When you’re browsing for side-income or new business ideas, a short-term rental business might not be the first thing that pops into your head if you don’t own a house. Wouldn’t that be like becoming an Uber driver without having a car to drive people around in?
Well, not exactly. The days of needing to own a house to start and scale an Airbnb business are long gone. There are two business models to use to start making money on Airbnb:
- Rental arbitrage
- Managing other people’s properties.
The first one requires a little bit of investment (renting a property). If you’re starting with no money at all, you’ll want to choose the second one. But both have their pros and cons.
What is rental arbitrage
Rental arbitrage is the process of taking out a long-term lease (renting a property from a landlord) and then taking that property and listing it on short-term rental websites like Airbnb and VRBO. There are a few caveats to this approach:
- You need enough to rent out the property (security deposit, first month + last month, any maintenance or repairs that need to be done, that extra layer of paint)
- The landlord needs to be on board with your business idea
- Rental arbitrage must be legal in the jurisdiction.
So it requires an initial investment, even if only a fraction of the cost of buying a house. If you have some savings, this can be a great choice, given it’s the more profitable of the two business models.
The Airbnb Help Center provides all the information you’ll need about the legality of rental arbitrage in your area. If it’s not directly on there, they’ll usually link you to the relevant city hall website. Check beforehand before you sign a rental agreement.
The rental arbitrage model has high profit potential: you could be renting an apartment or house for $2000/month and renting it out on Airbnb for $150/night. In less than half the month, you’ve paid off the price of rent and the rest is profit. If you get enough savings, you can scale this to more properties and the opportunities are endless.
But this model doesn’t work for everyone, because you might not have any savings or money to invest in a rental. That’s where the property management model comes in.
Property Management Model
This model is the quickest to scale and the cheapest to start. As an Airbnb property manager, you only need to invest in one thing – your knowledge about managing properties. In terms of other costs (rent, maintenance, etc.), you don’t need anything.
You just need to market yourself to people who own properties and who want to rent them out on Airbnb but don’t know the first thing about it or don’t have the time to do it themselves.
As an Airbnb property manager, you can onboard a new client in under two days if you want to. And two days later, you can take on a second one! That’s how scalable this model is. However, where in rental arbitrage you’re taking home 1.5x-3x the amount of the rent you were paying (for one $2,000 monthly apartment, you could take home $2000 in profit), the property management model has a much smaller profit margin.
That’s because you’re sharing the cut with the owner. While the amount you take is wholly up to you and the landlord, typical sharing schemes are from 20/80 (you taking the 20%) to 50/50.
But it’s easy for you to scale and take on more properties quickly.
All you need is to find landlords. Design a business and marketing plan and decide how you’re going to reach out to these people and market your services.
The choice depends on your current situation. You can start an Airbnb business today whether you have savings or not. Which model you choose depends on how much money you already have and how fast you’re trying to scale the business.
The only thing you need is to learn about the vacation rental industry.