Renting vs Owning an Airbnb Property. Which is Better?
The majority of individuals often make a few assumptions when they consider real estate investing.
One is that they believe they require a large sum of money to start.
Two, they believe that in order to be wealthy, one must own a lot of real estate.
Thanks to Airbnb rental arbitrage, this is untrue.
Home prices have hit all-time highs, and it is getting harder and harder to get a great deal on real estate. It's a challenging endeavour to attempt to invest in real estate.
On the other hand, you may team up with a landlord to rent out their house on Airbnb and earn a lot of money by doing so using the Airbnb rental arbitrage method.
Is it risk-free? Of course not.
But the payoff might be well worth the effort.
What Is Airbnb Rental Arbitrage?
Rental arbitrage isn't some groundbreaking new discovery.
Arbitrage in itself has been around for a very long time and is employed in all business sectors.
Purchase "product A," transform it into "product B," and then sell it for a higher price is the basic concept behind it.
The Airbnb community has widely embraced the rental arbitrage strategy because of its simplicity, you could have unknowingly stayed at an Airbnb using the rental arbitrage method.
Rental arbitrage includes, for instance, using sublease agreements to rent out other people's homes on websites like Airbnb, VRBO, and Homeaway.
In essence, hosts of rental arbitrage resell properties from the long-term rental market on the short-term market.
I actually made a video that goes in-depth about the pros and cons of renting vs owning an Airbnb property!!
Highly recommend checking it out 🙂
Airbnb Arbitrage Pros
Turnkey business
Almost no cash out of pocket
Relatively low competition
Opportunity to diversify
You can benefit from the marketing efforts already being made by a good property owner who is prepared to collaborate with you.
A lot of real estate opportunities call for a sizable chunk of the down payment.
That’s not the case with Airbnb arbitrage.
Simply put, you don't have to pay any of the downpayment; you only need to pay a fraction of your earnings each month to the landlord.
There are real estate investments out there that get tons of interest from the everyday investor, saturating the market, and making it very difficult to find the best deals.
Savvy short-term rental investors are able to select properties that are less competitive, making it easier to negotiate a good deal.
Airbnb Arbitrage Cons
No guarantees
Liable for any damages to the landlord's property
No Equity
Engaging in Airbnb arbitrage involves taking calculated risks.
You'll need to conduct market research, look for a home that works well for Airbnb, and negotiate with a landlord.
While the risk is lower than other real estate investments, there’s still a chance you could lose some or all of your money.
Although renting out a landlord's property might provide you with access to a consistent source of solid income, there is some risk involved.
It's not unheard of that Airbnb renters can have little to no care for the property, causing damage with no regard to the landlord.
Or in this case, you!
Make no mistake, you don’t actually own any part of the property.
Even if the business is successful, you won’t be able to walk away with any equity.
This could be a huge deal breaker but also a pro for some as you’d have limited financial liability.
Owning Your Airbnb Property
The alternative to using Airbnb Arbitrage is, well, owning the property itself!
Now clearly, there's a lot of anxiety that can come from making such a large financial commitment.
Although with big risk comes even bigger rewards! This is why I personally prefer this method over rental arbitrage.
Owning Airbnb Property Pros
Higher yields
Build equity
The benefit of owning Airbnb homes is that you won't have to provide your landlord with a sizeable portion of your income.
You will still have equity in the property no matter how long you decide to continue renting out short-term.
If you’re looking to leave the industry altogether or are just more interested in turning the property into a long-term rental.
You’re able to walk away with something to show for it.
That sweet equity. 😋
Owning Airbnb Property Cons
More responsibilities
Need a lot of cash
When you own the property, you’re responsible for all the maintenance that comes with everyday home usage.
For example, if the toilet breaks or pipe bursts, you’re completely responsible for fixing these issues.
The biggest challenge in buying a property to rent out on Airbnb is coming up with the down payment.
You’ll typically need a 20% down payment on the property.
These days 20% on a property can be a significant sum of money and perhaps not reasonable for a lot of people.
Renting vs Owning an Airbnb Property. Conclusion
While renting out a property through Airbnb arbitrage comes with a lower risk than buying your own property. It still comes with its own set of challenges.
Owning an Airbnb property, on the other hand, is not without challenges either.
But if you’re able to come up with a down payment and find the right property, you can enjoy a steady stream of income and build equity in the process.