Is Airbnb arbitrage still lucrative in 2023?

[Catherine Lacen]

My business partner and I started renting a single family in the Poconos, PA to list on Airbnb in the beginning of 2022. The area performed extremely well in 2021 and though the rent for the property was on the higher end of the market average, the home was in an ideal location and could sleep many guests positioning us for higher nightly rates and we planned to prioritize marketing to ensure we can keep a consistent occupancy rate. We put our savings into the getting the property set up and even had to take out a small personal loan to help get started. The rising gas prices and inflation slowed down tourism for the summer of 2022 and we did not meet our projections. With our rent and loan payment monthly in addition to the usual cost of business, our expenses are just too high. Our current landlord is not interested in seller financing or converting from rent to a profit split to help us cut down some expenses, so I am looking for some insight. If anyone here has arbitrage units, how long was it until you broke even/ made profit? Is there any exit strategy with Airbnb arbitrage that allows you to leave with some leverage for other investments? 

Our interests are short term rental, small residential multifamily and fix and flips.  We are in the Poconos, PA and Tampa, FL and are interested in finding a mentor to help us build our company to be profitable.If anyone here is interested in hearing more about us, please let me know! 

[John Underwood]

No.

You will never build any equity; it just gives you a job.

[Sarah Kensinger]

I have never done rental arbitrage but there are a few things I have learned about it that I'll pass on to you. From what I've heard the best mentor/coach for your strategy is Michael and Elizabeth Chang. If you want to continue what you're doing and hopefully get the properties cash flowing, it would be worth it to join their group. Your breakeven point should have been at 6 months and then you have 6 months profit in case the landlord doesn't renew the contract. Of course, your contract is still signed, but 6 months is the general rule to break even. Then over time you take that profit to go buy properties that are yours.

I'm wondering if there are things you can do to drive more bookings to the property...refresh decor, photos, add more amenities, marketing, etc. Unfortunately, there is no way to leave with leverage in a situation like yours. If you feel like there really isn't room for improvement with the property to get more bookings, it would probably be best to leave the lease and move on (if that's an option right now). It could be that this property just wasn't a good fit for rental arbitrage. Count it as a life lesson and be thankful for the knowledge you gathered from it!

[Michael Baum]

Hey @Catherine Lacen, you are starting to see the problems with the arbitrage model if you don't have a lot of other performing properties that YOU OWN.

Unfortunately you haven't built up any equity as you don't own anything. You can't leverage without anything to leverage.

The exit strategy would be to keep on until the lease is done then call it quits. You might lose money but it won't be hemorrhaging every month.

I am assuming that if you convert it to a LTR you would be further in the hole.

You could look at a short stay long term rental. Under 6 month leases. Some call it a MTR. That can be a happy medium $$$ wise. It usually isn't as lucrative as a STR but better than a LTR.

Is there a major hospital nearby? University? Call their HR departments and see if they bring in temp professional help. Those folks need a place to stay for a few months and it needs to be furnished.

FurnishedFinders.com is where a lot of this stuff is listed. Check it out to see what's in your area.

[Bonnie Low]

The options that come to mind are to either try to convert it to an MTR as @Michael Baum reommends or maybe find another investor who is also doing arbitrage and see if you can get them to take over your lease. Is that allowed in the terms of your current lease? It won't be an easy sell because if you're going in the hole your financials won't look that attractive to another investor but you might find someone who is already having success in your area who believes they can do it better. It's worth a shot. Meanwhile, I'd start marketing to all possible MTR guest types: digital nomad, travel medical professionals, corporate rentals, seasonal workers and certainly insurance placements. Not sure how much demand there is for construction workers or for traveling academics but at this point, I'd try to reach them all. Furnished Finder is the most common spot and largely used by travel nurses and other medical professionals but you do get all types of guests there. Airbnb is trying to promote longer stays so if you don't have longer stays targeted on your calendar, you'll want to do that - you'll probably even get a boost in their search rankings for your area. People also advertise on Zillow, local facebook pages and regional facebook pages targeting specific travelers like "Xregion travel nurses" for example. See what groups are in your area. Sometimes an investment just doesn't pan out and we take our lumps and move on. It's a painful lesson and people love to share only their success stories but most people also have a story about something that didn't work out but that they learned from. Don't feel like you're the only one ; )

[Jaron Walling]

The first day I learned about rental arbitrage was last day I cared about rental arbitrage. 

You can't build equity. You don't own the asset. Most landlords won't accept it. I think the strategy is dead in 2023. Tell me I'm wrong. 

[Konstantin Ginzburg]

As others have stated, there is no way to exit an arbitrage with any leverage since you own no equity in the property. One option you can attempt to recoup some cost is to sell the furniture you used to stage the property. This is a disadvantage to arbitrage. You have the upside of limited risk exposure since you are not liable for the mortgage debt as well as being able to generate cash flow if you can retain high booking percentages but that comes with the downside of forfeiting any equity positions in the property itself. From the property owners perspective, they are foregoing the possibility of higher revenue in order to maintain a steady revenue stream from the agreed upon rent so there is not much incentive for them to restructure the contract to a profit sharing model if it means reduce revenue for them. 

If the property is no longer generating a profit for you and if you do not think this will change, then your best option might be to move onto a different property or strategy that will offer a better return. If you think market conditions will improve in the future, then another option you can look into is a long or medium term rental that will allow you to break even on costs and use this as a stalling strategy until you are able to cash flow again using your STR arbitrage strategy.

[Sarah Kensinger]

Quote from @Jaron Walling:

The first day I learned about rental arbitrage was last day I cared about rental arbitrage. 

You can't build equity. You don't own the asset. Most landlords won't accept it. I think the strategy is dead in 2023. Tell me I'm wrong. 

It's not dead

[Brian Barch]

Quote from @John Underwood:

No.

You will never build any equity; it just gives you a job.

Wholeheartedly agree with this. You are missing out on leverage, tax breaks, and appreciation/equity. Generally speaking, arbitrage had its 15 seconds of fame and it has passed. 

[Zach Edelman]

Depends on the market. Feel like this is the obvious answer. 

[Brooklyn McCarty]

Quote from @John Underwood:

No.

You will never build any equity; it just gives you a job.

This! 👆🏻👆🏻👆🏻