What is Airbnb Arbitrage?
By definition, rental arbitrage is the act of renting out an already rented property. In Airbnb Arbitrage, it is the act of renting a property over the long term and subletting them on the Airbnb platform.
It is a business model that leverages other people’s properties without actually owning them through subleasing.
How do I get started?
1. Define your target market
As with other types of businesses, the number one rule is to identify your target market. Who or what specific group do you want to serve?
Are their families out on vacation? Business travelers? Bunch of friends who want a bonding session? Company Team building exercise? Or simply lovers who wish to enjoy a weekend get-away?
More often, it is not enough to define your target market. One has to study their habits and lifestyles.
2. Find a niche
Identify which group among your target market is under-served. Find where there are only a few listings in Airbnb that would cater to their rental needs.
Find a property that would best suit these needs, and this could be your niche. A niche can be a powerful tool in any business, especially in rental arbitrage.
3. Define the type of property that you would like to leverage
After defining your target market and selecting a niche, you should identify your property – single detached, townhouse, bungalow, two-story house with several rooms, or even an entire apartment. Find the rental property that would best serve the target market or niche you have chosen to focus your resources on.
4. Do your research
Check on the location and research where you can best serve your target market. Find a ‘goldmine’ area with a high demand for rental property and a high volume of rental transactions.
There are various ways to do this:
a. Connect with local property managers.
b. Join real estate forums on social media.
c. Leverage Airbnb data analytics.
d. Manually search for property listings in your target area.
e. Utilize market research software, such as Tailored Region Explorer, to efficiently navigate property areas at the shortest time possible.
The main idea is to focus on properties that are tailor-fit to your target market’s needs and subsequently achieve your business goals.
5. Do your mathematics
Spend an ample amount of time to project your potential profits. Make sure to check on average occupancy rates, monthly rental to your lessor, and rental fees to be charged. Also, take into account any untoward miscellaneous expenses that may occur from your end.
6. Check real estate laws and regulations
Different states may require different rules on property leasing. Nobody wants to handle difficult legal paperwork and jargon, but it can save you many headaches in the future. Not following the real estate laws and regulations in your area can result in a high amount of fees and legal trouble that can ruin your business. Also, check on tax rates to be applied and calculate your finances appropriately.
The best example to do airbnb arbitrage is to look for a property in a premier location like near the airport or beaches, then renting it out on Airbnb travelers and tourists.
How to get started?
Leverage market research data
Make use of software like Airbtics to help your research. Create actionable plans after doing market research. This step is an incredibly important part of your journey, and it is done right at the start. Knowledge truly is power in this scenario, and the more research you use, the higher chance you have at success.
Prepare your pitch with the property lessor
Make sure your credit rating is good. Lessors will not want to conduct business which just anyone. They need you to be trustworthy and reliable enough for them to entrust their property to you. Back up your business proposition with proof of good business dealings with previous or existing partners.
Offer a win-win situation
Secure a connection with your property lessor and build instant rapport. Identify specific needs that you could fill in. For example, his property is on a long-term mortgage. In this case, there are financial needs to address that your proposition can potentially alleviate. Make an offer wherein both of you benefit, and you have a higher chance of signing that contract.
Offer to make simple renovations if necessary
Maybe the bedrooms need a little make-over, or there might be a leak in the faucet where plumbing chores come in handy. Simple renovations can increase the value of the property by a significant amount. It also helps make your rental property even more attractive and in demand to your potential customers.
Find potential clients
Social media is the go-to platform for your business. You may also find potential clients by advertising your properties for rent on Airbnb. The goal here is to generate interest in your property so that many people see it. Do not neglect to do your marketing as this is the main way your business will see customers.
How profitable is Airbnb Arbitrage?
The profitability depends on certain factors: location, amenities, occupancy rates, market trend, and a lot more. Airbnb Arbitrage can be a lucrative business if a market mix is conducted properly – property for your market at the right price and excellent promotion. It can be profitable if you have the right tools and resources to help maintain the business.
What is the advantage of Airbnb Arbitrage?
It is a wise strategic move since daily cash flow improves by doing away with big-ticket real estate investment. Since cash outlay is every month, you can channel cash resources to other expenditures as well. It also requires less capital to start your Airbnb arbitrage than it would take to purchase real estate and rent it out. That would require a significant amount of money, and it takes time to make sure that the house is rentable.
Of course, It is prudent to save earnings derived from Airbnb arbitrage. Scaling your business further, you may want to consider buying your property when the time comes. After all, real estate value appreciates in the long run. Overall, Airbnb arbitrage is a good place to start for aspiring real estate landlords. It is also a smart business choice and a good source of income if done properly. The best time to get started on your Airbnb arbitrage journey is as soon as possible.
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