How to start an Airbnb Arbitrage business without owning property: A Step-by-Step Guide

If you've ever dreamed of diving into the world of real estate investing but were deterred by the mountains of capital required, it's time to shift your perspective. With an Airbnb Rental Arbitrage business, you can leverage business credit and the power of short-term vacation rental sites by simultaneously reducing your risk as a business owner, without even having to own a property.

Traditional real estate investing typically demands a substantial upfront investment including high closing costs. You're locked into the long-term game, patiently waiting for appreciation and rental income to roll in.

But with Airbnb Rental Arbitrage, you don't own the property and are not bound to a multi-year contract with the bank. You generate income almost immediately, for a multiple of what you have rented the home for.

What exactly is an Airbnb Arbitrage business?

An Airbnb Arbitrage business involves renting properties and then subleasing them as short-term rentals on platforms like Airbnb to generate profit. It's a unique way to monetize the sharing economy and capitalize on the growing demand for short-term accommodations.

An Airbnb Arbitrage business involves identifying and renting properties with potential and then listing them as short-term vacation rentals on platforms like Airbnb to generate profit. It's a unique way to capitalize on the $100 Billion short-term rental market.

Is an Airbnb Arbitrage Business Profitable?

Absolutely, the hospitality industry is booming, especially now after the pandemic. Airbnb hit just recently a record of bookings despite recession fears. People are eager to travel the world again, and Airbnb rentals usually are more affordable, flexible, and offer a more unique experience for guests than hotels.

1. Do Research to find profitable Airbnb Arbitrage Opportunities

The key to a successful Airbnb arbitrage business is to find the right city or area that promises high demand and optimal returns for your short-term rental. Look for places where the demand for vacation housing exceeds the current supply.

Consider factors such as local attractions, proximity to major events, and seasonality. A location near popular festivals, business conferences, or tourist hotspots can significantly boost your rental income.

Your goal during this research phase is to piece together a comprehensive understanding of the opportunities available in your chosen location. Keep in mind, that you're looking for an opportunity to create a profitable arbitrage business.

You should also keep an eye on: 

1. Seasonality: Understand the seasonality of your chosen area. For instance, coastal destinations may experience peak seasons during the summer. Align your strategy with these trends to maximize your earnings.
2. Local Economy: Research the local economy and job market. A robust job market can lead to increased demand for short-term housing, particularly for business travelers.
3. Regulatory Environment: Be aware of any legal or regulatory restrictions related to short-term rentals in your chosen location. Compliance is essential to prevent potential issues down the road.

Utilize Property Research tools like AirDNA

AirDNA is an invaluable data analytics tool that offers an overload of insights that can help you find the right rental property. Here are some of their features:

• Earning Potential: Reveal the earning potential of specific properties, giving you an idea of the revenue you can expect to generate. It provides revenue projections, average daily rates, and occupancy rates for different properties, enabling you to make informed choices.
• Market Trends: Stay informed about market trends and changes in your selected location. Knowing when demand surges and when it wanes can help you optimize your pricing and availability.
• Competitive Analysis: Assess your competition by studying other Airbnb listings in your chosen area. Analyze their pricing strategies, property types, and guest reviews. Learn from their strengths and weaknesses to stand out in the market.

2. Register your Airbnb Arbitrage Business to get Business Credit

As an Airbnb Arbitrage Business owner, you can enjoy several distinct advantages over individuals who list their homes on Airbnb as a side hustle.

Some advantages include:

• Financial Protection: Your personal and business assets are separated, protecting your personal wealth from business risk.
• Access to Business Credit: Building a strong business credit history provides access to loans and financing for expanding your operations.
• Tax Benefits: Business expenses become tax-deductible, reducing your overall tax liability and increasing your overall profit.

Here is how to register Your Airbnb Rental

LegalZoom is an online service that simplifies and streamlines the process of officially registering your arbitrage business. The platform offers to register your business cost free (excluding filing fees).

1. Choose a Legal Structure: Many Airbnb Arbitrage entrepreneurs opt for an LLC, as it offers liability protection while being relatively simple to set up. 
2. Register with state agencies: You'll need to register your business with relevant state authorities. This process typically involves filing the necessary forms and paying the filing fees.
3. Obtain an EIN: An Employer Identification Number is required for tax purposes. You can obtain an EIN from the IRS online, and it's essential for opening a business bank account.
4. Set Up a Business Bank Account: Open a business bank account to manage your Airbnb rental arbitrage business's money separately from your personal finances.
5. Start building Business Credit: Once your Airbnb rental arbitrage business is registered and operational, start building a business credit history. Make timely payments on your business expenses and loans. 

3. Calculate Potential Profits of Your Airbnb Rental Property

Before you jump right in and rent a home, it's vital to set a clear budget and know how much revenue you can expect from (rental property). This step is important because you can determine a home's profitability before renting it.

Instead of using an expensive accounting service like QuickBooks, you can use Excel to track your finances instead. Excel offers numerous benefits compared to other tools, it is free, easy to use, and customizable to fit your business needs.

If you did your research correctly, then you should approximately know what the earnings potential of your Airbnb rental property in your desired area will be.

Let's say, for example, the Average Daily Rate of a property in your area is $226 with an occupancy rate of 68%. This means that you can expect to make $54.152 a year, which is $4,506.12 a month.

Annual Revenue = $226 x 0.68 x 365 = $54,152

Now that you know how much revenue you can expect, it is time to calculate the expenses.

While the percentage of expenses for an Airbnb property can vary depending on several factors, including location, property size, and specific costs, here's a general breakdown of some common expense categories and the percentage range they might typically represent in relation to the property's gross revenue:

Monthly Revenue: $4,506.12

• Rent or Mortgage (30% = $1,351.84)
• Cleaning and Maintenance (7% = $315.43)
• Utilities (7% = $315.43)
• Internet and Cable/Streaming Services (2% = $90.12)
• Taxes and Insurance (8% = $360.49)
• Marketing and Advertising (4% = $180.24)
• Supplies (2% = $90.12)
• Miscellaneous Expenses (7% = $315.43)

Profit: Monthly Revenue ($4,506.12) - Monthly Cost ($2,998.10) = $1,508.02

Based on the revenue of $4,506.12, your Airbnb arbitrage business would make $1,508.02 profit each month with just one property.

Related: How to Track your Airbnb Income and Expenses

4. Secure a Rental Property That You Can List on Airbnb

Thanks to platforms like Zillow it is easier than ever to find properties for rent that fit your needs and budget. The platform also provides helpful information about the neighborhoods where the properties are located. You can check out crime rates and walk scores. These factors are good to know because they will affect how guests will rate your listing on Airbnb.

Here are Some Tips on How To Find Rental Properties on Zillow:

1. Enter your desired location, property type, and other criteria in the search bar
2. Apply filters, including the price range, to narrow down options
3. Examine property listings, review photos, and assess property details.
4. Contact property managers or landlords to schedule viewings and ask questions.
5. Carefully review lease agreements to ensure they allow for short-term rentals.
6. Conduct due diligence by investigating the property's history, maintenance records, and condition.
7. Finalize the rental agreement and ensure you have all the necessary documents for Airbnb hosting.

With just 10 minutes of research on Zillow, We found a property in very good condition in Scottsdale, AZ for rent that fits in our budget.

5. Furnish and Fix Up your Airbnb Rental Property

Now, it's time to turn that space into an Airbnb haven that guests will adore. This is probably the most important part of your journey to build a successful arbitrage business.

Every business needs some sort of upfront investment, Airbnb Arbitrage business included. Besides the money you need for research tools and filing fees to register your business, you also need to bring up some money to furnish your rental property.

It can cost you between $5.000 and $10.000 to make your Airbnb property inviting, comfortable, and stylish. Even if you offer the best rate, in the best area, people will not book your bed and breakfast, if it looks like a college dorm.

Tips for Saving Money on Airbnb Property Furnishing:

1. Prioritize Essentials: Start with the basics to ensure your property is functional and comfortable. You can add decorative items later as your budget allows. Focus on essential furniture, appliances, and fixtures.
2. Shop Secondhand: Scour local thrift stores, online marketplaces like Facebook Marketplace, or estate sales for gently used furniture and decor. You can often find quality items at a fraction of the cost.
3. Discount Stores: Explore budget-friendly, low-cost furniture stores or discount outlets for stylish but affordable furnishings. Brands like IKEA, Wayfair, and Amazon offer a wide range of options.
4. Do-It-Yourself: Consider DIY projects to save money. Upcycling old furniture or refinishing pieces can give your property a unique charm.
5. Bulk Purchase: Consider purchasing multiple items from a single retailer for a better deal.

Low-Cost Airbnb Rental Essential Items for Furnishing:

1. Comfortable Mattresses: Invest in comfortable, high-quality mattresses to ensure a good night's sleep for your guests.
2. Sofa and Coffee Table: A stylish sofa and coffee table go a long way.
3. Dining Set: A dining table and chairs for meals and communal gatherings.
4. Kitchen Appliances: Quality appliances, such as a refrigerator, stove, and microwave, are essential for guests who prefer to cook.
5. Cookware and Utensils: Stock the kitchen with essential cookware, utensils, and dinnerware.
6. Linens and Towels: Provide clean, high-quality linens, pillows, and towels for a comfortable stay.
7. Entertainment Center: A TV, streaming service, and Wi-Fi for entertainment.
8. Storage Solutions: Wardrobes, dressers, or shelving to keep the space organized and clutter-free.
9. Window Coverings: Blinds or curtains for privacy and controlling natural light.
10. Cleaning Supplies: Ensure you have cleaning essentials on hand for maintaining the property between guest stays.

6. Prepare your listing for Airbnb

With your beautifully furnished and fixed-up rental property ready, it's time to prepare your property to be listed on Airbnb. The success of your Airbnb Arbitrage business depends not only on the property itself but also on how you present it to potential guests. Follow these steps to ensure your listing stands out and offers an irresistible guest experience:

#1 Hire a Professional Photographer

Invest in professional photography to showcase your property in the best light. High-quality images can significantly impact a guest's decision to book. Don't try to save money by taking pictures with your phone.

#2 Create an Engaging Property Listing Title

Your listing's title should be attention-grabbing and descriptive. Highlight unique features, location, or a memorable selling point. ChatGPT can help you come up with ideas.

#3 Write Detailed and Honest Property Description

Provide a detailed and accurate description of your property. Mention the number of bedrooms, bathrooms, amenities, and any special features. Be honest and transparent to build trust with potential guests.

#4 Craft a competitive pricing strategy

Charging the same nightly rate for your rental property every day of the year is not a good strategy. Instead, your pricing should reflect the flow of demand in your area. Tools like Wheelhouse and PriceLabs will help you turn your property into a money-making machine.

#5 Set clear House Rules

Clearly outline your house rules, including check-in/check-out times, whether pets are allowed, and any other essential guidelines.

Airbnb Welcome Book

Learn More

#6 Provide your guests with a Welcome Guide

Create a welcome guide with important information about the property, local attractions, and instructions for using appliances or amenities.

7. List your Rental Property on Airbnb and other short-term rental sites

Your Airbnb arbitrage business is almost complete and ready to make money. Now it's time to finally list your property on Airbnb. Diversify your business and list it on other platforms like Vrbo and FlipKey.

To get bookings quickly, you should also harness the power of SEO. Just like Google, Airbnb, and similar websites are search engines that try to connect the user with the best offer possible. 

Make sure to focus on 3-5 main keywords and use them throughout your description to ensure your listing ranks higher in search results. Discount your listing heavily for the first couple of weeks to get a booking as soon as possible.  

Tips to get your Airbnb Arbitrage Business off the ground fast

• Turn on Instant Book
• Avoid canceling bookings
• Respond to guests fast
• Get reviews from friends and family
• Choose a cancellation policy that is clear and flexible

Conclusion

An Airbnb arbitrage business is your ticket to making money while embracing the ever-growing demand for unique short-term vacation rentals. This blend of property management and entrepreneurship offers a world of opportunity for hosts looking to harness high-income skills by turning a home into a money-generating asset.

By following the steps outlined in this guide, from property selection to legal considerations, you can create a thriving business with low upfront costs that delivers memorable guest experiences and ensures a steady stream of income.