would be like were a lot different than what life actually was when I graduated,” Zafar said. “When I was in school, I was very passionate about engineering and I thought I’d be working on amazing things and building great things in life.”
“When I graduated, I realized there’s a lot of bureaucracy and office politics that come into play,” he elaborated. “And the job that you do, especially starting out as an engineer, is not that lucrative. So I decided that I didn’t want to do this forever.”
Zafar hoped to build passive income so he could become financially independent within a few years. During his downtime, he listened to real-estate podcasts like “Bigger Pockets” and watched YouTube videos from investors.
Within 15 months from starting, Zafar has been able to build a team and a process that allows him to work roughly five hours a week. This working arrangement has allowed Zafar and his wife, Salma, to spend the larger part of 2022 vacationing in Dubai. However, getting where he is today wasn’t easy or passive, he said.
In November 2019, Zafar bought his first real-estate property. He closed on a duplex in his hometown of Windsor, Ontario, for 175,000 Canadian dollars, or about $133,000, with 5% down. He saved for the down payment on the property from his salary — his take-home pay was about CA$5,600 a month.
Shortly after closing, Zafar completed a renovation of the property, including new flooring, fresh paint, and updated kitchen cabinets. This cost an additional CA$100,000, half of which came from an unsecured line of credit while the other half was charged to credit cards. Zafar then rented both duplex units out as a co-living arrangement for students, where each student paid per bedroom, per month. That property generated about CA$3,600 per month, with a mortgage of CA$1,100.
After gaining some experience, Zafar planned to offer rentals via Airbnb, which could potentially bring in a higher cash flow. He realized, though, that buying additional properties would be difficult, because real-estate prices in Canada and the US were rising quickly.
One day while browsing the web, he read about companies like Sonder and Frontdesk, whose business models are based on short-term rentals. After some research, Zafar realized that neither company owned those rental properties. Instead, they were using a rental-arbitrage strategy, which means signing a long-term rental lease and then reletting the space out short term.
“So that’s exactly what I decided to do,” Zafar said. In September of 2020, he spent two weeks learning everything he could about short-term rentals and the work it required.
“I just spent that entire first month of October pitching the business model to different landlords and owners and seeing if they would accept my business model,” he explained.
He told Insider that he spoke to at least 50 different landlords before he found someone who agreed to work with him. The landlord who offered Zafar a lease had been stuck with a vacant property, a four-bedroom townhouse in Queens Village, Philadelphia, for a few months and wanted to rent it out for just four months.
Upon signing a lease, Zafar had to pay the first month’s rent of $2,200, plus a $750 security deposit. Three of the bedrooms in the house already came furnished. He ended up spending just over $1,000 on furniture and linens for the fourth bedroom, in addition to toiletries and kitchenware.
Three weeks later, Zafar hosted his first Airbnb guests. The listing grossed between $4,000 and $4,500 a month, Zafar said. Since Zafar and his wife cleaned the property themselves, they netted about $1,800 to $2,000 a month, after rent and fees were deducted.
“We rented out each of the rooms individually — my wife and I were the cleaners and we learned everything we possibly could,” he said of the experience. “We had three or four new guests arriving each day. And then my wife and I would basically be on the floors cleaning the bathrooms, turning over beds, doing laundry linens. We spent the entire month, every single day cleaning.”
Zafar did all this while he was still working a 9-to-5 job. Once the lease was up, the landlord purchased the furniture in the fourth room from them.
How he rapidly scaled
After the first Airbnb, Zafar realized that the business model had potential and began reaching out to other landlords about additional leases. He used Zillow to find properties that were vacant for more than 30 days, because he figured that the landlords of these apartments would be more motivated to sign a lease.
Zafar spoke with another 15 to 20 landlords until he found three apartments in Rittenhouse Square in Philadelphia’s center city that were owned by the same person. After discussing the terms and signing an 18-month lease with the property owner, Zafar had three apartments — two studios and a one-bedroom — to list for short-term rentals.
Before he could start, he had to pay the first month’s rent on each, which ranged from $1,300 to $1,400, in addition to a security deposit, which was a full month’s rent. At this point, he was using his salary and profits from the first property to cover the costs.
After four months, the total net profit from the properties was about $8,000. Zafar told Insider he kept his job until December 2021, so any profits made from the rentals were put right back into the business. This allowed him to lease more units and spend on general business operations.
Since he worked the night shift at his full-time job, Zafar had time during the day to focus on his side business, such as buying and moving furniture, cleaning, and tending to guests’ needs.
At one point, he was usually getting only four hours of sleep each night, which eventually resulted in him falling asleep at the wheel and causing an accident. Looking back on the incident, he realized that he had prioritized the expansion of his business over his personal health and well-being.
“My wife and I lived very frugally. We did not go out anywhere and we saved every dollar,” Zafar said. “My after-tax take home from my job as an engineer was $8,000 per month and my car and gas were paid for. So we saved almost $6,600 every month after all of our expenses, and we used that for growing the business.”
In addition to his salary and income from the short-term rentals, Zafar also used business and personal credit cards to purchase furniture for the units. Considering that he was responsible for furnishing multiple apartments at any given point, this became a large recurring expense.
“As we scaled rapidly, the strategy I used was opening business credit cards,” Zafar said. “A lot of these cards, specifically from Best Buy, Amazon, and Wayfair, offered no monthly payments and no interest for 24 months or 18 months. That way you can go ahead and buy all your furniture to fill these apartments and houses without spending any of your own cash.”
Zafar said Salma was nervous about the entire process, especially putting so many major purchases on credit cards. But he followed his gut, believing that it would all work out in the end.
The couple hit a big milestone in December 2020 by growing the business to five units. However, it was also at this point that they realized hey needed help cleaning the apartments. They were making enough from the business to cover cleaning expenses, so they decided to hire cleaners. Zafar said that they found help by posting the job description to a Facebook group for local jobs.
Now that the operation was almost fully automated, he began to expand out of state based on seasonality. The Zafars began in Dallas, where Salma moved on her own to stay in one of the units and set up the business there.
Humza eventually decided to sell his duplex in Windsor, Ontario, in March of 2021 and use the cash to continue to expand his rental strategy. He’d determined that his short-stay rental business was way more scalable than holding a property. He netted CA$120,000 after closing and used the proceeds to rent more units and maintain a cash cushion.
Now that the process is streamlined, Zafar’s average monthly expenses on leases is $58,000. Operating costs, which includes staff, supplies, electricity, water, gas, and internet, average about $37,000 a month.
It’s been 15 months since he began his endeavor, and he’s expanded beyond vacation rentals through Airbnb and says that he now operates 106 units in Philadelphia, Detroit, Dallas, Austin, and Des Moines. The operating entity, HS Property Holdings LLC, now also offers corporate housing and insurance relocations.