Because there are so many various methods to make money on Airbnb, the platform is becoming more adaptable. If you want to develop a company on Airbnb and generate a big profit, one common option to investigate is Airbnb rental arbitrage.
In a word, Airbnb rental arbitrage is the practice of renting a property solely to sublet it on Airbnb. In other words, if you generate more money than your rent and business-related expenditures, you may start earning money by advertising a house on Airbnb. Although it seems simple and appealing, there are several legal problems to consider before deciding to gain money via Airbnb arbitrage.
How to Get Started With Airbnb Rental Arbitrage
1. Undertake Market Research
Before deciding to become an Airbnb host you must first conduct thorough market research. First and foremost, you must choose which cities and places may be of particular interest to you. Finding a home in a successful region is the key to a thriving vacation rental company. Otherwise, maintaining a steady stream of rental money would be difficult.
If you’re still undecided about which places are worth your time, have a look at our breakdown of the best US destinations. Tourists seem to flock to vibrant cities with the greatest attractions.
The return on investment (ROI) that a vacation rental home may provide is another significant issue to consider. This may be accomplished by choosing a home near the major attractions and facilities (like a metro station or grocery store). While purchasing a house on the outskirts of town may seem to be more cost-effective, it will not help you thrive in the short-term rental market.
You may charge a higher nightly rent if you manage a more popular tourist region property. In any case, compare nightly rates of comparable homes in the area before making a final choice on your short-term rental investment. Furthermore, you will evaluate your profits and choose the best alternative for you by determining the average occupancy rate and your probable expenditures.
We also recommend joining real estate and vacation rental groups on Facebook. This can help you learn from and connect with professionals in the space. Lodgable also offers hundreds of free articles on our blog for you to learn all about the industry!
2. Become acquainted with local regulations
Another important consideration before beginning to gain money via rental arbitrage is local legislation and laws. It’s no secret that several cities have tightened laws and limits on short-term rentals in recent years. If you’re not sure where to begin, this article will offer you an idea of what rules and regulations to think about.
Vacation rentals may even be outlawed in certain places, while others may impose yearly night limitations. For example, will you generate a significant profit if you only rent out your house for 90 days every year? If you don’t want to fall into debt, this is something to consider.
You should also check with your landlord to see whether he or she would allow you to rent out your home on Airbnb or another vacation rental service. You run the danger of getting evicted if you don’t do so.
3. Calculate Your Initial Expenses
Aside from paying for your flat, you’ll need to budget for additional expenses. There are additional costs associated with starting a company. They will contain the following items:
- Application fee
- Permits, licenses, and other legal expenses
Though you will have to put money into your firm at first, it will not take long to become profitable. It will, however, only function if you have chosen the best alternative for your company.
4. Put Your Vacation Rental Property on the Market
The next stage in the Airbnb arbitrage process is to offer your home on vacation rental networks. More than 90% of bookings are now made via vacation rental companies such as Airbnb, Vrbo, Booking.com, etc.
Even though Airbnb is the most popular short-term rental site, you should strive to vary your approach. You may attract more passengers and develop several revenue streams by offering your rental on other (even lesser-known) marketplaces. The problem is that individuals place more faith in large platforms than in individual websites.
5. Improve the visibility of your listing
If you don’t enhance your rating on holiday rental sites, you won’t earn much money from rental arbitrage. In truth, you’ll need to go all out to increase traffic to your listing and the number of people that rent your property.
Whether it’s images or a host profile description, make sure every component of your listing is up to grade. We have helped dozens of property managers improve the performance their listings through our unique optimization tool. to learn more click here.
By giving it your all, you may boost the exposure of your listing and, as a result, earn more reservations.
6. Automate Your Company
Property management is hard work and may consume a significant amount of your time. Airbnb hosts are often unable to expand their businesses due to being swamped and overburdened with obligations. Getting more tech-savvy and using business automation tools, on the other hand, may save your life.
You may start using vacation rental software to manage guest communication, synchronize schedules, and coordinate cleanings. If you’re having trouble deciding, use our guide to choose the best software for your requirements.
Other automation concepts include:
- Automated check-in/check-out
- Use of smart facilities (a digital welcome book, smart thermostat, etc.)
- Bookkeeping automation
- In addition to ensuring the seamless operation of your company, you’ll be able to improve the visitor experience and increase your rental arbitrage earnings.
How Much Money Can You Make With Rental Arbitrage?
The number of vacation rentals you have and the location in which they are situated will determine your earnings. Rental arbitrage has a lot of promise, and with the appropriate business model, you can make two or three times as much money as you spend on your home.
Rent is $1,500 a month. You rent out for $350 exclusively on weekends. You may make $3,500 by hosting your visitors for ten weekends. You’ll be able to pay your rent and have $2,000 leftover to cover the remaining expenses for example are $500. With this you are left with $1500 to roll into expanding your business
Your revenue will be substantially bigger if you manage more than one home or rent them out more often than merely on weekends. A well-thought-out pricing plan will also enable you to generate more money while maintaining the same quality of service for your customers.
What Is the Secret to Airbnb Arbitrage Success?
Your company objectives will mostly determine your profit formula. However, you may obtain a basic indication of whether you can earn a profit by calculating the weighted average rate for your region.
The formula is as follows:
1. Compile a weekly and weekend average of your area’s daily rental rates
This information is available straight from Airbnb listings. Simply look for similar houses in your neighborhood and make a list of their weekday and weekend pricing. To make things simpler, use a spreadsheet.
2. Determine the weighted average Airbnb rate for all properties
(Weekday Average Airbnb Rate * 5 + Weekend Average Airbnb Rate * 2) / 7 = Weighted Average Airbnb Rate
For example, if the average Airbnb rate during the week is $50 and the average Airbnb rate over the weekend is $100, the Weighted Average Airbnb Rate is $64 because ($50 * 5 + $100 * 2) / 7 = $64.
3. Make a day-by-day breakdown of the cost of your property expenses
To calculate the daily cost of your property expenditures, multiply your total monthly property costs by 30.
The cost of your Property Expenses by Day is $67 if your total property expenditures (including rent and other fees) are $2,000 per month.
4. Subtract your daily property costs from the weighted average Airbnb
The Final Ratio is calculated by dividing the weighted average rate by your daily property expenses. It can assist you in determining how many days per month your property must be rented to make a profit.
The ultimate ratio in this case is $64/$67 = 0.95.
This implies that you’ll need to rent out your house for the bulk of the month to make a profit.
If this ratio is more than one, it suggests you may make a profit by renting for fewer days throughout the month.
If your Weighted Average Airbnb Rate is $125 and your Property Expenses by Day are still $67, your Final Ratio is 1.87 ($125/$67), indicating that you’ll be able to break even in less than a month.
You should aim for a property with a Final Ratio of 2.0 or higher while arbitraging. In this manner, you can ensure that your property at least breaks even every month. You’ll have more freedom if you strive for a higher Final Ratio.
What Are the Disadvantages of Airbnb Rental Arbitrage?
You should be aware of the hazards if you wish to rent Airbnb arbitrage. Here are some of the most significant dangers to be aware of:
- Unexpected Occurrences
Will you be able to make a profit even if you can’t rent your house for a few months? What if a natural calamity strikes your area? Consider all possible hazards when estimating the minimal profit your Airbnb company should achieve to avoid going into the red.
- The Changing Market Situation
Recognize that market circumstances are always shifting. As a consequence, your property’s booking demand might fluctuate dramatically from month to month. You are still exposed to the shifting winds of the general housing market, just as you are in conventional rental real estate.
- Unpredictable Income
Will the amount of money you make through Airbnb be affected by the seasons? This is something you should consider when choosing a location for your firm.
You may have a large stream of reservations at times, while you may not make much money at other times. Even though your property is subject to seasonal fluctuations, you may manage your revenue by offering special deals and discounts to your visitors.
- Local Rules and Regulations
You must ensure that you conform to local municipal standards to rent a condominium or apartment property.
There may also be restrictions imposed by your Homeowners’ Association (HOA) that prevent you from renting out your home on a short-term basis. Before you buy or lease a new home, be sure you’re aware of the rules.
Because you don’t need to own a house to become an Airbnb host, making money through Airbnb arbitrage is becoming increasingly common. You will be able to pay your rent and have a chance to become a successful full-time host by completing comprehensive market research and receiving the essential permissions.
You may go one step further and automate your company to improve your business and raise the visitor experience. More time saved on normal operations will allow you to expand your company and, as a result, your vacation rental revenue.