Is Rental Arbitrage the New Airbnb Success Model?

Thousands of hosts all over the world use rental arbitrage or Airbnb sublet as a way to make money and grow their business. This week on the DPGO blog, we’re going to break down the principle of rental arbitrage and advise you on how you can use it to your benefit. We’ll also touch on the potential pitfalls of the process and how to avoid them! 

Let’s start off easy…

What is Rental Arbitrage?

Rental arbitrage is the process in which an individual takes out a long-term rental contract on a property, and then lists said property on a short-term rental site like Airbnb or Vrbo. This means that you’re using short-term rentals to pay your long-term lease and pocketing the difference. 

Who Benefits from Rental Arbitrage?

Financially speaking, it’s hard to say who benefits more from an Airbnb arbitrage scenario. In one sense, the financial benefits are more likely to go to the rental arbitrator, but so too does all of the risk. 

Some property owners are not in a position to offer their properties as short-term rentals either due to time constraints or financial concerns. Whether it be due to age, health, existing jobs, stress levels, not everyone has the tools needed to conduct a short-term rental business. This is where rental arbitration comes in handy. It allows an individual who is willing to do the work to list a property on a short-term rental site without owning said property. Some property owners prefer consistent rental installments from long-term clients. 

How Can I Convince My Landlord to Allow Short-Term Rentals?

This is a great question and one we hear quite often from aspiring rental arbitrators. The best way to convince your landlord is to anticipate their concerns and address them in the initial conversion. Often, landlords will not give their consent unless you take out various safety measures like vacation rental insurance. You’ll also need to assure them that you will do all the work. This work includes getting permission from various local councils if necessary, buying permits, and installing additional safety features like locks for owner’s closets, or taking out special insurance on items of particular value. 

Generally speaking, you’d be hard-pressed to find a landlord willing to allow their property to be used for short-term rentals if the property is furnished. For them, the risks would be too great and the rewards nowhere near high enough. We’re not saying it’s impossible, but it’s just highly unlikely. 

What Are the Benefits of Rental Arbitrage / Airbnb Sublet?

Depending on which side of the rental arbitrage process you’re sitting on, the benefits will vary. 

Here are the benefits for property owners:

1. Consistent rent from one tenant for the length of your lease agreement
2. No risk of months without any income 
3. Added household protections that were taken out by your tenant, likely at your own insistence, but still

Here are the benefits for rental arbitrators:

1. Low risk as you do not own the property.
2. Possibility of higher financial rewards.
3. Low monthly costs as you negotiate a fixed rental price with the property landlord.

Are There Any Possible Drawbacks?

In any business scenario, there are downsides. And once again, they depend on which side of the equation you’re sitting on. 

Here are the drawbacks for property owners:

1. As the property is yours, you assume most of the risk.
2. You won’t benefit from extra income if the short-term rental business takes off.
3. If guests disturb your neighbors, you’ll likely bear the most of their anger.

Here are the drawbacks for rental arbitrators:

1. Investment costs might be high as the property will need furnishing and you’ll need to buy towels, cutlery, crockery, and so on. You’ll also have to pay for a photographer if you want your listing to succeed. 
2. The responsibility of taking out permits and related documents falls squarely at your feet, not the landlord.
3. If you don’t receive any bookings in a calendar month, you still need to pay rent, Wi-Fi costs, insurance, and so on. 

How Do I Start an Airbnb Sublet or the Rental Arbitrage Process?

Like any short-term rental investment scenario, you’ll first need to identify the most profitable markets. If you’re new to sub-letting, it would probably be advisable to rent a property within commuting distance, just in case there are any creases to iron out with guests or even the landlord! 

To identify profitable Airbnb markets, you can use our in-depth data tool, Markets by DPGO, for free! All you need to do is enter the postal code or area name of the market that you’re looking at, and we’ll show you the most recent data! That includes the average daily rate, occupancy rate, minimum night stay requirements, market supply, day of the week occupancy, and more! 

Once you’ve isolated the area that you think would be the most profitable for an Airbnb sublet, you can start looking for appropriate properties. Markets by DPGO also shows you which type of property is most common in your target market, which should be a clue as to which property type is the most popular for Airbnb rentals and Airbnb sublet properties. 

If you find a property in the right area, for the right price and you’re ready to make a rental offer, you’ll need to present your short-term rental idea to the landlord. As we said before, try to address their concerns before they have a chance to air them. Reassure them that you’ll take out rental insurance, that you won’t rent to under 21s, and that you will be on-site for check-in if these apply to you. 

If you get the green light from the landlord, then you’re well on your way to completing the rental arbitrage process. Now all you have to do is furnish, insure, prepare and list your property on whichever short-term rental site that you prefer. 

How Can I Maximize Earnings as a Rental Arbitrator? 

Any host, whether you’re a rental arbitrator or not, can benefit from strategies designed at maximizing income via short-term rental channels. 

1. Dynamic Pricing

First, you can start with dynamic pricing. If you’re trying to maximize your income, then optimizing your pricing with data-driven insights is the logical choice. As a dynamic pricing engine, we know a thing or two about pricing. If you’re looking at dynamic pricing, try our free 30-day trial! We understand that you wouldn’t want to pay for something that you don’t know for sure works, so we’re prepared to put our software where our mouth is! 

Sign up for DPGO now by clicking on the banner below:

We’ve also done blog posts specifically on pricing in peak season, and pricing in off-peak season, just in case you need a little more in-depth help!

2. Create the Perfect Listing

It might sound basic, but you’d be surprised how many hosts despair at how to fix the most basic issues. Let’s examine the basics of a successful listing: photography, title, and description. 

Photography needs to be done by a professional. Sure, in the short term, it’ll cost you more, but it’s nothing when compared to the money you’ll lose if you use bad images. Your pictures need to lure the guests in and make them want to stay at your property. 

When writing titles, try to remember the unique selling point of your property, and use it to make your property stand out from the crowd. Titles like ‘secluded cottage for a romantic getaway in the hills’ and ‘beach-side villa with panoramic views of the Pacific Ocean’ are great because they fuse information with alluring descriptions. 

Descriptions are also very important. Similar to titles, your listing description needs to paint a picture for your guests and make them want to stay at your property! As the listing description is longer, you can highlight more unique selling points and also include helpful logistical information like the number of rooms, bathrooms, and so on. 

3. Use Discounts, Weekend Pricing, and Seasonality

Strangely, making use of discounts is a great way to boost income. Why? Use discounts to encourage longer stays! 

As a little top tip, we recommend increasing your pricing by at least 5% for weekend bookings! 

If you’re not changing your prices when you move from Summer to winter, then you’re missing out on some serious income. 

Conclusion

As always, we’re here to help if you need us! Consult our extensive blog for any general questions you might have but feel free to contact support@dpgo.com! Our Support Team is available 16 hours per day. Happy pricing!