What Is Airbnb Arbitrage and How to Start Your Rental Business
You may have heard of Airbnb making life easier for travelers, or perhaps you’ve lived on a property that operates as an Airbnb rental. Most of the time, it's an arbitrage unit that someone has rented and sublet on trusted platforms like Airbnb and Vrbo.
Rental arbitrage is a business model practiced across multiple industries worldwide. It is not a new practice, making it a stable method that can make any rental business successful. Given the stability of this model, the Airbnb community has adopted it, turning their homes into rental units. You can make a profit from this model too by learning the ins and outs of the Airbnb arbitrage business.
What Is Airbnb Arbitrage?
Airbnb arbitrage is a business practice where someone rents a property from a long-term market and sublets it on the Airbnb platform. It is a profitable business as long as people need short-term accommodation for vacations or business travel.
The need for rental arbitrage rose with the prices of residential properties. For decades, we have seen properties becoming unaffordable for people, but Airbnb has successfully solved this problem by subletting units. Now, Airbnb arbitrage is gaining traction by challenging the real estate market with affordable and convenient options for rent.
It’s not only fitting for tenants but also proves lucrative for Airbnb arbitrage business owners. If you rent an apartment for $1500 a month and you sublet it for $100 per day on Airbnb, you can pay off your rent and make a profit from your arbitrage business. It may seem like a simple business model, but there are intricacies you must know about before investing a single dime.
How to Start Airbnb Rental Arbitrage?
Airbnb arbitrage is a legal business, and that's the first thing you should know. Remember that any business requires legal guarantee and stability to be considered a potentially successful business. If your city permits Airbnb arbitrage and short-term rental service, you can start your own Airbnb rental arbitrage by following these tips:
Do Not Underestimate the Initial Cost
A mistake most people make is to assume their upfront costs for business and start investing without proper research. Later, they find the estimation was incorrect. The initial costs determine how stable your business is from the get-go. Some factors to consider are application fees, insurance policies, legal fees, deposits, decorations, Wi-Fi, cleaning service, maintenance, and furnishings.
With a list of all the factors, estimate their costs and run scenarios to ensure you are overestimating. If you estimate starting costs more than you'll need, it will help run the rental business smoothly.
Conduct Market Research to Find the Right Property
Many people are interested in starting an Airbnb arbitrage business, but not everyone gets to be successful. Reason? Market research. Taking a plunge is not the right way to become an Airbnb host; you must conduct some research and find cities and areas that will grab travelers’ attention.
Remember that you are not renting out properties to make people happy; you are doing it to make a profit. A lucrative rental business is only possible if the location of your property is suitable. It will ensure stable income flow and a good reputation for your business.
Landlord’s Approval Prevents Future Troubles
Since you are renting a property and plan to sublet it later, you will be in the clear if your landlord is aware of the situation. Let your landlord know upfront that you plan to use the apartment or property for Airbnb. Hiding it from the landlord may create legal troubles for your business later.
If they know about it, your landlord would either turn you down or ask for a percentage of the profits. Either way, you will be safe legally and can complete the process with written agreements.
Give Your Property a Personal Touch
Hotel rooms do not interest tourists and travelers anymore. They want something that says "home away from home!" Your Airbnb arbitrage rental business can offer it by turning the rental property into a home instead of a short-term resting place.
Invest in furnishings and modifications to add personal touches, decorate the house with artistic pieces and offer basic groceries. These small additions will add value to your property and make it attractive.
Is $1000 Enough for Initial Investment?
Even though you are not buying a new house for Airbnb rental business, you need to invest a significant amount in starting. You will find different values from various successful Airbnb arbitrage business owners, but what should be your minimum investment?
The general consensus is that $1000-$2000 is the capital you need to start an arbitrage business. It will get you a property to start your business. Is that it? Yes. As you start your journey, you do not need to invest in multiple properties. Investing in more and getting as many properties as possible to start making profits is tempting. However, this strategy may not work. You are new to the business, so it's best to learn things first and then figure out a way to rent more lucrative properties.
There's the application fee, legal permits, insurance, furnishings, and other stuff you need to invest in before listing the property. Estimating the initial cost of your business will help in deciding if $1000 will be enough for the initial investment. For an idea of which areas will require the least investment and yield the greatest profits, you can also check out listings on Airbnb.
Pros of Airbnb Arbitrage
Starting an Airbnb rental arbitrage business can generate income to help you pay the rent and other bills. Here are some benefits to enjoy with an Airbnb arbitrage business:
You Do Not Need to Own the Property
A property business that does not require ownership can save money on startup costs. You can rent a property and list it on Airbnb for an interested tenant to find. If someone is willing to sublet it, you can pay the rent, make a profit, and not own the property yourself. People with a limited budget can benefit from this business model without breaking the bank.
Earning Can Be Twice the Property’s Rent
As soon as you learn the ways of rental arbitrage, you can charge 1.5 to 3 times the rent. The profits only go higher when you have rented a house or apartment in a popular location. With one house, you can double the rent, but your profits will continue to increase with more properties. If you stick to the rules and regulations and keep things legal, you can make this venture successful.
No Bookkeeping Involved
When you are not the owner, you do not have the headaches of mortgage, maintenance, utilities, or HOA fees. The landlord has to take care of these things—all you need to do is pay your rent. With fewer bills and expenses to worry about, you can focus on scaling your arbitrage rental business.
Cons of Airbnb Arbitrage
Airbnb arbitrage is profitable in many ways, but here are the drawbacks of this business:
This only happens if you have lied to the landlord and made them unhappy by subletting their property. The landlord will ask you to leave if they are polite or take legal action against you if they are angry. You can avoid this situation by keeping the landlord in the loop and subletting only after signing a proper agreement with your landlord.
Starting Costs Can Be High
You can make do with $1000 for a property, but you can’t stop the investment here. If you want to make huge profits, you will need to invest more initially so that the business can become a stable source of income. Aside from monthly rent, you have to pay other fees like deposits and application fees, and if you do not have enough money for it, the business won’t bring in profit.
Restrictions in Some Cities
Some cities do not allow the Airbnb community to rent homes and properties. It's part of their local laws, making Airbnb arbitrage business impossible to scale. There are cities that allow rental arbitrage, but it’s restricted in some locations. Make sure to research thoroughly before selecting your area for rental property—it will save you from legal issues.
Platforms You Can Trust
To make your business profitable, you need to go where your customer is. Given the scams involving rental properties, people are wary of unknown sites with no reviews or customer interaction. It is the reason for every traveler making reservations on trusted platforms such as
- Agoda Homes
Airbnb is the most popular platform for listing; you should still explore other options to find the right customer for your property. It will also diversify your approach and help you interact with more travelers.
Rental properties provide an advantage for Airbnb arbitrage businesses to make extra cash by investing in real estate without owning them. However, there can be disadvantages as well.
Check the drawbacks to avoid legal and financial troubles. Your landlord plays a vital role in keeping your business running, so clear things out before transforming the property into a rental. The advantages of this business venture are freedom from ownership, profits that cover rent, and no headache of bookkeeping.
If you plan on starting an Airbnb arbitrage business, make sure to follow the tips we’ve shared and conduct thorough research before renting a property.
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