Many people wrongly assume that they must own property first before building an Airbnb business. However, the real estate market has evolved greatly over the past few years and the barriers of entry have been lowered for new investors. Airbnb rental arbitrage is a revolutionary investment strategy that allows anyone to start making money with Airbnb without owning property.
So, What Is Rental Arbitrage?
Arbitrage is basically buying something at a low price and then selling it for a profit. Airbnb rental arbitrage is when a real estate investor rents a condo, apartment or single family home and then sublets it on Airbnb.
For instance, if you rent an apartment for $2,200 per month, and get it listed on Airbnb for $3,400 per month, your profit before expenses will be $1,200. If expenses are $250 (including Airbnb fees), your net profit will be $950. In this way, you’re making money with Airbnb arbitrage!
Is Airbnb Rental Arbitrage Legal?
Depending on the Airbnb regulations where you live, real estate arbitrage can be completely legal and acceptable. However, before renting out on Airbnb, you should first inform your landlord about your plans. If your landlord agrees, lay out your plan in detail for them. All the agreements should be captured in writing, preferably in the presence of a lawyer. Make sure the agreements incorporate Airbnb’s host protection insurance should anything go wrong.
So, how do you get started with Airbnb rental arbitrage?
1. Market Research
Solid market research is necessary to help you identify the best cities for Airbnb rental arbitrage. There are several ways of getting data when looking for short-term rentals. The Airbnb website itself can provide a lot of information about your target market. You will know which markets have a demand for specific decorating styles, proximity, amenities, number of bedrooms, and property types. Another way of finding an Airbnb property to live in and rent out is to look for the attractions creating a buzz in the city. This could be clubs, malls, parks or beaches. Such information can be found through travel sites and online reviews.
Market research should also involve computing the potential profitability of rental property in a market. Find out the Airbnb occupancy rate and average rental rates for comparable units in the neighborhood. Since these properties will be your main competition, you will need to price your property accordingly. Be sure to take note of the weeknight and weekend price differential. Your weekend rental rate is likely to be higher than your weekday rental rate. Your average daily rental rate should be calculated using this differential. Don’t forget to consider the seasonality of booking trends when figuring out your potential monthly positive cash flow. Rental property expenses such as cleaning and maintenance should also be accounted for.
You can use an Airbnb profit calculator to figure out the potential rental income from your property and get data on occupancy rates, expense estimates, and more. Sign up to Mashvisor now to start using the best Airbnb calculator.
2. Establish Your Startup Costs
Before getting started, you need to determine how much money you need to launch your Airbnb rental arbitrage business. Common start-up costs include:
- Application fee (credit and background check)
- Furnishing (can be purchased or rented)
- Move-in fee
- Filling an LLC (if necessary)
- Legal fees
With all these startup costs involved, it might take several weeks or months before you break even. It is only after breaking even that you will be able to figure out the true daily or monthly income potential.
3. List Your Property
Listing property on Airbnb is very straightforward. All you need to do is select the ‘Become a host’ tab on the Airbnb homepage and follow the instructions. You could create a dummy profile to test things out, and then create a real listing at a later time.
After your account is set up, you can then create your schedule, daily prices, and requirements for guests. The next step would be to optimize your Airbnb listing so as to attract more guests to your Airbnb unit.
4. Optimize Your Profile
Airbnb has an internal algorithm that determines the rank of every profile (similar to Google search results). As a real estate investor, to improve your rank and get more people clicking on your listing, profile optimization is a must. One of the best ways of optimizing your profile is by having great photos. Your pictures play a great role in determining whether guests decide to book or not. If you don’t have the skills, hire a professional photographer to do the job.
Besides having great photos, be sure to include the right keywords in the rental property description. You could use keyword research tools to find out what keywords are popular in your market. Alternatively, browse through top-rated Airbnb properties in your market to see what keywords they are using. Also check out how they are showcasing their patios, kitchens, bedrooms, and living rooms.
5. Automate Your Business
The great thing about rental arbitrage is eventually it will afford you the luxury of buying property to Airbnb. Eventually, you’ll be able to build a full-blown business based on this investment strategy.
Owning multiple Airbnb rental arbitrage properties does not mean that you have to work 70 hours per week to maintain it. By having proper systems and processes in place, you can run your business with minimal effort and still make a decent income. While Airbnb handles the technicalities of the booking process, there is still a lot you can do to manage your operations more effectively and save time.
One of the most effective automation strategies is to get an Airbnb co-host. Look for someone you can trust that has experience in the real estate or hospitality industry. This individual will be the face of your Airbnb rental arbitrage business. They will be responsible for handling guest queries and offering additional services. In case you have multiple listings in different markets, you will need to have several co-hosts managing your portfolio. Later on, you could hire an asset manager or CEO to oversee the growth of your company.
Another important aspect that needs to be automated is the check-in process. This will save you or your co-host the trouble of having to personally meet every guest that resides in one of your units. To give guests access to the investment property when they arrive, you could use the traditional school lockbox or the more advanced smart lock. Though more costly, smart locks are safer and come with more features. You can even give your guests access to the rental property remotely from your phone.
One more strategy for automating your Airbnb rental arbitrage business is to create a detailed house manual for guests. This manual should address everything from gate codes, transportation options, WiFi passwords, emergency contacts, local attractions, available amenities, and co-host contact details. With all this information, guests will be self-sufficient and will not feel the need to contact you.
If you need any more information on how to become an Airbnb host with this strategy, you can read our guide here.
Before buying an investment property, you can still find a way to be an Airbnb host. Hosts can use a wide range of spaces for rental including a spare room, a coach house or garage, a stationary RV or even a tent in the backyard. Airbnb rental arbitrage can be a great way of raising the money you require to begin your short-term rental business.