Feb 21, 2020
How to Make Money With Vacation Rental Arbitrage
The current increase in vacation rental platforms means that more homeowners are considering switching from long-term rentals to short-term rentals. Plus, in the right market, starting an Airbnb business can offer a better return on investment than a traditional real estate investment.
Thanks to vacation rental arbitrage, you might even be able to take advantage of the beaming potential offered by the short-term rental market without owning your own property. Rental arbitrage refers to the practice of renting a property with the sole purpose of subleasing it again on rental platforms like Airbnb. If the local regulations do not prohibit it and you have the permission of the property owner in writing, rental arbitrage is legal.
Let’s discuss how you can get started with this promising business model.
Do Your Market Research
In order to generate a profit with vacation rental arbitrage, you need to be able to list your property at a daily rate that is more than your property expenses. Though, this daily rate must be less than what a traveler would typically have to pay for a hotel room in the area.
There are two major factors that you should consider when researching the market - location and local regulations. The location will play a major factor in the feasibility. In order to guarantee a steady flow of income, it is better to find a property in an area that is popular amongst tourists. Though, before signing any rental agreement, first, research the occupancy rate on average for the area and the daily rates of similar rentals in the area.
After you have shortlisted potential areas, study the local regulations. Several cities have started to introduce strict regulations regarding short-term rentals that include annual night limits. In fact, in certain cities, it could be illegal to rent out your property on Airbnb and similar platforms which would rule out this city for vacation rental arbitrage altogether.
Calculate Your Costs
While your rent will be your biggest expense, there are other costs involved in vacation rental arbitrage too. These include: deposit, application fee, insurance, licensing, permits and/or other legal fees, cleaning and maintenance. Then, you will also have to buy furniture and appliances.
List Your Property on Rental Platforms
While you might be tempted to cut out the middleman and simply create your own website, vacation rental platforms like Airbnb, Vrbo, Booking.com, etc. generate a significant amount of traffic. After all, consumers simply trust big brands more.
So, start by listing your property on the main vacation rental platforms. Luckily, there are tools available to help you manage your calendars which means that you can safely use multiple sites.
Optimize Your Listing to Get More Bookings
After you have created your Airbnb listing, you need to shift your attention to how you can boost your ranking on the site. Better ranking means more traffic which ultimately translates to more bookings.
While it is not a “create-it-and-forget-it” approach, luckily all it takes are simple actions to help your listing stand out. The right cover photo, a catchy title, and compelling description will go a far way to help set your listing apart from similar properties.
Use Vacation Rental Software
Property management includes many time-consuming tasks and if you want to scale your business, you will need to take advantage of all the available tools. As mentioned earlier, there are tools available that can help you to sync your calendars allowing you to list on multiple sites without having to fear dreaded double-bookings. In addition to calendar synchronization, vacation rental software can also help you to automate your communication with guests, manage the cleanings and automate many of your other routine tasks.
Vacation rental arbitrage gives you the opportunity to enjoy the rewarding experience of working in the vacation rental industry, without having to own your own property. That being said, to be profitable and remain on the right side of the law, you need to do your due diligence first. So, if you have identified promising markets, create a business plan and start approaching property owners.