Do you want to start an Airbnb rental business but don’t have enough money to purchase a property? No worries. In today’s episode of Women Creating Wealth, I will show you how Airbnb rental arbitrage works so you can start a rental business WITHOUT buying a property or having a huge capital.
If you haven’t listened to last week’s episode of Women Creating Wealth with John Bianchi (the Airbnb Data Guy), I highly recommend you listen to that first. Today’s episode ties into what we talked about last week.
Let’s dive in!
What is Rental Arbitrage?
Rental arbitrage may sound fancy, but it simply means you rent a house or an apartment, and then you sublease it for profit. Instead of leasing it long-term, you’re subleasing it as nightly, weekly, or monthly rentals through sites like Airbnb.
This strategy allows you to build a cash flow without the hassle of buying a property. Plus, you can scale up your Airbnb business quickly using this strategy.
Rental Arbitrage Startup Checklist
Before you jump in with both feet, this method requires a lot of due diligence. Here are just a few of the many things that you should consider before getting into rental arbitrage.
1. Do you have a good credit score?
Most decent places in most markets require you to have a credit score of at least 600 or 650 before allowing you to rent. But, sometimes, you can get away with a lousy credit score. However, more often than not, your landlord would want more money down and potentially a higher rent each month because the landlord is taking a risk on you.
2. Understand how much money other people in the same area make for short-term rentals.
Just by looking at their calendars on Airbnb or VRBO, you’ll get a good feel for how full they are and how much activity is going on in an area.
Let’s say in a beach area, there are 50 properties, but for the weekend, only two units are available. That means you’ll have a higher chance of renting your property out, and the higher the demand, the better.
3. Analyze the driving revenue factors in common for these in-demand properties.
How many bedrooms do they have? Do they have a pool? Are they on a higher end? Come up with a checklist for these in-demand rental spaces and apply it to your property.
4. What’s your fallback plan if this Airbnb arbitrage thing won’t work?
Let’s say it didn’t work out for you, and you’re tied to a one-year lease for this property. Are you willing to rent it for a long-term contract? Can you live there yourself?
Note: Check with your building or apartment HOA their rules on short-term rentals because some HOAs won’t allow it.
5. How does the neighborhood look like?
Is there anything happening in the neighborhood that could get you a bad review from potential renters? Is there a dog barking loudly? Does the area have a bar nearby that’s open until 2 am?
6. How easy is it to get to the property? How are people going to access the property?
Is there a parking space? Is there public transportation? This all boils down to how easily accessible your place is for your customer.
7. How do you furnish the property?
You don’t want to get a bunch of junk from Salvation Army and have nobody want to rent your space. Please research and see how the in-demand Airbnb rentals furnish their properties.
Again, you have to go back to last week’s episode with John Bianchi so you’d know how you can use data analytics to your advantage.
8. What happens if someone damages the property? Do you have the place insured?
Get insurance so that if there’s a flood or fire, there’s a way for you to accommodate your guests and still have a good experience but just not at your place.
Does the Landlord Have to Know?
Now that you’ve answered each of those questions above, let’s deal with the biggest question of all time regarding Airbnb rental arbitrage – does your landlord have to know that you’re subleasing his property?
Well, I highly recommend that not only does the landlord know, but there should be something in your lease agreement that indicates that you’re allowed to sublease their property.
The contract should also include your arrangement with the landlord like you can pay a lower rent in exchange for profit sharing. It’s up to you to negotiate something with your landlord. You don’t want to get this messy.
Before you get too excited about doing your first Airbnb rental arbitrage, you must check your finances.
I know I said you could start this business with little money, but it sure helps to know that you have a buffer when your unit doesn’t get rented immediately. Remember, you still have to pay the rent or risk getting evicted by your landlord.
For those who have zero Airbnb experience, it helps a lot if you know how this whole Airbnb thing works. I highly recommend that you get some experience as an Airbnb guest or as a co-host with someone who’s been doing it.
If you want to get good guests and consistent rentals, your goal is to become a super host.
Another thing you can consider is doing all of this as a company to use the tax advantages. If you don’t want to pay an attorney for a consultation, you can always call SCORE (Service Corps of Retired Executives) for some business advice.
And last but not least, is to figure out how much you’d expect to make using realistic and pessimistic numbers. And hopefully, you’ll be happily and pleasantly surprised by the money you’ll make on the side.
If you’re looking for a way to get into real investing with little money and zero property, or if you’re retired and want another income stream, then Airbnb rental arbitrage is perfect.
Listen to the full episode above of Women Creating Wealth for more information!