Rental Arbitrage for Airbnb
WHAT IS RENTAL ARBITRAGE?
The term ‘Rental Arbitrage’ refers to the process of renting out already rented property. How does it work? It’s pretty simple. You take an accommodation that somebody could live there longer, but you choose to make that home available by night or week. In concise form, you use a lease to gain control of a property and then place it onto the short-term rental market. You pay rent and collect the markup on Airbnb.
Rental Arbitrage is no longer speculative or disruptive. It is a fixture in the real estate investing strategy. You need to understand it, how it works, what are the pros and cons. You may end up needing this strategy in your tool bag one day.
You must understand that Rental Arbitrage is not just renting a random property to profit. It is a supply and demand thing. And if you’re holding on to a property or plan on buying a property, then you’re competing for the tenants the same way every other building is competing.
Now you must be wondering if it’s legal to sublet or not. As you know, it is an agreement between two parties. So, if your landlord allows you to sublet, it’s no longer against the contract. But first, you need to negotiate with the landlord and convince him for rental arbitrage.
WHY HAS SHORT-TERM RENTALS BECOME POPULAR?
Short-term rentals are not something to be afraid of; they are simply tools with different operating standards that need well execution. It is just another strategy for getting your property full and paying your mortgage. By putting a long-term rental on the short-term rental market, you might go a day or two without a tenant. But if you do things right, you’ll stay over 80% occupied, and you’re doing it on a markup. You can charge double or even more of what your daily rent would be.
To put it in a nutshell, short-term rental means offering someone a furnished home with all the basic amenities that an individual needs to live there. Therefore, this concept will be something that people gravitate towards anyway. Short-term rentals are ideal for the working segment, especially those who work remotely and live in different locations. Landlords have more access to the accommodation, and your tenants don’t have leases or evictions.
Short-term rental is an excellent option to get your mortgage and get paid. If you want to take advantage of deflation and the softening in the rental market, you can consider the fact that landlords need tenants, and you can broker those agreements. You will make more money than you would with a regular tenant.
TOP THREE REASONS TO CONSIDER RENTAL ARBITRAGE
Rental Arbitrage is a viable strategy for maintaining your home or keeping positive upkeep in your home. Also, if you ever think about selling the property in the near future, you’ll know it’s in excellent condition.
Top three reasons to consider rental Arbitrage are:
You don’t need to purchase the property: One of the key factors that make rental arbitrage a rewarding experience. You can host the property without owning it. Not everyone is fortunate enough to own a piece of land in the desired location across different cities. But thanks to Rental Arbitrage, it’s now possible to do so.
More Profit: Once you pay the rent, the rest of the month is your profit. You charge double or triple per night according to the location and demand. It will help you buy more assets in the future. You can save and invest in other enterprises as well.
Easy startup: All you need is an understanding landlord allowing you to run his property along with the laws of that particular city. You sign the lease, organize the home and advertise it.
There are a few other benefits that you get as Rental Arbitrage professional:
Less Remodel Cost: You don’t have to spend thousands of dollars on the renovation as this situation may arise if you’re dealing with a long-term occupant. There will be maintenance costs, but it won’t hit your pocket that much. If something needs to get repaired, you can get it repaired immediately.
Take advantage of the Property with Easy Access: You can also use the home for yourself as the lease is under your name. Unlike long-term rentals where you check in after a year or more, here you can visit frequently. You can go in every couple of days and make sure that everything is in good order.
Rental Arbitrage is undoubtedly a lucrative business, but it also comes with a risk. The major risk involved is that you sign a year-long lease. It’s like you’re on the hook for a lease. If you don’t find the tenant frequently, you might grapple with paying the rent. Considering the ongoing pandemic situation, you may witness a drop. But there’s always a risk involved in the business. You need a stable mindset and appropriate knowledge to make it work.
BONUS ON HOW TO FIND LANDLORDS OPEN TO THE CONCEPT
You can find a bunch of different landlords that see the value of rental arbitrage and how it’s shaping the modern world. Now the question is, why would a landlord ever let you do this? It’s not that complex if you pitch correctly. If you are willing to address the problem and become a solution, there’s always space for you.
When you plan to negotiate with an owner, you need to understand that they have pain too. You can’t just go around walking door to door with your handout asking for their property for Airbnb. There will be a clear No if you put it up like this. You need to pay attention to their needs. Landlord ship isn’t a pleasure business. You’re bound to certain responsibilities, and the onus is on you to run it smoothly.
You probably want to educate them on how short-term rentals work. Tell them about how the world is moving towards modular living and how the short-term rental market is becoming more in vogue. It’s a win-win situation for you and the landlord as well.
You tell the owner that you would like to manage their property. Give them a vision that their life will be easier as they don’t have to deal with long-term tenants and evictions. Explain to them that you’re going to run the home and take care of the future tenants. You need to assure them that you’ll take good care of the maintenance part and other stuff. There’s no outright guarantee if an X landlord will say yes, but most will agree with you. Once they realize that, they are probably going to accept the offer. By doing so, you’re essentially removing them from the hardship of the landlord ship.
You can either pay your landlord the rent outright. Otherwise, you can manage risk and ask the landlord to give you some percentage of the total revenue. It varies from landlord to landlord. It also depends on your pitch and relationship with the landowner.
Airbnb is a growing and credible platform. Rental Arbitrage might sound to you a new concept, but that’s not the case. It’s been in practice for decades in subtle ways. It’s just made dynamic by Airbnb. Corporate housing companies do this all the time as well. Properties make more money in the hospitality market than in the long-term real estate market.
Before you plan on engaging in the practice of rental Arbitrage, you first want to learn how much money you can make on the other side of the deal because you’re the one undergoing a risk by taking a lease from a landlord. But now, you can intentionally sign year-long or multi-year leases to do something similar to corporate houses. However, you don’t find your customers first. You instead have to advertise the property once the setup is done. Make the home marketable, and then lookout for the tenants.
You will pretty much offset all of your costs for housekeeping, internet, cleaning supplies, and other stuff that guests will use during their stay, including the rent you’ve to pay to the landlord. You’re going to smartly manage prices and take advantage of days that have high demand. Then sell off the days with low demand at a lower price. Now, that’s the kind of growth you experience with rental arbitrage.