Rental Arbitrage: $500K Profit Without Owning Property

No one would doubt the fact that side hustling has taken new dimensions as more ideas are springing up every day on how to earn big bucks. Today, one of the most flexible side hustles that one could leverage is rental arbitrage. You don’t necessarily need to be a landlord before you can start earning income from rent.

Do you know that if you rent an estate from your landlord for a long term, you can earn up to $500k in profit by renting out the rooms or the entire building on short terms to tourists on nightly, daily, weekly, or even monthly on Airbnb and other platforms?

Of course, it’s quite beneficial, as the bitting economy does not really allow everyone to own a house or estate, but with rental arbitrage, you can earn huge amounts from rents without being a landlord. In this article, I will enlighten you on the following:

  • The requirements before starting Rental Arbitrage business
  • How to approach your Landlord
  • Your potential earnings and the risks involved
  • How to identify the ideal market
  • The laws and policies involved in rental Arbitrage.

What is Rental Arbitrage?

Rental Arbitrage is simply a strategic business model of earning money by renting out a long-term rented property on Airbnb or to tourists on a short-term basis. After paying rent to your landlord, you can go ahead and rent out the apartment on a nightly or daily basis and earn a profit. Rental Arbitrage is very profitable and has huge profit potential because of the high cost of renting Hotels and guest houses. Most tourists now prefer to visit Airbnb for nightly bookings at a very low cost. Of course, Airbnb and other short-term rental business models are very lucrative and are more lucrative than owning apartments if carried out strategically.

My chat with a Rental Arbitrage business expert who has been making $500k annually from the Rental Arbitrage business.

You can gain more knowledge about the rental arbitrage business by watching my chat with Mr. ABC of XYZ.com.

Mr. ABC is currently managing about “12” short-term rentals… With cleaning crews in place, an automated check-in and check-out process, and local “co-hosts” to handle guest communication, he runs the whole enterprise from overseas.

How much does it cost to start a rental Arbitrage business?

Rental Arbitrage is very lucrative and is very attractive because you need very little capital to start up. The revenue is unending but it requires initial capital. You have to consider whether you are financially buoyant enough to venture into it. More so, you have to estimate how long it would take for you to break even.

The first thing you’ll need to spend money on is the rent which you are to pay to your landlord. You can decide to pay yearly or for two years or more as the case may be. More so, you’ll have to spend money on furnishing the apartment with cozy furniture, linens, kitchen utensils, and electronic appliances. Legal fees, business registration fees, photography and listings, and security fees are also included in the cost.

To initialize, you might need between $3000 – $12000 to start up. This will cover all the potential expenses, yet it’s very favorable because there is no need of buying a property.

Rental Security Deposits

Rental security constitutes all the money that you have to pay to your landlord at beginning of your rental period. It is the first expense that you’ll make, as it covers the entire leasing period and is kept by the landlord in line with the agreement. It covers the rent for the first and the last month, as well as security fees to cover major damages to the property.

Furniture

Most tourists prefer to stay in luxurious apartments during their vacations; hence, it is imperative for you to furnish your rented apartments with beautiful furniture. It’s very rare to find a house where the landlords will furnish with furniture before leasing for the long-term. As such, furniture and other furnishings would cost you some bucks. IKEA is a one-stop furniture shop where you can buy at very cheap prices. The cost of furnishing will depend on your taste and the size of the apartment. However, your budget should range between $2000 and $10000. It’s advisable to buy high-quality furniture for your rental arbitrage so it would cover the costs for a long time. Once your short-term Airbnb apartments are furnished to a high standard, you would be able to rent them out at a high rate.

Photography

Another important aspect you should consider while listing your rental arbitrage on Airbnb is the quality of your pictures. Great photos capture the eyes and captivate the mind. Once you invest in a camera, you would surely attract the interest of many tourists. We recommend that you hire a professional photographer for this task because your photo can make or mar your rental arbitrage business. The average cost of hiring a professional photographer is $100-$250 per hour, however, the cost depends on the location as well as the photographer’s experience.

Cleaning Services

No tourist would agree to stay in a dirty and unkempt apartment, hence, cleaning should be included in your budget. You may not necessarily need professional cleaners if you are skilled in cleaning. Your budget for cleaning should range between $50 and $250 but the amount depends on the largeness of your room. You can reduce the cost of cleaning by doing it yourself.

How to find the ideal market?

The ideal market is where you will get the highest profit. To flourish in the rental arbitrage business, you have to be on the lookout for markets that have high bid prices as well as high short-term rental revenue.

For beginners, your vicinity can serve a market. You can consider distant markets once you’re grounded with the rudiments of the business. Hence, you should search and secure properties within your area of residence. If you’re close to your Airbnb property, you would be able to meet up with the demands of your clients and fix their challenges quickly.

Research the local Airbnb supply

Airbnb Local Search

Local market research is very important if you want to earn a high income. With thorough research, you will be able to identify places that have the potential of accruing high revenue. The first point of the call is to research and identify the local markets that would offer the highest short or long-term profits. For instance, an area situated close to tourist attractions will offer you the opportunity to leverage nightly rentals by foreign business moguls and travelers.

Research broadly about the Airbnb laws and regulations of the city because some laws can be detrimental to your business.

Seasonality is another factor that you should research. Try and spot markets with consistent demands and avoid the markets with large dips during some seasons.

Where to find homes or apartments for Arbitrage

Search Example On Zillow

Once you’re done with your market research, and you’re able to identify profitable short-term rental markets with convenient laws, the next point of call is to discover where to find homes or apartments for your arbitrage business. You can always find willing landlords offline and on online platforms where you can easily navigate to find ideal apartments for Airbnb. Trulia, Hotpads, Sublet, MLS, Zillow, etc can easily connect you with landlords. Google search and searches on Craigslist will also suffice. Aside from online marketplaces, you can discover potentially suitable apartments by carrying out a physical search around the city. Simply drive around the city in search of apartments. Establish strong networks and working relationships with real estate agents and they’ll link you to apartments where you can start up your rental arbitrage business.

How to convince your Landlord

You will surely get into trouble with your landlord if you fail to tell him that you’re subletting the apartment to clients. You can’t hide it from him considering the number of people that will be entering and leaving the apartments. It’s very possible for your landlord to also list the apartment on Airbnb. As such, it is imperative to convince him to accept your subleasing plans before you can proceed. To convince him, you have to focus on the positive sides by agreeing on a profit-sharing deal that will be beneficial to him. Make it professional and credible by showcasing yourself as a professional property management company. You must assure him that the identity of the guests will be thoroughly screened before they are allowed to stay in the apartments on short-term rental deals. Once he agrees, put it into writing and with your official signatories

Is Rental Arbitrage legal?

It’s not illegal to sublet your long-term rented apartments on Airbnb. All you need do is adhere to the short-term and long-term rental laws of your city. More so, your landlord must grant you permission to use his apartment for the rental arbitrage business.

Rental arbitrage Risk

Before kick-starting your rental arbitrage business, it’s very imperative to consider the potential risks involved so as to know whether to boycott your plans or to continue. Now, take a look at the risks that you and your landlord are likely to face.

Wears and tears: Short-term rentals will lead to quick wear and tears because people will check-in and check out of the apartment regularly. You will be responsible for the wear and tear and any other damages caused by your renters.

Seasonal dips: There are seasons where demands for short-term rentals will be very low, yet the rent you paid will keep counting. Remember what happened during the COVID-19 period? Everyone was indoors. During this period, the revenue will be very low.

Your revenue might suffer a blip because you are responsible for all the running costs such as the cost of utilities, bills, and other maintenance fees.

It’s not your building, so your landlord can just wake up one day and tell you to stop running the business. He has the right to tell you to boycott the business at any time.

Airbnb alternatives

Airbnb is a hub of sophisticated, pricey, budget, and low-cost housing options. It ranks as one of the best places to find short-term rentals. However, there are other alternatives that travelers can consider while searching for an ideal place to stay during their next vacation. Here are some of the Airbnb alternatives:

This list is in no particular order because the best Airbnb alternative platform will vary based on the target guest and the location.

The rental arbitrage business is trendy and the market potential is huge because of economic instability in many parts of the world. You don’t have to own a house before you start earning from rent.  Your side hustle should take a new dimension and you will definitely make loads of revenue if you venture into this side hustle. However, there are minor costs that you should plan to cover. You should spend time researching the market, the rental laws, and the other regulations before starting.

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