Airbnb Arbitrage: What is Airbnb Rental Arbitrage

When you are renting out properties and subleasing them on the Airbnb website then this process is known as Airbnb Rental Arbitrage. Since 1960, home prices have increased significantly in comparison to median incomes, making it increasingly difficult to own a home.

You can enhance your cash flow with this strategy without the stress and challenges of home ownership. Consider renting a house for $2,000 per month as an illustration. If you sublet the same apartment on Airbnb for a month at a rate of $150 per day, you could be able to pay off the rent in less than two weeks. After paying the rent, the remaining portion of the month is all profit. Without owning a house, short-term rental arbitrage enables you to improve your income and save money. In our example, after taking into account potential maintenance and overhead costs, there is the possibility of a monthly profit of $2,000! Of course, that simplifies things too much.

Short-term rental operations are expensive. Is it really too good to be true? No, and yes. Airbnb rental arbitrage is a tactic that may work in certain circumstances. Many investors use this great tactic to boost their earnings while renting out inexpensive houses. You need to perform a lot of study on the issue before getting started.

Top 10 ways to start making money on Airbnb without owning a property read here.

Is Airbnb rental arbitrage legal?

Depending on your local laws regarding short-term rentals, Airbnb rental arbitrage is legal. So start by doing your research. Most major cities throughout the world are changing their regulations regarding short-term rentals. Make sure that renting out properties through services like Airbnb is legal in the city in which you’re interested, or that there is no cap on the number of nights yearly, that you are going to rent out to your guests.

You should also determine whether your city, township, state, or province will require you to submit an application for a hospitality license if holiday rentals are permitted in your area. Make sure the landlord who is renting the home to you permits short-term and vacation rental arbitrage after that. Some landlords expressly state in their leases that such behavior is not permitted or is only tolerated in specific circumstances. Prior to subletting your unit, always verify with your landlord to avoid risking eviction. Once you and your landlord have reached an agreement, make sure you are safeguarded and insured in the event of losses, accidents on your property, or even natural disasters. To get you started, Airbnb offers Host Protection Insurance, alternatively, you can look through some of the other options for guest verification and insurance.

How do I convince my landlord to accept Airbnb?

You must conduct the local studies, comprehend the laws and ordinances, and identify a location you believe would be well-liked by tourists. If you have a solid plan, renting out your Airbnb space will be lucrative. It’s now up to you to persuade the owner to allow the holiday rental on his property. How can you do that? Look for arbitrage in any social media community for holiday rentals.

Discover useful forums and blogs for Airbnb hosts.

You’ll learn that the hardest part of using Airbnb for rental arbitrage is persuading landlords. After all, there’s always a chance that if your landlord finds out you’re planning to rent through Airbnb, they’ll opt to use that tactic instead and stop renting to you. Make it advantageous for the landlord. Here are some conversation starters to try out with a wary landlord. The first benefit is that you will take as much care of the apartment as the landlord does. Five-star reviews won’t be generated by scratched walls, a beat-up floor, or generally not keeping the area tidy. And that isn’t advantageous for your company. In other words, you have a financial incentive to maintain the residence in good shape.

That’s a bigger commitment than any long-term tenant could ever make. Second, you will handle the rental as a profitable business. Having you as a tenant ensures that the landlord receives payment on time each and every month. They won’t have to bother constantly chasing after a tenant who might be behind on their rent. Third, unlike traditional long-term rentals, operating a vacation rental business is not passive revenue. Therefore, the landlord is free to attempt to manage the unit on their own. They won’t have to deal with the job of managing it, keeping the apartment clean, or advertising the listing on Airbnb, though, if they accept the arbitrage. In other words, everyone will benefit from your outstanding maintenance of the property, your ability to turn a profit, and your receipt of rental payments.

Other tactics to convince difficult landlords

Tenants’ complaints about noise and Airbnb parties are occasionally brought up by landlords. The worry is legitimate. The landlord may have to deal with more turnover if your short-term rental annoys other long-term tenants. The question of insurance is another. Who will cover the damage costs? Here’s where technology can help. You can stipulate that you’ll employ one (or more) of these instruments as part of the agreement, depending on the level of opposition you encounter.

Automatic tenant screening is provided by Autohost.
NoiseAware is a brand of noise sensors that offer the option of 24-hour call center support (calls will be placed if things get out of hand).
Affordably priced coverage that goes above and beyond Airbnb or VRBO policies is offered by InsuraGuest or Safely thanks to their algorithms for calculating risks.

The best aspect is that these products are compatible with the majority of major property management systems (PMS). As we’ll see later, if you want to run a profitable Airbnb rental arbitrage business, you’ll need a reliable property management system. You’ll have more than one arbitrage property in no time, you gain the advantages of coordinating and automating those services at scale by integrating the service into the property management system.

What are the best cities for Airbnb rental arbitrage?

Vacation rental and short-term rental arbitrage opportunities are best placed in cities with developing real estate markets. Such markets provide the ideal balance of low rentals and the opportunity for short-term rental income. Do your study since these markets are difficult because they fluctuate frequently. You have a few resources at your disposal to estimate rental costs there.

Zillow (and other real estate analytics), and;
Local real estate professionals.

Unfortunately, it’s difficult to find free short-term rental analytics (we’ll explain why we believe you should pay for excellent data later). You can use this forecast for short-term rentals on a large scale. If not, there is strong technology that can assist you. Short-term rental markets and trends are tracked by data aggregators like KeyData Dashboard, Wheelhouse Pro, and AllTheRooms Analytics to offer useful insights.

All are excellent for obtaining accurate and fact-based assessments of the revenue potential of your market. Such trustworthy indicators are essential to offer your business plan legitimacy if you intend to ask for a loan to launch your arbitrage firm. AirDNA is also a fantastic collection of tools you can use for your research. AirDNA is a renowned provider of short-term rental data and offers a number of free tools to assist you in estimating the markets for Airbnb arbitrage in the United States (the Rentalizer and MarketMinder are incredibly useful). Due diligence is crucial in an arbitrage operation, hence we advise paying for some of the above-mentioned tools.

The free tools are excellent on their own and will help you gain context for a particular market. However, the additional information you receive from the paid subscriptions is priceless if you’re considering investing your entire life savings in an Airbnb arbitrage operation. In order to be successful with short-term rental arbitrage, your property must be rented out at least some days each month. Despite your expert marketing techniques, most properties don’t have 100% occupancy for a number of reasons:

Orphan days: In the majority of markets, Tuesdays through Thursdays might occasionally be challenging to book.
High and low seasons: Seasonality changes are common in several markets. Some of them cannot book midweek stays during the low season.
Upkeep and cleaning: Depending on the availability of cleaning professionals, you might have to schedule a day between reservations for cleaning. Cleaning gap days will reduce your profitability if the market you service has short average stay times.

To determine whether your arbitrage will be successful, getting a precise estimate of Adjusted Occupancy Rates (AOR) is crucial. Here is an example of a city where a two-bedroom apartment rents for $3,000 a month. You’re operating with too small a profit margin if those types of vacation rentals only cost $150 per day in that region and are booked on average for 25 nights a month. There won’t be much left for you after accounting for additional costs (such as marketing costs, listing site fees, and tech tools). You face the danger of going into the red if there is one month of low occupancy.

How can I make my Airbnb rental arbitrage business successful?

Consider a scenario in which you’ve selected the ideal city for your investment in vacation rental arbitrage and the landlord has approved it. The analytics are in order. On the horizon, you can see a flourishing tourism sector. What should you do next to make sure your short-term rental business is successful?

Grossly overestimate your starting costs

Any investment in a rental property comes with up-front expenses. Although they might not be as expensive as buying a home, you need to consider the following to make sure you can establish a reliable rental business:

Application fee
Deposit (ie. Does this include the first month’s rent, last month’s rent, security, etc.)
Insurance policies
Legal fees
Maintenance and updates to the property
Furnishings for all rooms
Decorations
Wi-Fi connection and new account fees
Entertainment subscriptions
Cleaning service fees
Monthly utility expenses
Toiletries and kitchenware

Be sure to account for these expenses before signing a long-term lease. Run many scenarios if this is your first time managing holiday rentals. What happens if your occupancy rates for the first six months are 10% lower than anticipated? Create scenarios where regular utility expenditures, cleaning costs, and furnishing prices are 10–20% more expensive than expected.

Between the research and implementation phases

If your study is accurate, you’ll need to furnish and decorate the apartment. Some hosts or managers do this step on their own. Some people employ interior designers. We’ll skip a little bit of this phase of the arbitrage process because it has more to do with decoration than automation at scale. Just keep in mind to improve or pay for the things that visitors are willing to pay for.

List your first short-term rental arbitrage property

You want to promote your homes on all the main listing websites and online travel agencies (OTAs). “Airbnb arbitrage” is the phrase we have been using. However, we really should not disregard Vrbo, Booking.com, HomeToGo, and TripAdvisor. These are only the introductory sites. You should also list specific specialist travel websites.

The purpose of this tactic, known as multi-channel distribution, is to increase marketing on these websites through automation. Why does that matter? Low vacancy rates will be aided by wide distribution. You can start increasing your nightly pricing once you consistently book 90% of the available nights. Check out this comprehensive study on the subject to learn more about multi-channel distribution, why it’s a successful strategy, and how to use it:

A few tips on optimizing your listings

You won’t become successful by simply listing your home. Regardless of the platform, you use to list your short-term rental property, you must optimize the listing for search engines. Please take into account:

Do you have beautiful photos of the property?
Do you have the amenities guests expect?

See the comprehensive approach to listing optimization, and watch out for visitors scrolling past your offer.

Consider building a direct booking site

It will be time to create a direct booking site (DBS) once you receive reservations from listing sites and OTAs. A DBS is a fantastic workaround for commission payments to listing sites. Additionally, it’s a terrific strategy to increase return customers and secure your revenue stream. By using a DBS, you may regain control of your structure and eliminate the “Airbnb arbitrage”. Consider reading this paper on the subject to gain an advantage in this later stage of your arbitrage business:

Tools you’ll need to automate and scale your arbitrage business

Rent is a significant overhead expense for arbitrage enterprises. To make a living, you’ll probably need numerous units operating simultaneously. You’ll run into trouble since it’s logistically impossible to manage many vacation rentals on your own. Additionally, you cannot hire personnel until you start to make money. You’ll require automation technologies to overcome these two difficulties. Here are some of the fundamental ones to consider:

Property Management System: for analytics, task assignment, automated guest communications, and multi-channel distribution (and much more).
Dynamic pricing app: adjusts rental rates based on market conditions. Your PMS can incorporate this software. It’s a “set it and forget it” app that more than pays for itself.
Cleaning coordination software: These apps will spare you hours of labor if you intend to contract out this process or hire cleaners. Your PMS can be integrated with cleaning apps. As an alternative, you can achieve the same outcome by utilizing the PMS’s automation tools (this case study shows you how).
Payment processor: To accept payments from some listing sites, you’ll need one. To take direct bookings, a payment processor is also required, such as Stripe or PayPal.
Digital guidebook: inexpensive and simple to assemble. You will convey check-in instructions, house regulations, and suggestions in this way.

Of course, there are a lot more software add-ons that will simplify your work. The list above is merely a beginning. Check out these case studies to learn what else software can accomplish in the short-term rental management industry. When your business is operating and you get more experience, automation may be used for a lot more things.

Wrapping up

You succeeded! You created a thriving short-term rental arbitrage company. You’ll probably want to buy more and more properties as time goes on if you want to grow your firm. That does not imply that you must put in 70 hours a week to achieve so. You may automate your business and have it perform the work for you by using a variety of tools. We’re here to assist you!