Did you ever think there would be a day when you can make ridiculously good income in real estate without ever owning the property on a monthly basis? Say hello to Airbnb Arbitrage.
Think of Airbnb arbitrage like this: it’s signing a long-term lease with a property owner (or landlord) for a fixed price, let’s go with an example of $1,500 per month. By putting it up on Airbnb, you are subleasing it except you can make a significantly higher amount of money. In this example, if you can find just $100 per night for this property, and only get it booked for 25 nights, you made $1,000 in profit right there!
Top Markets for Airbnb Arbitrage
- They are in less expensive areas.
- The areas are filled with tourists.
- The gap between the rent rates and the monthly revenue generated from Airbnb.
The most important factor has been the spread between the monthly revenue from Airbnb and the rental rate on the agreement. If you manage to make three, four, or even five times the rent rate, that is definitely worth the Airbnb arbitrage. There are success stories of entrepreneurs who pocket six figures monthly doing this.
Steps to Great Airbnb Arbitrage Return
So how do I know I’m getting myself into a good Airbnb Arbitrage? Once that long-term lease is signed, it automatically puts a debt or liability on you for the next few years depending on the lease term. This is where your research and due diligence come in.
Do your analysis on each property. If you’re buying or selling a house, flipping, wholesaling, or just leasing, you can just check comparables in the nearby area. When coming to a lease agreement and doing Airbnb arbitrage, it becomes a little trickier than that.
Going back to the top markets for Airbnb, there’s one commonality. They are usually filled with tourists. Before Airbnb, whenever someone was visiting out of town, they would usually stay at a hotel or motel. Times have drastically changed due to the service declining in those industries.
When analyzing the potential Airbnb arbitrage, you must check the following:
- Lease Rates. See if it’s worth your investment. For example, New York city? Forget about it.
- Traffic to location. There are a few ways to check this. You can look it up on Zillow to see the Airbnb funnel, you can also just simply look at airline stats to see the most frequently visited areas in the country.
- Neighborhoods. See if the surrounding areas are more of a safe area or dangerous area. You can do this with google earth, looking at the ratings, and other techniques. You never have to visit the property!
If you just simply go to Airbnb, you will be shocked at some of the highest traffic and pursued areas of travel for Airbnb use across the globe. Gypsum, Colorado? Philipsburg, Montana? Broken Bow, Oklahoma?
An Airbnb superhost has a Salt Lake City Single Family House listed for $200 per night. This property comes with 4 bedrooms and 3 bathrooms. The going lease rate for these types of properties in Salt Lake City is around $2,200. So, let’s say you lock in a long-term lease at $2,200 per month. But manage to rent it out for 25 out of 30 nights. That’s $5,000 you managed to generate out of the month and you get to pocket $2,800.
Working from home
Another great contributor to the uptick in Airbnb arbitrage and Airbnb traffic, in general, is the number of companies that allow their employees to work from home. Ever since Covid, there have been many drastic adjustments to the economy and the average American life. A good number of employees have the option to telework or work in a ‘hybrid’ role. For most medium to small-sized firms, it may not make sense to have a workplace depending on the scope of work due to overhead expenses.
This gives the employee the luxury to be what’s known as a digital nomad by traveling frequently and spending their downtime either visiting distant relatives or making new acquaintances. Or simply sightseeing.
Keys to great Airbnb Arbitrage
Anyone can run the numbers and see great profit through this model. However, if you really want to see long-term success, there are a few things that you must do for this to become an everlasting business:
- Buy Great Furniture: Don’t purchase cheap furniture from the thrift store like you are staging a property. Buy unique furniture that is comfortable for your temporary tenants and makes it worth their while. They’re staying at this property for a visit because they want the at-home vibe instead of staying at a hotel.
- Stack Up Reviews: Get as many reviews as you can. Before anyone books your Airbnb, they will want to check to see if it’s worth the investment. They will want to see what other customers experienced. Did others have a bad stay, or did they have a great time?
- Keep the Property Updated: There have been Airbnb landlords that do not keep their properties updated. When you initially invest by signing the lease, make sure the property has an HVAC, furnace, water heater, roof, and overall structure, all in good condition. If you sign a lease in a below-average condition, you are signing up for trouble. If any of the furniture gets damaged, make sure the tenants compensate you and the furniture gets replaced. If other issues arise in the house, make sure those issues are resolved.
- Do Research on The Tenant: Ask them questions, for what reason are they staying? Make sure they do not throw parties. There have been Airbnb lawsuits over tenants using the Airbnb properties for reasons other than stated.
Airbnb Arbitrage has a lot of income potential. And if you get it set up right, you can make a great amount of money using Airbnb. You also have to offer Wi-Fi to the tenants. Offering other amenities will only increase your business tenfold. But what are some of the other amenities…?