When most people think of Airbnb, they think of it as a great way to make some extra money by renting out a room in their home.
But what if you could use Airbnb to become financially independent?
Believe it or not, it’s possible!
In this post, we’ll discuss how you can use Airbnb to achieve financial independence. So if you’re looking for ways to make your travel dreams a reality, keep reading. We’ll show you how easy to become financially independent on Airbnb and use it to your advantage!
Airbnb as business
An Airbnb business is a full-time job.
A good starting point for your first property is by setting up a business strategy. With a solid foundation to do business, it will help you achieve good standing and effectively grow from there.
It is always a good idea, to begin with creating a legal entity. A Limited Liability Company or LLC works best for most people because it is the easiest to manage, set up, and offers relatively more favorable tax options.
Having a legal entity will also help as some property management companies do not allow rental arbitrage without a corporate lease.
Inventory of your available resources, assets, and network. You don’t need boatloads of money to get started. Even if you do have some investment capital, starting small will still be a good option especially if it’s your first Airbnb business venture. Learn how things work first before going big. In terms of capital, you would only need somewhere between $1,000 to $2,000 to start.
But what if I want to start an Airbnb business without my own property?
How to make money on Airbnb Without Owning Property?
There are a couple of ways of making money and how to be financially independent on Airbnb without owning property.
Based on available online data, Airbnb business owners are able to earn up to $100,000 a year, (or even more) without being homeowners. Here are some ways you can earn money from Airbnb without owning property.
What is Rental Arbitrage?
Airbnb rental arbitrage is when someone rents a property with the purpose of only sublet it as a vacation rental site.
Take note that this business model only works if the money generated is more than the rent price, and other expenses your business will incur.
- A large amount of capital isn’t necessary.
- You can begin without owning any property.
- 100% of the income can be kept to yourself which isn’t always the case for Airbnb business owners.
- A lot of cities are enacting laws and regulations against subletting of properties, making it more difficult to find a suitable location.
- Finding a landlord who agrees to sublet their property on Airbnb could be difficult.
How much can you earn with Airbnb arbitrage?
Your earnings with this strategy depend on the size and location of your properties. One can get up to three times more than all business expenses combined if this strategy is done correctly.
Is rental arbitrage legal?
Before beginning, the legal rules and regulations must be considered because there are cities that don’t allow subletting. Permission must first be obtained from the landlord before attempting to rent out from their property.
In a lot of cases, tenants are not allowed to rent out properties on listing sites as per their long-term lease agreements. If tenants violate their lease agreements, they face the possibility of being evicted.
If both parties agree to this setup, rental arbitrage is one of the best options for someone who wishes to enter the Airbnb industry.
How do I get started with Airbnb Arbitrage?
After weighing all the pros & cons, where should you start? First, know what your local laws allow in terms of subletting. Talk to some landlords who could potentially be a partner, then draft your own contract for rental arbitrage.
Inform your landlord
Start by telling your landlord. Things may end badly when your landlord learns you’ve been renting out space from their property without their knowledge.
If there are any objections from your landlord, it most likely may be one of (or all) of the following three: local laws on subletting, unvetted guests, and also insurance.
Know the laws in your city regarding rental arbitrage so you can answer all questions thrown at you by landlords.
It’s normal for landlords to be wary of anyone who would be leasing the property from them. A possible host can talk about Airbnb’s screening process for guests (Guest reviews, ID verification, etc.) with their landlord.
Collecting a security deposit from guests is also something to be considered. Having an additional line on house rules you impose is an ideal opportunity since guests have to manually accept them.
If your landlord is still quite hesitant, suggest allowing only guests who have met specific travel categories like vacation or business travel. Upon booking, remember to always provide guests with an Airbnb house manual and house rules.
If a guest damages an Airbnb and does not reimburse the host, Airbnb guarantees up to $1,000,000 in property damage protection if ever guests damage an Airbnb and host is not reimbursed by said guests. Since the basic homeowner’s insurance doesn’t cover rented properties for business, offering short-term rental insurance would help.
Amending your lease
Upon agreement with your landlord regarding the use of their space for an Airbnb, making everything legal is the next step.
- All the fines are yours to bare: Make sure that Airbnb arbitrage is legal in your area. It help ease your landlord’s mind if you amend your master lease with a provision stating that you, the host, will strictly follow any and all local laws and regulations as to the use as an Airbnb.
- Liability insurance: If your landlord is not confident with having only the Airbnb guarantee insurance, use the short-term rental insurance option. Having your own security deposits from your guests does the same.
Not all landlords may agree to Airbnb arbitrage, but there are some landlords who will but only if they’d earn from it. Below are a few examples of amendments to the lease you may choose to agree on:
- Profit-sharing: If your landlord is also earning from your Airbnb profit, have it in writing. Clear and constant communication is key.
- Advanced notices of bookings and guests: Provide a written notice to your landlord for short-term rental guests so they know when to expect their cut of the earnings.
- Additional security deposit: New guests coming and going from the space will definitely wear down the Airbnb unit as compared to regular living conditions. Secure a second security deposit for your landlord’s protection.
Expand with your landlord as you expand your portfolio. Many investors are looking for equity build-up on all of their properties in the long run. Providing proof to your landlord that your business model is working will allow you to offer lease multiple properties from your landlord as partners to achieve your plans. This strategy makes you and your landlord joint venture partners that will help each other reach your investment targets.
Build your team
A good business needs a good team. Doing everything on your own in the beginning will seem like an easy enough job, but once you decide to scale up your business, having extra help will make things easier.
Build your core business team with an attorney and an accountant. If you’re a novice business owner, having these two on your team will help in guiding you around to avoid common business mistakes. What should look for in an attorney and accountant?
- Attorney: Get a lawyer who specializes in real estate and/or corporate law. Previous experience with rental property owners and real estate investors is a definite plus.
- Accountant: Find someone who knows and understands tax strategy is also experienced with real estate investing.
When you begin to scale up your properties, your team should also expand. Consider including these on your expanding team:
- Co-host: A co-host is basically a manager that handles day-to-day operations. This person doesn’t control any property but is a member of the Airbnb community. A co-host will aid full-time airbnb hosts manage existing rental properties. Airbnb co-hosts are allowed a percentage of the profit of deals that they help to secure.
- Cleaning crew: In the beginning, you can easily clean your own properties. However, this is a very time consuming process especially when you’ve scaled-up. Once you do, you can choose from either hiring a professional cleaning company or hiring a small business or an individual cleaner. Professional cleaners costs more money but can be held accountable easier compared to smaller businesses and individual cleaning services. You can also include a cleaning fee on your lease to lessen expenses.
Eventually, additional staff such as real estate agents, bookkeepers, interior designers, general contractors, and even photographers will become necessary hires.
Know which cities are best for Airbnb
Not all cities are suitable for an Airbnb business. Before signing your lease, ensure that your current city or the city you plan to start your Airbnb business is a suitable and profitable place.
You can check out AirdDNA’s website where they collated the data for the best cities to run an Airbnb business with their most up-to-date statistics. Included in their findings are the most profitable cities as well as the different costs across the world.
Prime Airbnb locations are cities aren’t the highest populated or most expensive cities, but those that see many tourists, have relatively low hotel room availability and have cheaper housing.
Do your research and be sure that your chosen city is a promising location for Airbnb listings before committing to anything. Check if the listings are already saturated, mortgage prices, flow of people, etc. As the saying goes, “Location, location, location!”
After deciding which city to begin your Airbnb business venture, look for properties for rent near tourist attractions, urban centers, or recreational areas.
Look at available properties with the eyes of an Airbnb renter looking for a good, safe, and clean place to stay for a night, a week, or even a month. Your property should meet the following criteria:
- Low monthly rent. Monthly rent prices should just be about lower than average compared to others in the location you’re in. Doing this allows you to make a profit by charging more than the rent amount. A high monthly rent will make you struggle to get back your expenses through Airbnb stays, especially if there are other cheaper places around
- Short leasing period. It is ideal to start with a short leasing period (6 months would be the best place to start) to ensure you don’t get stuck with your current location if things don’t pan out as you expected.
- Safe and clean location. Getting an old, rundown property cheap may seem like a good investment at first but the amount of time and expenses you’d need to shell out for renovation wouldn’t be worth it to Airbnb guests. Guests also avoid high-crime areas so avoid them as well.
- Tourist attractions. The best locations are those that are close to tourist attractions, the downtown area, and outdoor recreational facilities such as parks. You Airbnb doesn’t have to be in the downtown area of your city.
That’s it! You now know the basics of how to become financially independent on Airbnb.
Of course, there are always more ways to make money and we would love to share them with you. Make sure to follow us as we always share tips, tricks, and strategies that will help you make the most of your vacation rental business.
Are you ready to start making some extra cash? Here’s how to start your Airbnb Business!