- After being laid off in March 2020 Nathan and Taniera Turner started looking into real estate.
- They decided to try 'rental arbitrage,' which is when you rent a property and sublet it on platforms like Airbnb.
- Today, they have 25 Airbnb units in three different states, plus an Airbnb cleaning business.
When the pandemic hit in March 2020, Nathan Turner was among the millions of US workers immediately impacted.
He was working as a route delivery specialist for Aramark, servicing restaurants and hotels, and got laid off towards the end of March. His wife Taniera also lost her job as a banquet server at a Marriott hotel that same month.
They weren't too worried about money, Turner, 27, told Insider. They both had side hustles at the time — Nathan was doing real-estate wholesaling, while Taniera was selling lip gloss — and filed for unemployment benefits. "But we were a little anxious and didn't know what to expect going forward," he said.
While they lost their jobs, they gained back time to figure out their next steps. They didn't feel financial pressure to start working right away, thanks to the pandemic assistance, said Turner: "When the additional unemployment kicked in, that basically equaled out to what we were already making with our jobs previously, if not a little bit more. And we had all the time back, so we could put that same 50 hours that we were working into building businesses."
The couple decided to look into real-estate opportunities.
Turner was already familiar with wholesaling, which he first learned about while listening to podcasts on his delivery routes. Wholesalers connect sellers and sale contracts to prospective buyers for a profit.
"You spend a lot of time out on your own," he said of his previous jobs at Aramark and also delivering for FedEx. "Instead of listening to the radio in between deliveries or going to the next location, I would listen to different podcasts. One talked about how you could make money selling houses with no money or no credit."
Turner got his foot in the door by partnering with an established, Houston-based wholesaler, who he reached out to after seeing one of his marketing campaigns on Facebook. The wholesaler was looking to expand in Louisville, where Turner lived at the time, and Turner offered to help him find potential buyers in the area.
On their first deal, they made $1,000 total and split it 50-50, said Turner. His half of the profit was almost equivalent to one week's paycheck, he added: "After taxes and everything, I might only bring home $600 a week. If I did overtime, I might bring home $700 to $800 a week, but that was after working 50 hours. Doing these deals, it didn't take nearly as much time or labor to produce more money."
Knowing that there was money to be made in real estate, Turner started exploring other potentially lucrative strategies. Airbnb first came on his radar when someone posted about needing a last-minute cleaner in one of the Facebook real-estate groups he was part of.
He and Taniera, who were still unemployed and had free time, decided to take the job.
"We cleaned three units the first day and made $70 per unit, so $210 for the day," said Turner. "And we were only there for three to four hours. We thought, 'That wasn't that hard. What if we started doing 10 units a day?'"
They continued working with the client, who owned six Airbnb units total, and started learning more about the hosting side of the business.
"They were telling us about their journey and how they were able to quit their jobs from doing Airbnb," said Turner. "Hearing about the freedom and the lifestyle that you can live piqued our interest."
At the time, however, purchasing a property and setting up an Airbnb felt unattainable, he said, as it would require a lot of upfront cash for a down payment, closing costs, and furniture to fill the space.
Moving to Houston and using rental arbitrage to set up an Airbnb rental with $6,400
The Turners continued picking up clients and cleaning Airbnb properties in Louisville. As their cleaning business expanded, they decided to relocate to a bigger city with more real-estate opportunities.
They moved to Houston in 2021 and landed a client who had 12 units, but didn't own them. The client was doing what's called "Airbnb rental arbitrage," which is when you rent a property and sublet it on platforms like Airbnb and VRBO. The goal is to make enough in short-term rental income to not only cover rent, but pocket extra cash each month.
This route seemed much more doable. Rather than putting tens of thousands of dollars down to buy a home, the Turners' upfront costs would include: first month's rent, a security deposit, and furniture.
The first step to doing rental arbitrage is finding an apartment or home to rent, and also a landlord willing to let you sublet the place.
"We were looking for ourselves at first and we couldn't find anything," said Turner, but, once again, the Facebook real estate community came in handy. "We were in an Airbnb group and a realtor in the group posted saying that she could help people find properties, so we reached out to her."
The realtor helped them secure their first unit: a two-bed apartment going for $1,200 per-month.
Between first month's rent, a $1,200 security deposit, and furniture, they spent about $6,400 and three weeks putting together their first Airbnb.
It wasn't an instant money-maker, said Turner: "This one was a learning experience for us because we were trying to figure out pricing and how to get your listing out there. The first two months, we really didn't make anything at all."
Part of the issue was their pricing strategy. They figured they could book the unit every weekend, so they calculated how much they would have to charge each weekend night in order to make up the $1,200 in rent that they owed.
"We would just charge the same price throughout the entire week and the weekends, but we weren't really getting any bookings during the week because our prices weren't competitive," explained Turner. "It was a missed opportunity for us. That's when we realized we had to adjust our prices and drop them during the week."
They looked at comparable listings in their area and charged either the same amount or slightly lower than their competition. (Today, rather than changing prices manually, they use a pricing software called Pricelabs that will automatically change your prices for you based on demand and seasonality in your area.)
It took about six months to recoup the money they put into setting up the unit, but over the course of the final six months of the lease, they started profiting between $1,000 and $1,200 per month, said Turner.
Scaling up to 25 units in Houston, Des Moines, and Louisville
While their first Airbnb eventually started profiting, the Turners decided not to renew the lease at the end of the 12 months. At that point, they'd decided to start looking for buildings where they could acquire multiple apartments.
"We figured it would be best for operational purposes to try to only operate in places where we could have multiple units in one building versus being spaced out all over Houston and having cleaners run from side to side," said Turner. Plus, "if you only have one unit, you can't control what's going on with the other units — maybe they're not keeping their outside area as clean as you are — and that can affect the guest experience."
Turner added a triplex to his portfolio in May 2022 and a fourplex two months later. Currently, he has 25 total units in three different markets: 18 in Houston, six in Des Moines, which he considers his top-performing rentals, and one in Louisville. Insider verified his Airbnb ownership by reviewing lease agreements and screenshots from his Airbnb dashboard.
As for how he finds strong Airbnb markets, in addition to using short-term rental data analytics tools like AirDNA and RABBU, "I always look at the bigger companies and see how they're moving," he said. "They have more capital and they're not just going to be throwing money in any market."
While he doesn't want to reveal the specific markets that are on his radar, he said they're in the Midwest and on the East Coast. Generally, he's looking at "mid-major markets," he added. "It's getting hard to compete in huge cities for two reasons: One, so many units are already online for those markets, and two, you're competing with the city, which could be building new hotels every day."
Turner's goal is to expand to 100 units and hit $1 million in annual revenue.
His monthly revenue, including rental income and revenue from the cleaning business, fluctuates but, "it's always within the $50,000 to $60,000 range for the most part," he said. His best month so far was December, when he brought in about $80,000 between Airbnb rentals and cleaning. Insider confirmed these details by looking at his business bank account statements.
If you're looking to get into real estate but don't have a ton of capital, rental arbitrage could be your way in, said Turner: "Realistically, you probably only need about $4,000 to $5,000 to get started, whereas with buying a house you're probably going to need at least $10,000 to $15,000."
The most challenging part is finding the right property to rent — and getting the landlord on board with short-term rentals.
It'll take a lot of legwork in the beginning, said Turner: "You need to be sending out emails to buildings every single day and doing phone calls as much as possible. Just keep calling. If you hit the phones hard every day and are emailing out every single day, I don't see why you wouldn't get a yes in two weeks."
FAQs
What is the arbitrage method for Airbnb? ›
Airbnb arbitrage refers to renting a property from a landlord and subleasing it on a short-term basis, on a platform like Airbnb, Vrbo, or Booking.com. In this way, you are both a tenant and an Airbnb host who acts like a middleman between the landlord (the property owner) and the Airbnb guests.
Is Airbnb arbitrage passive income? ›There are several benefits to pursuing an arbitrage strategy as an Airbnb host. First and foremost, it's a great way to earn passive income.
What is the problem with Airbnb arbitrage? ›Financial Risk - There is always a risk of not being able to cover your costs or make a profit from renting out an Airbnb property. You could end up losing money if you don't properly research the market, set competitive prices, or manage your expenses correctly.
Is Airbnb arbitrage illegal? ›Airbnb rental arbitrage is legal, depending on the short-term rental regulations where you live. So do your research first. Short-term rental laws are evolving in most large cities across the world.
Is rental arbitrage passive income? ›Rental arbitrage requires a significant investment of time and money, but it can provide a steady stream of passive income and a potential for high returns.
How much money do you need for Airbnb arbitrage? ›You'll be able to pay for your rent and have $500 – $1,000 to cover expenses and still be able to grow your business. If you manage more than one property or rent them out more often than just on weekends, your income will be much higher.
How do I record Airbnb income? ›File taxes
Taxable rental income must be reported on Schedule C or Schedule E of form 1040. Most Airbnb hosts will report income on a Schedule E. Real estate owners providing substantial hospitality services to guests will use Schedule C.
Rental arbitrage is when a tenant renting a property from a landlord subleases the apartment to someone else or utilizes platforms like Airbnb to rent the unit out as a short-term rental. Through this process, the tenant becomes a kind of middle manager of the property as they rent it out to other individuals.
Is Airbnb rental considered active or passive income? ›The IRS considers a rental activity to be passive if real estate is used by tenants and rental income (or expected rental income) is received mainly for the use of the property. In other words, owning a rental property and collecting rental income is considered passive and not active in most cases.
Is rental arbitrage successful? ›The Return On Investment (ROI) of a rental arbitrage property can be very lucrative in the right markets. Like any business, the ROI will vary depending on location, start-up costs, operating expenses, and various other factors.
Why Airbnb losing customers? ›
Instead, market analysts say many U.S. Airbnbs are sitting empty because so many wealthier people and investors listed short-term rentals on the site, in the wake of a pandemic-fueled boom. The number of available short-term rental listings in the U.S. skyrocketed to 1.38 million in September.
Is Airbnb rental arbitrage real? ›Yes, rental arbitrage is legal in California! With the landlord's approval and a legal contract with the lessee, there are no restrictions in operating rental arbitrage.
How risky is arbitrage? ›Criticism of Risk Arbitrage
If the deal does not happen for whatever reason, the usual result would be a drop—potentially sharp—in the stock price of the target and a rise in the stock price of the would-be acquirer. An investor who is long the target's shares and short the acquirer's shares will suffer losses.
Arbitrage is the practice of taking advantage of a price difference between two or more assets or markets, and profiting until the price difference disappears. Recognizing arbitrage opportunities is one of the easiest ways to make money.
What are the benefits of rental arbitrage? ›Rental arbitrage provides investors with flexibility when it comes to finding potential tenants. You, as a landlord can take advantage of market trends. You are also open to negotiating with potential tenants. In this way, you can enhance your profits.
What are the downsides of rental arbitrage? ›While this strategy can be profitable, there is always the risk that the market could change. For example, if property values in the area rise, you may no longer be able to make a profit on your rental property. Additionally, if the demand for rental units decreases, you may find yourself with vacant property.
What is rental arbitrage income? ›Rental arbitrage is a relatively straightforward concept. It's a strategy to make money on the difference between what a property rents for on the long-term market and its rental income potential on the short-term rental market.
What is the 50% rule on Airbnb? ›The Airbnb Strict cancellation policy allows guests to receive a full refund if they cancel within 48 hours of booking and at least 14 days before a listing's check-in time. In the event of a cancellation within 48 hours, the guest is only entitled to 50% refund, regardless of how far out the check-in date is.
What is a good Airbnb income? ›North America is the highest earning region – the average Airbnb host in North America makes $41,026 in host earnings on Airbnb in 2021. Asia-Pacific is the 2nd highest earning region, with an average host earnings of $14,629 in 2021. In Europe the average host made $13,567 in Airbnb earnings in 2021.
How much can you realistically make with Airbnb? ›Tipalti, an accounting software company, just released data about the average annual earnings that Airbnb hosts make around the world, and the US is at the top of the list. With an average of $44,235 per year, US hosts flaunt the highest average annual earnings.
Do I have to report my Airbnb income to the IRS? ›
Regardless of whether you receive a Form 1099-K, the rental income you earned from Airbnb is reportable on Form 1040, unless the non-taxable rental exception applies (discussed below).
Does Airbnb report to the IRS? ›However, because of reporting laws, companies like Airbnb, HomeAway and VRBO may report to the IRS all income you receive from short-term rentals, even if you rent for less than two weeks. If reported, this income will likely be reflected on a Form 1099-K.
Can I write off furniture for an Airbnb? ›Is Airbnb furniture tax deductible? Yes, furniture—and any costs to repair existing furniture—can be a deductible expense come tax time. The same applies to amenities and appliances you purchase for your guests, such as a toaster, a TV, bed sheets, and towels.
What is the no arbitrage rule? ›Derivatives are priced using the no-arbitrage or arbitrage-free principle: the price of the derivative is set at the same level as the value of the replicating portfolio, so that no trader can make a risk-free profit by buying one and selling the other.
How to make money with arbitrage? ›Retail arbitrage is the practice of buying a product at a low price from a retail store and reselling that same item for a higher price on an online marketplace such as Amazon. As the seller, you are taking advantage of the price difference between two markets, and making a profit.
Does arbitrage still work? ›Crypto arbitrage trading is still possible today, although it has become more complicated than before. This is because there are now more exchanges and more liquidity in the market. As such, it is more difficult to find price differences that can be exploited.
Will Airbnb send me a 1099? ›Tax withholding
At the end of the year, Airbnb will send you an IRS Form 1099 (Form 1042-S for non-US persons) showing any withheld amounts. Once a Form 1099 or 1042-S has been issued, you may need to file a US tax return with the IRS to claim any refund or credit for the taxes withheld.
Airbnb hosts are expected to pay income taxes on rental income they earn from long-term rentals. To account for short-term rental income, the 14-day rule allows Airbnb hosts to avoid paying taxes if they rent a property for fewer than 14 days per year.
Is an Airbnb a good tax write off? ›Tax deductions are available for Airbnb commissions and fees, as well as for most situations, mortgage interest, insurance premiums, and property taxes. Additional indirect costs, like rent, travel costs, utilities, and software subscriptions for property management, may also be deducted.
Is online arbitrage hard? ›Online arbitrage is easy, and you can do it in the comfort of your home. You might find some popular products on marketplaces like AliExpress and list them on Amazon at a decent markup. You have to pay for shipping and other additional costs on each item sold. You will be left with a small profit.
Can you lose with arbitrage? ›
If you place one bet and then take too long to place the second bet, you may be too late to get the correct odds, or you might miss the second bet completely. Missing the second bet leaves you open to potentially losing that bet, but of course, it also leaves you open to potentially winning.
How do I start Airbnb without owning property? ›- Take the Airbnb Rental Arbitrage Route. ...
- Become a Short-term Rental Property Manager. ...
- Become a Co-host to an Airbnb host. ...
- Join a Vacation Rental Franchise. ...
- Become an Airbnb Consultant. ...
- Start an Airbnb Cleaning Service. ...
- Host an Airbnb Experience.
The biggest problems Airbnb Hosts deal with? The most common problems vacation rental hosts deal with are regulations, local laws, parties, excessive turnovers, unmanageable guests, not knowing your market and finding better guests.
How many people fail at Airbnb? ›Airbnb says that fewer than 0.1% of stays result in a reported safety issue, but with more than 200 million bookings a year, that's still a lot of trips with bad endings. Only the most serious problems are transferred to the internal safety team.
Is Airbnb losing hosts? ›Overall, Airbnb saw its host ranks fall around 7 percent in the 12 months ending March 31, 2021 — but this excludes the 2 percent of single-property hosts and 1.8 percent of the rest who have decided not to accept bookings over the next three months.
Are there fake apartments on Airbnb? ›Airbnb scammers will often use fake, stock, or doctored images to misrepresent their rental property. All too common are photos using angles and lenses to make spaces appear larger, as well as photoshopped amenities and scenic views that aren't real.
Who is the multimillionaire on Airbnb? ›Chris Choi is a 30-year old real estate investor who became an Airbnb host 7 years ago. He started with an $8,000 investment and now runs over 100 properties. And people wonder why there's a shortage of housing, especially in the big cities!
What are the arbitrage strategies in real estate? ›There are two ways to use arbitrage in real estate. The first is buying a below-market-value property and selling it for a higher price in as little time as possible. The second is leasing a below-market-value property and renting it for a higher price in as little time as possible.
How to negotiate with landlord Airbnb? ›The short answer is yes, you can negotiate your Airbnb stay. To do so, simply contact a host to ask for a discount or propose a lower price. Then the host has an opportunity to provide a special offer that's only available to your account.
How do I set up an Airbnb flat? ›- Find an Airbnb Space to Rent.
- Setup & Furnish your Airbnb Property.
- Build an Airbnb Team.
- Create your Airbnb Listing.
- Optimize your Airbnb Listing and Property.
Why is arbitrage illegal? ›
Arbitrage is not illegal by itself, but it does have risks associated with it. These include allocating capital poorly. You could enter into contracts incorrectly. This could result in the buying or selling of an asset at an unfavorable price.
What is limits to arbitrage for dummies? ›What is limits to arbitrage? Arbitrage means simultaneously buying and selling an asset to profit from a difference in its price. The theory of limits to arbitrage says that these prices may stay in an unbalanced state for a significant period of time due to restrictions on so-called rational traders.
What conditions are necessary for arbitrage to work? ›- The same asset has different prices on different markets. Markets may value an asset differently, which causes two unequal prices. ...
- Two assets with the same cash flow have different trade prices. ...
- An asset with a known future price holds a different price today.
Since arbitrage funds are categorised as equity funds, they are taxed accordingly. This gives arbitrage funds the benefit of zero taxes on the LTCG (long-term capital gains). If you hold the investments for more than one year, the returns are considered to be LTCG, and are tax free.
Is arbitrage a crime? ›Arbitrage trading is not only legal in the United States, but is encouraged, as it contributes to market efficiency. Furthermore, arbitrageurs also serve a useful purpose by acting as intermediaries, providing liquidity in different markets.
How do you avoid getting caught arbitrage? ›- Round Bets to the Nearest Dollar. ...
- Don't Deposit and Withdraw Money as Frequently. ...
- Wager on the Occasional Parlay. ...
- Use a Betting Exchange. ...
- Don't Make Max Bets All of the Time. ...
- Spread Your Bets Around Different Sportsbooks. ...
- Avoid Betting on Smaller Markets 100% of the Time.
Airbnb arbitrage can be extremely profitable if you do your research and find the right strategy. You can earn thousands of dollars in monthly profit depending on your market and how many expenses you have. The average Airbnb listing rents for about $150 per night, which equals $4,500 per month.
Is rental arbitrage worth it? ›You can truly earn significant profit through rental arbitrage. On average, you can make 2 or 3 times the amount you pay for rent in a rental arbitrage. Let us say you are paying $3,000 and you earn $9,000 monthly, you still have $6,000 to spare.
Is rental arbitrage the same as sublet? ›While rental arbitrage and subletting may seem the same, there are some notable differences. When tenants sublet a room in a rental, it's generally for one month to three months, depending on their situation. In the case of rental arbitrage, tenants allow guests to rent a room for a few days to several weeks.
Does arbitrage really work? ›In the course of making a profit, arbitrage traders enhance the efficiency of the financial markets. As they buy and sell, the price differences between identical or similar assets narrow. The lower-priced assets are bid up, while the higher-priced assets are sold off.
How to make money with rental arbitrage? ›
Essentially, it involves renting a short-term rental and then subletting it to someone else. For instance, if you were to rent an apartment for $1,200 per month and list it for $3,000 per month, you'd pocket $1,800 per month in profit, excluding expenses.
Is it smart to start an Airbnb 2023? ›According to the latest reports, the short-term rental industry will witness unprecedented growth in the coming years. This means that Airbnb rentals will also be profitable and prove to be a good investment for real estate investors.
Is Airbnb still a good investment in 2023? ›Wall Street is certainly optimistic about Airbnb's prospects. Analysts expect the business to post year-over-year revenue and diluted EPS growth of 14.3% and 22%, respectively, in 2023.