Should you rent a property with the intention of listing it on Airbnb?
Recently came across a video with 2 real estate gurus talking about the new trend to rent a property (instead of buying) to earn money from Airbnb. This is often referred to as rental arbitrage.
What is Airbnb?
Airbnb, Inc. is an American company that operates an online marketplace for lodging, primarily homestays for vacation rentals, and tourism activities.
Challenges with Landlords
The first thing to be mindful of is that you will need to contact several landlords face to face to pitch the idea. The real estate gurus claim that you just offer the landlord more money than they want on the rental. If they are asking for $1,500 a month offer them $2,000. This strategy is supposed to be the panacea to sway them to your idea.
But consider this:
- Many landlords don’t allow it.
- Some will insist upon a *referral.
- Others won’t sign the sublet agreement.
*Since this is your first time trying this you don’t have any referrals. Which may translate to the landlord as inexperienced (not knowing what you’re doing). Some will take the idea you gave them and do it themselves!
According to our research, these appear to be the best US cities for Investing in Airbnb:
New Orleans, LA.
San Francisco, CA.
Virginia Beach, VA.
As of this writing here are the cities where Airbnb is Illegal:
Los Angeles, California.
New York City, New York.
Santa Monica, California.
Las Vegas, Nevada.
San Francisco, California.
Things to Consider:
- STR – Short Term Rental Regulations
- Business license
- Short term rental permit (or license) to prevent a shutdown
- TOT Transient Lodging Tax
- LLC – (Limited Liability Company) This business structure protects your business and can cost $500 to $1,000 or more.
- Asset Protection – The goal of asset protection planning is to insulate assets from claims of creditors without perjury or tax evasion.
This is something that is overlooked when the gurus pitch this approach to real estate through Airbnb. Placing furniture in the apartment can cost $5,000 to $10,000 because you want the property to be attractive to tenants.
If you can overcome the hurdles it may be worth the risk. But it’s important to realize that the folks trying to pitch you this idea are making their money from online courses (digital products).
See? Real money always comes back to a digital product.