What Is Rental Arbitrage and How Can You Benefit with Airbnb?

Making money has never been easier with Airbnb arbitrage. Everyone’s talking about it because it seems to be the “real deal” for business-minded people these days…and they’re not wrong! If you’re interested in hosting with Airbnb and haven’t dug into the details yet then you’ve come to the right place. In this article, we’ll cover the details of what Airbnb arbitrage is, how it works and how you could possibly make some serious buck from it. Ready? Let’s get started:

What is Airbnb Exactly?

We’ll admit, we’d be pretty surprised if you haven’t heard of Airbnb. But for those of you who don’t know, Airbnb is an online marketplace that enables people to list or rent their properties to others for a short time. It was founded in 2008 in San Francisco California by roommates Brian Chesky and Joe Gebbia. Since then, Airbnb has become one of the most popular homestay networks.

With listings in more than 65,000 cities and 191, this company really has taken the world by storm. Airbnb’s claims their mission is to “create a world where people can belong when they travel by being connected to local cultures and having unique travel experiences” and they certainly seem to be achieving that.

Airbnb’s growth over the years

In the summer of 2010, about 47,000 people stayed with an Airbnb host. Compare that to the summer 2015, which saw almost 17 million people stay at an Airbnb. That means that Airbnb’s summer reach is 353 times what it was five years ago.

So What’s Airbnb Arbitrage?

Arbitrage is defined as the practice of taking advantage of two or more markets’ price difference. Practically, when you say Airbnb arbitrage, it also means Rental arbitrage. Put simply, if your apartment has a high revenue potential at a cost more than what you would pay for to acquire it, then you have this opportunity. With Airbnb arbitrage, you have the opportunity to make money when your achievable daily rental rate is greater than what you actually pay daily for your rental cost.

Here’s a great example of Airbnb arbitrage:

You have a nice apartment situated at a great location with the best amenities and you’re renting it out for $1350 per month. On the other hand, you have a neighbour who has a nice-looking studio apartment which she lists on Airbnb at $150 per night. If you do some simple maths, you will see that there’s a potential revenue in store for you.

Think about the highest rate people would be willing to rent your place for and work around that possibility. Let’s say it’s a great deal at $150/night. What if you could rent it out for 10 days? You’d get $1500 which will already pay for your whole month’s rental cost. What if you could rent it out for longer than that? Let’s say you rent it out the unit for 27 days a month? That’s $4050 rental potential, that’s 2.7x the cost of leasing the unit per month!

The moment your achievable daily rental rate is clearly greater than your actual daily rental cost, you have rental arbitrage.

Is It Actually Possible?

Yes, it really is. There’s been lots of stories surfacing over the years about how using the strategy of rental arbitrage through the Airbnb platform has transform people’s lives, providing them with a great alternative source of extra income, with very little upkeep.

People are always on the move to find the best deals for their short-stays and accommodation. Before, the only option people used to have was to stay in a hotel, but now Airbnb exists, the residential accommodations are fast becoming a preferred choice. Travellers often want some more economical as well as a more authentic travel experience, Airbnb has targeted this “wanting to live like a local” market extremely well.

It’s a win-win situation both for you and for those who would rent out your place. They get to stay at a nice place cheaper than what they would pay for a hotel room, and you get to pay for your monthly rental and earn more money with your available space.

Where Do You Start?

Starting with Airbnb arbitrage isn’t as easy as you may think, but it’s quite achievable. It’s important to know how much arbitrage is good enough, depending on what your goals are for diving into this venture. To get started with Airbnb arbitrage, look into the following facts to gauge your possibilities better:

First, you need to look up rates and information on units around your area that are similar to the place you want to rent out on Airbnb.

Get the average Airbnb daily rate for both weekdays and weekends and then get the weighted average Airbnb rate. You then take your monthly lease rate and then divide it by the number of days in a month to find out your daily rental cost. After that, divide the weighted average Airbnb rate by your rental cost daily. If you get 1 as a result, that means that you have to have it rented out every day of the month to cover your whole month’s rent.

So it looks a little something like this:

• Weighted Average Airbnb Rate = (Weekday Rate * 5 + Weekend Rate * 2) / 7

Airbnb arbitrage works best when you have a higher ratio, above 1. This is because you can meet your monthly lease rate with fewer rented days, earning you more money by the end of the month, or making up for days on which it isn’t rented. The potentialities of success in this type of money-making strategy also depends on whether you own the place or not. Factors such as the type of area, whether rural or urban, also matters. Despite all the considerations involved, Airbnb Arbitrage is worth exploring into if you want to make more money and the potential is massive.