It’s hard to think that Airbnb only got started back in 2008. It feels like it’s been around forever and, honestly, it’s hard to imagine how anyone vacationed before it existed. Going on a business trip? Airbnb’s got a spot for you. Going to Cancun for your friend’s bachelor party? You’re probably going to stay in an Airbnb. Your car broke down on the side of the highway? Open that Airbnb app and you’ll probably be staying in comfort in an hour or so.
There’s a reason this app has become so popular so quickly. And, for those same reasons that you’re willing to spend money on Airbnb, you can also make a whole boatload of money on Airbnb if you play your cards right.
In this article, we’re going to talk about Airbnb arbitrage, a strategy that has made some real estate professionals filthy rich in the past couple of years. We’re going to get into exactly what it is, why it works, and how you can be the next success story.
What Is Airbnb Arbitrage? – 21st Century Subletting
Before we get ahead of ourselves and start talking about how you can become a millionaire with Airbnb arbitrage, first, we have to cover what exactly that is for those of you reading this article who don’t already know. If you understand the concept of subletting, you pretty much already understand Airbnb arbitrage.
With traditional subletting, you rent out an apartment or house and then sublet the rooms in that apartment or house and charge your tenants rent. Essentially, you pay $1,000 rent for a house, you sublet each of the four rooms in the house for $300 a month to four tenants, so you get $1,200. You just made $200, deducting utilities or whatever else you might have to pay.
Airbnb arbitrage works exactly the same way. The only difference is that, with Airbnb, you now have the opportunity to get tenants in and out in a day, two days, a week, or whatever, rather than being forced to sign them up for a monthly contract. And we’ll talk more about why that’s so important in a little bit.
But, yeah, Airbnb arbitrage is basically just the practice of renting an apartment or house and subletting it through the Airbnb platform. So why has “Airbnb arbitrage” become such a buzzword in the real estate industry in recent years? Well, because the Airbnb platform provides some very unique advantages over traditional subletting.
Advantages of Airbnb Arbitrage – Big Work, Big Rewards
So, the biggest advantage of renting out your house or apartment with Airbnb is the potential to make more money, obviously, or else people probably wouldn’t do it. The reason for this is that when people are doing short-term vacation rentals through Airbnb for, let’s say, three days or a week, you can charge higher rates than for a month-long rental or three-month rental.
Whereas with traditional subletting, you might be able to charge someone $1,000 for a month, with Airbnb, you can charge people $400 a week, which means that you have the potential to make $1,600 a month instead.
Of course, money isn’t free. And Airbnb arbitrage is a considerable amount more work than traditional subletting. You have to clean the space after every guest checks out and you have to constantly work to secure new guests. However, since those rates are so much higher, you have the potential to make a whole hell of a lot more cash than with traditional subletting.
There’s also the advantage of not having to actually own any property. In general, it’s pretty hard to manage an income-generating property without actually owning the property, but Airbnb arbitrage provides exactly that opportunity. You rent an apartment from a landlord and then manage it just like your very own residential property. There’s very little upfront investment and you’ll never need a loan to get into it. All you really need is around $1,000 in your pocket and some time to change some sheets! So easy!
But, unfortunately, it’s actually not that easy. And there’s a reason that not everyone is getting involved with this strategy. Let’s talk about some of the difficulties involved with Airbnb arbitrage.
Difficulties of Airbnb Arbitrage – Landlords and Legalities
Before you even think about getting into the Airbnb business, you need to check the legalities around Airbnb in the city you plan to operate your business in. You need to make sure that the city allows short-term vacation rentals and Airbnb. And you need to look into whether or not there’s a limited number of nights that you can rent out to guests.
Even if vacation rentals are within the laws of your city, you may need to apply for a hospitality license to start running an Airbnb business. Plus, you should make sure that you’re properly protected and insured against injuries and damages to the property. Airbnb offers Host Protection Insurance, which is usually all you need.
Then, once you’ve researched your city’s laws regarding Airbnb and your insurance situation, you need to see what your landlord’s policy is. Anyone who’s in the vacation rental subletting business will tell you: landlords are the biggest obstacle.
Some landlords straight-up forbid renting the space on Airbnb, while others say that they may permit it on a case-by-case basis. And you definitely want to check with your landlord before you start renting on Airbnb because, if you don’t, it might just lead to you getting evicted.
And if you do talk to your landlord about starting an Airbnb arbitrage business on their property and they seem like they’re on the fence about it, here are some things you can tell them: first of all, when you’re running an Airbnb business, you have a major incentive to keep your units in tip-top shape. Five-star reviews on Airbnb aren’t easy to come by, so you’ll want to put as much effort as possible to make sure your units are sparkling and fully functional, which your landlord will love.
On top of that, since you’re running a lucrative rental business, your landlord will probably never have to worry about collecting rent from you. They’ll get paid consistently on time every month instead of having to chase you down for late rental payments. I pretty much couldn’t see any reason why a landlord wouldn’t want someone running an Airbnb arbitrage business on their property. They’re going to get their money and the unit is always going to be well kept. Plus, the burden of marketing the space to new tenants is shifted to you. It’s a win-win for everyone!
Alright, so you understand what Airbnb arbitrage is, you understand why it has such potential for profit, and you know about all of the legalities and about your landlord’s policy on Airbnb. After all that, you’ve decided that you want to get in the game and start your own business.
But, it’s not as simple as just opening an Airbnb host account. Let’s go over some essential practices for making your Airbnb business and smashing success!
Keys to Success – It’s the Little Things
Unlike a long-term rental business that’s essentially a passive income-earning business, meaning that you don’t have to actively manage it all that much. Airbnb vacation rentals require a great deal of active management. It’s pretty much a full-time job. To make sure your business is running smoothly, there are quite a few things that you have to devote your time and, of course, your money to.
Here are just a few of the things to consider to make sure your business is successful:
Wi-Fi! You’re never going to attract working professionals or anyone in the 21st century if you don’t have a stable internet connection in your unit.
Decorations! If you’re running an Airbnb by the beach, those seashell decorations can really add a nice ambiance to your space.
Cleaning! Obviously, you need to clean your units after each tenant leaves. But, are you going to do it all yourself? Or are you going to hire a cleaning service? In that case, you should be factoring in the cost of cleaning when you consider your expenses.
Want to really impress your tenants? Hook them up with Netflix, Hulu, HBO Max, Prime Video, Disney Plus, or whatever. Of course, these aren’t absolutely essential, and you probably shouldn’t shell out that money when you’re first starting up and are strapped for cash. But, it’s something to consider down the line.
What is far more essential, however, is providing toiletries and kitchenware. I typically won’t even consider staying at an Airbnb if they don’t at least have some plates, knives, and a microwave.
And, in terms of toiletries, forcing someone to walk down the street to get their own toilet paper is probably going to lead to some bad reviews.
These are all things that you should consider when doing your financial analysis. Add up all these expenses, along with how much you’re going to have to spend on rent to your landlord, your deposit, any insurance or legal fees, utility expenses, and whatever else comes up. Then, figure out how much you’re going to be able to earn per month through your rentals. Subtract your expenses from your revenues and you should be able to predict your monthly income fairly accurately.
Of course, you should run other scenarios in which your expenses are higher than you predicted or where you have a lot more vacancies than you anticipated. Doing this kind of analysis will help you build a much more resilient and streamlined business.
Once you’ve started your business up, if you find that your vacancies are higher than you’d hoped, maybe consider listing your units on rental platforms other than Airbnb. Try Vrbo, Booking.com, TripAdvisor, HomeToGo, Homestay.com, or Expedia. All of these channels can help you fill your units more consistently, meaning that you’ll have more consistent revenue flowing in.
And, on whatever platforms you choose to list your property, make sure that you’re including stunning photographs as well as accurate and enticing descriptions.
With these tools, you should be well on your way to running a successful Airbnb arbitrage business. But, remember, location is everything in the rental business. You can have the greatest Airbnb unit of all time, but it doesn’t matter if it’s in the middle of Nowheresville. Start your business in an up-and-coming market where people like to vacation, follow all the other advice I just gave you, and you’ll have a great chance at becoming the next Airbnb success story.