The real estate market has gone crazy over the past couple of years. Some of the houses in our area have increased in price by over $100,000. With all of the boom, it makes it much harder to purchase a home. And that includes purchasing for investing. So, what’s the alternative?
In comes AirBnB arbitrage. AirBnB arbitrage is a system where you rent out a space from a landlord and (after getting permission) use it to host guests. This is a great workaround to not having the capital it takes to purchase a home upfront and then furnish it to be ready for hosting. In this post we’ll go over everything about AirBnB arbitrage so you’ll know exactly what it is and how to take advantage of the cost savings.
An Example of AirBnB Arbitrage
You may be wondering ‘how do I host an AirBnB without owning a property?’. I’ll give you a great example: our own.
In the beginning of 2023, I was talking with my brother about one of his properties. We own 2 rental properties between him, my wife, and I, but that’s a story for another day. He was looking to put his newest house up for rent. This was shortly after I had been scammed trying to do this in Tampa. But I was still eager to get started. I convinced him to let me rent out the house so I can host guests for short-term stays.
We agreed it made sense for him to make money as if a regular tenant were in there. So on top of the mortgage I paid him an additional $350 per month. In a typical situation you would just pay the price agreed upon that you found browsing Zillow or similar. So now that I had established I would pay him, we got to work on furnishing the property.
After we finished furnishing, it was time to take photos and get it listed on AirBnB. Then we were all set!
Note: this is not a full how-to for any of these steps. As I write more and more I will link out to the posts. My goal is to document the entire process I went through step-by-step. Then not only can I refer back to this for our future properties, but you can learn too. Check back regularly for updates!
Is AirBnB Arbitrage Illegal?
So now you may be asking, ‘is AirBnB arbitrage illegal?’ After all, you are using someone else’s property to host guests. The answer isn’t a simple yes or no. You’ll want to check with your local city regulations to see if it is allowed. From there, you’ll want to talk with your landlord to ensure they are on the same page. There is sometimes a clause in contracts that prevents this, and you will need to work with them to modify the wording. Once you’ve got the A OK from city regulation and your landlord, you’re free and clear!
Is AirBnB Arbitrage Still Profitable?
The unfortunately complicated answer to whether AirBnB arbitrage is still profitable or not is it depends. In our experience, we made very little money during our first year. That being said, we made a lot of mistakes. We aren’t perfect, and there were many areas we could improve upon. So for someone that may be in a better location and who puts in more effort, I don’t see how you couldn’t make a good amount of money using this strategy.
A good example of this is how stubborn I was with moving prices during the summer. In Port St. Lucie, FL, where our property is, the summer is very slow. Instead of dropping our prices to better compete with properties (including hotels), I insisted that it would be better to have them above $100 per night.
Here’s the thing: we would’ve lost money either way in my opinion. However, we could’ve dropped the price to $75 per night and captured many more stays. In that case I believe we would’ve lost much less money. This in turn would’ve made our busy months where we make a large amount of money outweigh the loss so we could turn a decent profit.
So while I can’t speak from personal experience since we didn’t make a ton of money our first year, I can confidently say we left money on the table and after learning some very valuable lessons that AirBnB arbitrage can still be very profitable.
How Much Does It Cost To Start A Rental Arbitrage?
Since you’ll be renting the property, you’ll have different costs than if you were to buy. Keep in mind you will need to pay first month, last month, and security deposit in order to secure the rental. And then you will need to furnish the property.
We spent around $6,000 on furnishing a 2 bedroom 2 bathroom house, so you can expect to spend around $5,000-$10,000 when furnishing your own property. All in costs may be anywhere between $8,000-$20,000. This depends on how much rent is and whether your landlord requires you to pay the last month’s rent upfront.
Why Would a Landlord Allow Airbnb Arbitrage?
Now we’re getting to the fun part. Once you’ve found some properties (make sure you find a couple just in case) that you think will work for you, it’s time to reach out to landlords. But it’s not just an easy call where they’ll understand everything and know that it’s a great deal for them. To convince your landlord to AirBnB arbitrage, you’ll want to explain to them the benefits of renting to a business rather than a tenant, how you’ll pay on time because if not you can’t make money, and you’ll keep things in great shape.
How Do I Convince My Landlord to Arbitrage Airbnb?
The hard part of convincing a landlord isn’t the benefits. In fact, in my opinion there are way more benefits to renting to a business than to a single tenant. The hard part is convincing landlords that it is beneficial. They’ll be skeptical. They are used to dealing with just one tenant in the home and will have to understand the differences and what makes it better. So let’s dive into how to convince your landlord to let you arbitrage.
The Benefits Of A Landlord-Host Relationship
- Paying, and paying on time – Here’s the thing: tenants can be under a lot of pressure. They’ve got tons of bills to pay. They may have a car payment that’s just a bit too high, health insurance, phone bills, groceries, etc. And the market isn’t helping them with any of it. So when it comes down to it, if a tenant is struggling to pay, the easiest thing to cut is their biggest expense. And that’s rent. I’m not saying it WILL happen, but it CAN happen.
And here’s the difference between you and a tenant: if you don’t pay you lose your business. You’re running an AirBnB. If you’re late on your payment there’s no reason for the landlord to not kick you out. After all, you aren’t living there. So there’s no emotional ties to have to navigate. Put simply, you will pay on time because if you don’t you lose the opportunity to make money. - Keeping things in great shape – as I mentioned in the last point, you’re running a business. And from my experience, you’ve got to keep the property squeaky clean or else the guest will let you know. A single spot you missed with mopping, a bit of dust, anything. The guests want hotel-quality clean. So what does that mean for landlords? They’ll have peace of mind knowing that their property is being professionally cleaned multiple times a month. So if you do ever decide to leave they’ll know they’re getting a property that is kept in mint condition.
- Protecting the home from damage – when you rent a home out to a tenant, there are certain things they are responsible for. However, there are many more things the landlord is responsible for. When something breaks, it can be tough to navigate who’s paying. And the landlord only has the security deposit to rely on when a tenant moves out.
We recommend getting rental arbitrage insurance. AirBnB does offer their AirCover, providing $1 million in liability coverage, but having a supplemental policy can help even more. Not only does this cover you, but it provides another layer for the landlord. It helps them to know that their property is being kept in great condition. And if something were to break that the guest is responsible for, they won’t have to worry about fixing it.
Time To Secure Some Properties!
As time goes on I’ll have even more experience with AirBnB arbitrage. My goal is to purchase homes for short-term rentals. But for now I will continue to grow our portfolio so we can keep making money. While we do that we’ll keep you up-to-date on the latest strategies that work!