Airbnb arbitrage is all the rage right now, with get rich quick schemes galore all over the internet.
But what is it all about?
Is it something that’s actually profitable, or is it just a whole lot of bold claims with little to no substance?
Turns out that Airbnb rental arbitrage can be a lucrative proposition, but there’s a lot more that goes into it than meets the eye.
So, if you’re looking to make a quick buck arbitraging short term rental properties you’re likely going to be sorely disappointed.
If you’re looking to create a high integrity rental business that’s profitable - and stands the test of time - then keep reading, as this might well be for you.
WHAT IS AIRBNB ARBITRAGE
Airbnb arbitrage is the process of leasing a longterm rental property, and re-renting it on the short term rental market on a platform like Airbnb for a profit.
The difference between the rent paid to the landlord and the rent collected on Airbnb is known as arbitrage, and that’s the profit that arbitrage specialists are looking for.
Not all properties provide arbitrage opportunities, withe some more lucrative than others.
The goal with this method of investment is to find the properties with the highest arbitrage yield possible.
IS AIRBNB ARBITRAGE LEGAL?
Airbnb arbitrage itself is totally legal and above board, if it has bee approved by the landlord of the property.
The reason it has a rather shady connotation at times is because people often try to do it on the sly without landlord consent, and this is what gives the industry a bad name.
If however a mutually beneficial agreement has been reach with the landlord in question, then you’re free to do as you will with the property under the terms arranged.
IS IT STILL PROFITABLE?
Arbitrage opportunities are harder to find nowadays with more speculators competing for a smaller stock of profitable dwellings.
So although it is still profitable, finding the profit opportunities may be more challenging.
Nevertheless, if you know where to look, and you know how to evaluate rental arbitrage opportunities effectively, you’ll find golden opportunities where others cannot.
The more experienced you get, the quicker you’ll be able to evaluate deals.
HOW MUCH DOES THE AVERAGE AIRBNB ARBITRAGE MAKE
According to XXXXXX the average Airbnb arbitrage deal makes roughly $500p/m
However, oftentimes these figures are bloated as they don’t account for all expenses, damages, vacancies, or unpredicted events.
So, instead of relying on average, sub optimal data, be sure to crunch the numbers yourself to mitigate any risks.
HOW TO FIND RENTAL ARBITRAGE PROPERTIES
Finding rental arbitrage opportunities becomes easier over time as you become more attuned to the rental market around you, the market value of long term rental properties, and the potential nightly rate chargeable on Airbnb.
You can find rental deals on all the major property rental websites including Facebook Marketplace, Craigslist, and purpose built platforms like Zillow too.
The more properties you view, the more you’ll attune yourself to the market around you, and over time you’ll be able to sniff out an opportunity in minutes.
STEP BY STEP AIRBNB ARBITRAGE ACTION PLAN FOR NEW HOSTS:
Ok, so now you know what Airbnb arbitrage is all about, and you’ve set realistic expectations - and you know the risks too - let’s get into the nitty gritty of how to get started if you’ve never done it before.
STEP 1. FIND A CITY/TOWN WHERE RENTAL ARBITRAGE IS LEGAL
It’s not that rental arbitrage is illegal parse, it’s more a case that renting properties on Airbnb are illegal - in some areas at least.
So you’ll want to clear that up before you start looking seriously for rental arbitrage opportunities.
Once you know the legal in’s and out’s of your area though and you’ve got the green light, move on to the next step.
STEP 2. FIND A RENTAL PROPERTY WITH GOOD ARBITRAGE UPSIDE
To find a good rental arbitrage oportunity you’re going to need to know your numbers:
- Long term property rental rates.
- Average short term nightly rates.
- Area specific discrepancies in pricing.
- Seasonal variations.
- Average short term occupancy rates.
- Average short term stay duration.
Once you have a deep understanding of the numbers specific to your area, with accurate, data backed information, you’re now qualified to uncover real arbitrage opportunities.
Naturally, you’re looking for low longterm rental costs, with the potential for high nightly rates on Airbnb.
Be prepared to spend money on furnishings and potential decorating costs to bring the property up to standard, so make sure to account for that in your figures.
STEP 3. NEGOTIATE WITH LANDLORD
So you’ve found a property with potential, you’ve crunched the numbers, and there’s arbitrage profits to be made.
Now comes the next step of negotiating with the landlord.
At first glance it might seem like a lopsided, no deal situation.
That may often be the case, but not always, and it’s these open minded landlords that you’re looking to do business with.
Remember, you’re coming to the table with an opportunity.
You’re taking on a landlords property in good faith, open and transparent about your intended use, and they’re getting reliable, trustworthy income each month guaranteed.
Now negotiating with a landlord like takes skill, and a certain tact. Remember to make it win win, and frame the positive outcomes they’ll get from the deal.
STEP 4. SHOOT FOR LONGER TERM LEASE
This might sound counterintuitive at first, but hear me out.
Oftentimes, arbitraged properties will need a little TLC, require furniture, a lick of paint, etc.
All these things cost money.
Longer term leases help to spread out that outlay over a longer period, minimising their impact.
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STEP 5. DRAFT UP A LEASE ADDENDUM
A lease addendum is legal document that modifies or adds specific terms to an existing lease agreement.
It’s within this lease addendum that extra conditions can be added to update the agreement and make it work for both parties.
Thinks to consider are:
- Rental increases: limits can be applied to future rental increases.
- Maintenance responsibilities: make sure these are clearly outlined.
- Terms of use: Stipulate the permissible property terms of use.
A lease addendum is a legal document, as such, you’ll need professional help to help draft one as this is way out of my jurisdiction.
STEP 6. CREATE A COST PROFILE FOR FURNISHINGS
It’s important to be fully prepared for all the costs required to get the property unto the spec needed to rent it on Airbnb, as these are real costs that need to be factored in.
They don’t need to cost a fortune, and can be sourced cheaply if you know where to look.
Regardless of how much they cost, don’t dig your head in the sand when accounting for them - as it’ll come back to bite you in the butt.
STEP 7. LIST PROPERTY ON AIRBNB
If you’ve got this far you’re doing well, and you’re now ready to finally list the property on Airbnb.
Naturally you’re going to want to make your listing as good as it can possibly be, that’ll mean a full, complete listing, alongside pro-level photography.
Take your time with this, go through it with a fine tooth comb, and make it the best it can possibly be.
STEP 8. OPTIMISE PRICES
To get the best nightly rate possible, for every date range, you need to pay very, very close attention to your pricing.
What you really need is an Airbnb pricing strategy in place, something that’ll adjust with the ebbs and flows of the market demand.
Doing this manually is a very time consuming task, something that can be done, but is very difficult.
However, the whole process can be managed using a dynamic pricing tool, I personally use Wheelhouse.
This clever bit of software connects to your Airbnb account and automatically adjusts your pricing in real time, for every date range, for the next 365 day time horizon.
With a tool like this in place you’re guaranteed to be charging the best rate possible, every time.
The investment in a tool like this will pay for itself instantly.
STEP 9. HIRE A CLEANING SERVICE
If you’re going to do the cleaning yourself you can skip this section.
But if you’re looking to hire a cleaning service there are a few things you should know.
Good cleaners are hard to come by, and reliable good cleaners even harder.
So, you’re going to need to do some digging around to find a cleaner you can trust, one that’s reliable, that’s also flexible.
This is a lot to ask, but these unicorns are out there, you’ve just got to do your due diligence and keep looking to find your gem.
STEP 10. AUTOMATE EVERYTHING
Whether you’re a small time host, or you’ve made it big, you need to take advantage of the time savings and ease of the automation options on the market.
It’s now possible to automate:
- 90%+ of all guest communication.
- All cleaner and team reminders.
- All guest reviews.
- Answers to FAQ’s
- Nightly pricing.
My favourite tools for this are Hospitable (automates all guest communication, cleaner reminders, reviews, etc) and Wheelhouse (automates pricing).
If you’re serious about running an Airbnb arbitrage rental business you’ll need to utilise these tools compete.
I offer a service helping hosts to get set up with these tools which you can find out more about here.
EXTRA CONSIDERATIONS
The steps above will serve you well in getting you off the ground, but there are a few additional things you can do to increase your chances of success.
BUILD A DIRECT BOOKING SITE
Bookings that come through the Airbnb platform incur considerable guest fees, up to 20%+
These fees go straight into Airbnb’s pockets and not yours.
Bookings that go through a direct booking site on the other hand do not have these fees whatsoever, and all that extra cash can flow straight to you.
Furthermore, you don’t need any tech skills to create a direct booking site, simple sign up for a tool like Hospitable and their platform will do it all for you.
Simples.
MARKET ON MORE CHANNELS
Airbnb is great don’t get me wrong, but it isn’t the only short term rental platform people use.
There are plenty of others like Booking.com, VRBO, Home Away, and more.
Advertising your property on multiple platforms like this can only increase your chances of getting more bookings at the best rates.
Managing this manually is virtually impossible, but using channel manager software like Lodgify, the whole process is easy.
You listing will be sold on multiple platforms, with a unified inbox for all your guest messaging, and real time calendar availability.
CONCLUSION
By now you’ve probably seen how involved arbitraging rental property through Airbnb can be, and the investment in time and money it takes to get things off the ground.
However, there is money to be made in arbitraging still - if you have the knowledge and skills to make it work.
Anyway, I hope this article serves you well, and wishing you the best of luck.
