Young realty inc.
How To Become An AirBnb Host
Wednesday, February 22, 2023
Airbnb arbitrage is a real estate business model that allows an Airbnb host to sublease a long-term rental property for the purpose of short-term renting on the Airbnb platform. To put it even more simply, Airbnb rental arbitrage is the practice of renting a property with the express purpose of subletting it on Airbnb, with permission from the homeowner, whether that is you or not!
When most people think of real estate investing, they usually assume a few things. One, they think they need a lot of money to get started. Two, they think they need to own a lot of property to make money. That’s not true, thanks to Airbnb arbitrage, it's a unique and clever way to create a cash flow over above what you normally would get from traditional renting, and the great part about Airbnb arbitrage is that you don't own the property.
Home prices have reached all-time highs, and acquiring them at lower prices has become more and more difficult. If you’re trying to invest in real estate, that’s a tough proposition.
However, through the Airbnb rental arbitrage method, you can work with a landlord to rent out their property on Airbnb and make a lot of money doing so. The landlord receives their monthly rent from you, and you receive all the profits over and above the rent being paid, it's a win-win!
Is it risk-free? No. But it can be extremely rewarding.
what is airbnb arbitrage?
Airbnb arbitrage is the practice of renting out a property and then subleasing it on a short-term rental platform such as Airbnb, VRBO, or Homeaway.
In reference to Airbnb, it means an investor rents a property from a landlord, then lists it on Airbnb for them, and collects the difference. For example, let’s say you rent a condo for $1,500 per month and list it on Airbnb for $4,500 per month. Before expenses, you collect $3,000 per month in profit. (Keep in mind that expenses can range from $250 to $1,000-plus per month, depending on your strategy.)
The Airbnb arbitrage strategy has been used for a long time; it’s just not discussed as often as other popular strategies like the BRRRR method or the buy-and-hold strategy. In fact, rental arbitrage finds its roots, just like many creative investment strategies, in the realm of commercial real estate, where subtenants are very common, think shared office facilities such as Coworking, Regus or Wework spaces. The main tenant rents from the landlord, and then rents out smaller spaces to other people and companies.
With that being said, most rental arbitrage investors aim to make around $1,000 net profit per property—although you can make much more, depending on the season, and the demand for what you are offering.
If you currently rent your home from a landlord and want to dip your feet into real estate investing, you could attempt to convince your landlord to let you list the property on Airbnb as a sublet property, pay off your rent, hand over the landlord’s share, and pocket the rest.
is rental arbitrage legal?
This is the most common question we get asked. Is this legal?
Fortunately, yes! It’s legal, depending on where you live.
Vacation rental property laws have been evolving rapidly in many cities around the United States and Canada. Be sure to research your local jurisdictions to ensure Airbnb and other vacation rentals are legal there. Also, be sure to check whether you’ll need a hospitality license, as some areas require it.
Once you determine the legality based on your area, you’ll have to ask a landlord for permission. Be honest about your intentions. Some landlords won’t agree, and some will. You’ll just have to ask around.
pros and cons of arbitrage...
- You don’t need much starting capital: a short-term rental investment could be for you if you don’t have much money to invest. You won’t need a down payment, only enough money to cover rent for the duration of the long-term lease.
- You have fewer responsibilities: under the Airbnb rental arbitrage model, the landlord is responsible for all major repairs to the property, just as if you were the tenant. For example, the landlord will handle external repairs such as roofing or plumbing.
- Fewer expenses: As an Airbnb arbitrage host, you only need to pay the rent. The landlord handles all property taxes.
- Less risk: If you find that Airbnb hosting gives you poor occupancy rates, you can always stop hosting and renting the place, provided the lease has a break.
- You will need legal help: Airbnb and subletting laws vary significantly from state to state and even city by city. You will need to be very certain of local rules and regulations, as some communities are very strict on allowing Airbnb hosting; in some places, you may even need to seek permission from your neighbours. For these reasons, you very likely need legal advice or representation.
- There is a lot of paperwork: For the above reasons, but also because there are multiple parties involved, you will need to be very careful when drawing up contracts between you and your landlord and between your and your Airbnb tenants. This can be time consuming and confusing to do.
- You have to commit to rental payments: for the duration of your long-term lease. If you cannot pay the rent, you can face eviction or even a lawsuit, depending on how behind you are.
- You are responsible for any damage to the inside of the property, so you will need to come up with appropriate insurance Airbnb will cover some types of damage. Still, not all, so you’ll need to research how much coverage you’ll need.
how do i convince my landlord?
This is the biggest obstacle, they are ultimately the gate keepers of the keys, and short term rentals don't have the best track record lately.
Learning how to work with landlords is essential to successful rental arbitrage. After all, we’re not trying to be sneaky! Let’s go through all of the ways you can convince the landlord to let you execute your Airbnb arbitrage strategy.
When a landlord rents their property to someone doing rental arbitrage, they can rest assured knowing that they are getting a long-term, business-to-business tenant with a financial incentive to keep their property in tip-top shape year-round. During rental arbitrage, you rent the property at full market rate—or maybe even a little higher to sweeten the deal, as long as it works with your business plan. The property owner’s equity is increasing, and they’re getting a little cash flow every month.
Some investors worry that Airbnb guests will destroy the house. Every now and then, someone may do something destructive—that’s just part of the rental business, and it’s usually a very small percentage of guests.
It’s a risk with traditional renters, too. Plus, with Airbnb, you can take courses of action to get reimbursed—not to mention a free $1 million liability policy for listed properties.
When someone using the Airbnb arbitrage model rents a property from a landlord, keeping the property pristine is in their best interest. For the landlord, this means the property will be in top-selling condition all year.
sweeten the pot for the landlord
1. Offer an additional layer of third-party insurance. For security-conscious landlords who are security-conscious, this appeals to their need for more certainty. You can shop various companies for a third-party insurance policy that you can layer on top of the $1 million policy that you already have. This offers plenty of protection against just about any possible scenario. And remember: As long as the numbers make sense financially, this is a good strategy if it helps to get the deal done.
2. Offer profit-sharing. This is where you offer a percentage of the net profit of each deal that you’re doing with the landlord. This comes from a concept in private equity known as economic alignment. The basic premise is that when a party has a financial incentive for a business’s success, they’re more willing to help it succeed. You may need to give away a large portion of the profit of your first few deals in order to build up your portfolio and develop a track record. You might think this isn’t fair, but this may be exactly what you need to do to convince the landlord. Once you have several deals under your belt, you have more bargaining leverage, and you can take a larger share of the profits.
3. Offer to rent multiple properties from them at once. Expand with them as they build out their portfolio. Many single-family-home investors are looking for equity build-up in each of their properties over long periods. If you can prove to them that your model works, then you can offer to expand alongside them to accomplish their goals. With this strategy, you and the landlord become joint venture partners, each helping the other accomplish their investment goals.
conclusion
Starting an Airbnb arbitrage business is one of the best models for people without much real estate experience or startup capital because many of the mechanics are handled for you. However, it’s even better if you have these things because you can launch and scale your business much faster.
If you want to become the next AirBnb Real Estate Mogul...CLICK HERE TO FIND OUT HOW TO MAKE MONEY WITH AIRBNB.
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