Rental Arbitrage - The strategy of renting high end apartments or houses long term (1 year or more) and then re-renting on AirBnB at a higher rate.
EX: Rent an apartment for $3,000 per month for 1 year ($36,000 per year). Get AirBnB insurance ($2k - $3k per year) and some furniture (about $1,500 per room… 1 room with living area and 1 bath = $5,000). Re-rent the same apartment at $250 per night (nice hotel cost in a city) at a 90% occupancy rate for a total of $6,750 ($81,000 per year).
$81,000 (income)
-$2,430 (3% AirBnB service fee)
-$36,000 (rent)
-$3,000 (AirBnB renters / liability insurance)
-$7,000 (furniture… $1,500 BR, $250 BA, $2,750 living, $1,500 kitchen)
= $32,570 profit
Even with a low 65% occupancy rate the income is $59,300 for a $10,870 profit annually. Plus furniture is only a one time expense and should last 3-5 years.
Find a successful AirBnB property and replicate it using AirDnA as a baseline.
Biggest problem with Rental Arbitrage is that most apartments won’t let you sublease… how to find ones that do:
Approach smaller PMs or mom and pop landlords.
Outsource the landlord duties to the PM for a profit per booking.
Be professional and treat this as a business - not a side hustle or hobby.
Live-in the apartment and sublease one room, instead of the entire place.
Offer a longer lease option 2-3 years instead of 1 year. Option-lease contracts...
Only use AirBnB and FlipKey… VRBO charges an annual fee. So does Homeaway and Vacation Rentals.
VRBO and HomeAway are better for longer stays (like 2 weeks, 1 month, 3 months, etc.) or for high value homes, because it’s a set annual fee rather than a service fee.
AirBnB offers more value / less work for your time. Automatic easy bookings, auto price fluctuations, best marketing / SEO, most popular, best review system, etc.
***Strategy: Travel out of your town in peak season or during an annual event and when you are gone, rent out your place for a lot of money.
Need good, bright photos. Nice smiling profile photos. Highlight property location with specifics EX: WATERFRONT 1 mile from beach with INDOOR POOL
Make sure your property is unique! If it doesn’t have a luxury location or feature - make the place quirky or comical and use this in your headline.
Four Elements of an effective AirBnB listing:
Eye Catching Headline
Punchy Descriptions
What are the 5 best selling points in 50 words - bullet points.
Add more detail later - make appliances appear high end by using their brand names.
Offer items unique to the area (ie: kayaks, paddle boards, bikes, etc. for an extra fee)
Create a sense of urgency with a call to action.
Beautiful Photos
Single most important selling tool of your property.
Bright and airy rooms.
Use a wide angle lens from the corner of the room.
Close up arranged / staged shots.
Incredible views or amenities.
Air BnB will send a photographer for a free session.
Air BnB allows three main / profile photos.
Use your biggest room or eye catcher first (indoor pool).
Second photo should be master bedroom.
Cool outdoor space, awesome kitchen, fire pit, pool, awesome view, etc. for third. Something unique.
Following photos should be presented in order of front door to back, to show guests a sequential walk around of the house.
Don’t take multiple photos of the same room with different angles, less is more.
12 photos or less.
Use colorful accents (glass of wine, flowers, cheese plate, nicely folded towels, etc. - beautiful photos are key)
Effective Personal Profiles.
Your profile photo should exude personality, reliability, professionalism and honesty.
Six Tricks to Boost your AirBnB search results:
Respond quickly to every inquiry - link your airbnb inbox to your phone, because you must respond within an hour to be a first page “Superhost”... even if response is just, “let me get back to you shortly”
Re-price and keep your calculator up to date on a weekly basis.
Enable “instant book”... you can vet individuals after they book if they look like they might trash your house.
Link your social media accounts.
Optimize listings for google search (SEO friendly headline).
Must be location and accommodation specific (not “Bungalow in Paradise”
Share your listing on social media and websites.
How to Price your AirBnB
Use AirDnA
Use another algorithm like Elliotandme
Do your own CMA:
Pick 5 similar properties to yours on AirBnB (make sure all have at least 10 reviews)
Check their calendar to see what their forward occupancy rates are.
Do they increase pricing on weekends?
What is the daily rate / weekly rate / monthly rate?
What are the peak seasons?
Create a comparison spreadsheet comparing mid-week vs. weekend pricing and comparing peak season to off-season.
Don’t trust AirBnB’s suggested rate right away. You need to undercut the competition to get some reviews when first starting out… suggestion to start at 75% what you expect to rent for until reviews come in - also the suggested rate is inaccurate.
How to find your daily rates for maximum occupancy / profit:
***TIP: IF you have 25% or more booked more than 3 months out, you need to raise your prices.
AirBnB notes price deductions and improves a listing’s visibility in response. Reducing listings by just 5 dollars per week can make a big impact. - Actively manage your pricing.
Researching hotel prices is another great way to match your property up against the competition.
Suggested Cleaning Fees:
Private Room: $30 - $50
1 Bedroom: $60 - $80
2 Bedrooms: $80 - $100
3 Bedrooms: $100 - $140
4+ Bedrooms: $140 - $200
Minimum Stay Requirements:
Generally only allow 1 or 2 night stays on short notice (within 30 days)
3-4 day minimums are better more than 30 days in advance.
Security Deposit:Don’t charge one, you have insurance. Creates a barrier to entry / booking.
Additional Guests:
Don’t charge an additional guest fee, but do have a maximum number of guests allowed.
TIPS:Get a calendar of local events in your area and jack up the prices for these events.
You can set different minimum night requirements during different seasons or during events (recommended min. 5 nights in peak season or during events).
Make your base rate your lowest acceptable rate (about 25% of your average rate). Users who don’t specify a date range when searching will see this “base rate.” A little bait and switch doesn’t hurt on AirBnB.
Don’t accept reservations more than 12 months in advance. Try to keep them longer than 3 days and make sure to boost weekend pricing.
DECORATIONS
Select an authentic theme… appeal to the greatest number of people at the lowest cost. Use neutral colors or a themed color throughout the house.
Always have a futon or sleeper sofa in the living room to fit more people. Always use king sized beds, unless you have a kids room, then use twin beds. Think of a cot or blow up mattress (or murphy bed). Always maximize your guest space.
Add potpurri near the entrance to make the place smell better. Have a doormat. Have extra outlets on hand.
Put away personal belongings and keep the property anonymous.
Use Ikea, Amazon, Costco, Urbanhome and Court for furniture.
Don’t use cable, just get an Apple TV and hook it up to the smart TV.
Don’t let people host parties or filming sessions.
Create a sense of urgency when people email about an opening by saying something like, “It is open at the moment. I’ve been communicating with someone else today who is interested, but hasn’t confirmed their reservation yet.”
Don’t give discounts - stay steadfast on your price, if anything discount the cleaning fee.
AirBnB tries to stop you from providing personal contact info - for phone numbers in messages put 636 and 345 and 0418 or $636 $345 $0418 if you need to contact them, don’t contract them outside of the system…
Or tell the user to search your property name and find your website… don’t use word “google”
Try to get and give guest info. When they sign in (sign-in book) in and give contact info. For repeat business.
REFUNDS
Go with a strict refund policy on AirBnB (50% refund up to a week prior to arrival, excluding service fees).
Offer refund options if the cancellation is beyond the client’s control:
Option 1: Refund on days booked by another renter or offer a significant discount if they re-book with you at a later date.
If you need to cancel as the landlord, make sure you have a good reason and can tell the resolution center (ie: Sewage issue, hurricane damage, etc.)
Reviews:
Six Review Critera on AirBnB (Accuracy, Cleanliness, Communication, Location, Value, Check-In)
Reviews are not made public until both parties leave a review. Only review people you expect to receive 5 star reviews from. Review 10 days or so after departure.
Never write negative reviews, if you don’t have anything good to say - say nothing. If it was a bad experience, never be the first person to leave a review.
Reach out to your guest within a couple hours of their check-in and ask something like, “How are you settling in? Let me know if there is anything I can assist you with.”
Send a personal note just after check-out thanking them for their cleanliness and wishing them well in their travels. In this note ask them if there is anyway you can improve and emphasize the impact of positive reviews on their business… give a discount for return visitors who leave positive reviews.
“Thanks for staying with me, and please let me know if there was anything missing or that can be improved upon. I’m alway making an effort to improve my guests’ experience. Your review on Airbnb has a tremendous impact on my ability to continue on Airbnb. If you would please let me know any areas of improvement - privately - I will ensure it is taken care of for future guests.”
Biggest concerns for most people are cleanliness and the ease of the check-in process.
PROPERTY MANAGEMENT TIPS
Sync Airbnb calendar to Google Calendar - then you can share all of your booking details directly to your support. (cleaners, handymen, etc.)
Leave a bowl of fruit or some granola bars on the counter with a nice card and a bottle of wine for every host.
Hire a cleaner who will replace shampoo bottles, trash bags etc. with new.
Create a guest book telling how to operate the TV, the thermostat, where the trash is located, where to put recyclables, the wifi password (first page), nearby grocery stores, pharmacies and good restaurants, bars, etc.
REPLACE EVERY SIX MONTHS: Linens, towels, waste baskets, hair dryers (if over used).
Entrance devices: Lockitron and Kwikset are good.
INSURANCE:
Need Property Insurance, Landlord Insurance and Renters Insurance… There are comprehensive airbnb insurance policies.
TAX WRITE-OFFS:Rent, Utilities, Cleaning Supplies, Cleaning Fees, New Furnishings (50% first year), Home Office Space, Local Travel (gas and vehicle expenses), Interest on mortgage or CCs, Depreciation, Repairs, Insurance, Legal and Professional Services
Airbnb will provide you a 1099 at the end of the year.
Set up your own bank account and business (LLC - taxed as an S Corp) prior to renting