Rental arbitrage is the concept of leasing someone else’s property and sub leasing the property to a third party. In the past, sub-leasing was used as a way to find someone else to take over your rent when you moved. Now, entrepreneurs are using Airbnb to rent out the property to guests who will pay them much more than what their lease costs. This is the concept of Arbitrage, which is when you take one good and sell it for a higher price than you paid for it.
The way the process starts is by contacting landlords of properties that you could foresee being successful on Airbnb. Typically, you should come to them with a plan for what you will do with the property and ease their concerns over guaranteed payment and the maintenance items under $100 that you will take care of. Additionally, you should let them know that a cleaner will be servicing the property on a very regular schedule, meaning that the unit is inspected frequently. If the landlord wishes to move forward, you will want to make sure that the Airbnb language is noted in the lease itself.
Before signing the lease, you will want to use the financial information you received from the Landlord and calculate the total costs in comparison to the amount of money you’ll make on Airbnb. Not every deal is a good deal, so keep this in mind and do not be discouraged when it’s not a good deal. The Landlord will give you the cost of the lease, however, you should also be taking in the cost of the furniture into account as well.
Next, you have the option of paying for the furniture out of pocket or to finance the furniture with a 0% interest 18-month credit card. As long as you use the Airbnb to pay off the credit card first or at least have a plan to pay it off on a monthly basis, there should be no problems with this approach. When buying furniture, it is important that it is durable as well as unique and stylish. Replacing furniture is not fun, ideal or inexpensive which is why it does matter what you purchase.
Additionally, make sure you have umbrella insurance to protect yourself and your business. There may be problems that come up and being uninsured is the worst problem you could have, especially in instances of general liability. So make sure you are protecting yourself with a policy that has at least $1 million dollars of general liability protection.
Once you’ve gotten this far, all that’s left is to have a professional photographer take photos and to create your listing on Airbnb. These steps are crucial because the quality of your pictures will effect your occupancy rates and the amount of revenue you make in a month. Your listing must be accurate but also reflect all of the wonderful attributes of the property and location.
A couple parting words over rental arbitrage. This process is not a form of investing in Real Estate; you can only expect cashflow. There will not be equity pay down, appreciation or depreciation benefits. You can make a lot of money using rental arbitrage, but you should invest the money you make into actual properties. Additionally, because you are leasing properties, this could hurt your ability to finance the properties you wish to invest in. You will need to prove to the bank that you’ve made solid income for 2 years, before they will consider your income to be consistent.