How to start an Airbnb in a pandemic

How to start an Airbnb

“It was the best of times, it was the worst of times.” Dickens may as well have been writing about Airbnb hosting in a pandemic when he penned this classic line. The truth is, Airbnb hosting is fundamentally different now. Travel is different. Covid has changed what people want and need when they’re away from home. If you’re wondering how to start an Airbnb today, it’s important to pay attention to these differences. To ignore them is to risk failing early and failing hard. In this post we’re going to cover some of those key differences, and share our 6 best tips on how to start and Airbnb in a pandemic (and still make money).

How to start an Airbnb in 7 steps

The steps that you need to take to start an Airbnb in normal times are no secret. You can find them on other sites. But what about in a pandemic?

In our experience, Airbnb success is not in the ‘what’ you do. Instead, it’s in the ‘how’ you do it. Especially in uncertain markets. The truth more than ever is, how you execute each of these steps below will ultimately determine whether you make money or lose it. You just can’t start an Airbnb today as though everything is normal and expect to succeed.

But we’ll get into that more as we go. Firstly, let’s start with the ‘what’ to do to start an Airbnb:

  1. Find a property to list. This is all about market research and due diligence. There are 4 paths to take.
    • a) you already own property and want to list it on Airbnb.
    • b) you want to invest in a property specifically to list on Airbnb.
    • c) you want to rent a property and list it on Airbnb (otherwise known as rental arbitrage).
    • d) you manage an Airbnb for someone else (as a cohost).
  2. Set the property up for Airbnb guests. This is all about the furniture, linen, utilities, appliances, utensils and everything else you need to host short term guest. It’s also about the condition of your property and how you turn it into a space that guests actually want to book and stay in.
  3. List the property on Airbnb. Once you have set up the property you have to list the property on the Airbnb platform. It’s a simple but extensive process and a good test of whether your place is actually ready for guests. Not all listings are equal. You need to target your guest and make sure you satisfy all of the Airbnb algorithm requirements to the top list of Airbnb searches for your area.
  4. Set up guest communications, nightly pricing, your booking calendar, and House Rules. These take time, research and thought. There are loads tricks to making sure you’re not picked off in peak pricing seasons, that you’re providing great guest experiences, and that you’re optimising booking opportunities.
  5. Organise cleaning, laundry, maintenance and restocking of supplies between stays. Can you run a 4 hour turnover between guests? Either you’ll operate the listing yourself or you’ll set up a team of people around you to help you. Some folks chose the hybrid option.
  6. Review guests. Reviewing guests will encourage them to review you back. Reviews are essential to get bookings from other guests. Lots of good reviews will also improve your ranking on the Airbnb platform.
  7. Monitor and manage. Rinse and repeat numbers 4 – 6. Monitor pricing, calendar settings and guest communications. Operate the Airbnb. Review guests.

This is all pretty high level but it gives you an idea of what you’re in for, if you’re thinking about starting an Airbnb. If you’re comfortable with the idea of these tasks, maybe hosting is for you!

In our experience – especially over the last 2 years – some steps here are more critical to your success than others. If you don’t get Step 1 right the remaining steps can become irrelevant. The rest of this post will focus on why that is and how to find the right type of Airbnb listing when you’re just starting out, so that you will make money. Even in the midst of a pandemic.

Let’s dive in!

The pandemic impacts on Airbnb – a tale of two market trends

The pandemic drove people apart. Physically I mean. Contagion thrives in dense populations. We all had to stay apart to stay well!1.5 meters distance in public spaces. Self isolation requirements and quarantine.

Contagion also drove us into lock down. Our travel was restricted. And when we could move around, snap lockdowns always had us wondering when we might be stuck somewhere and for how long.

These two recurring themes of the last 2 years fundamentally changed the Airbnb market almost over night. Global lock downs caused booking cancellations across the board. 90% of bookings were lost and it was bloodbath out there from April to June 2020. But what happened as the pandemic prolonged and people could move about, with restrictions in place? Let’s look at the US data…

1. Falling urban demand

Once of the major pandemic impacts was on urban centres. AirDNA data tells us that demand for Airbnbs in large cities fell off a cliff in 2020 (down 43% in the US). Not surprisingly, once initial lockdowns lifted people chose to stay clear of dense urban centres where all the ‘people’ were, for fear of getting Covid.

It’s not reflected in the data, but in our view it wasn’t just the population density that killed bookings in these locations. It was also the type of listings most typical in these areas: high-rise apartments. Shared ventilation, cooling systems, common areas, and elevators all became very unappealing to those who did need to travel.

2. Small city / rural renaissance

Small cities and rural locations are where people chose to travel to instead. To get away from population centres and harsh restrictions. Demand for travel to certain holiday destinations also picked up. Destinations with low populations, large and spread out properties with plenty of space to move about were exceedingly popular. Here’s the AirDNA data to back this up:

What about other countries?

Trends comparable with these were found across the UK and Europe in countries with similar paths through the pandemic.

Australia, because of the way it handled Covid during 2020 and 2021, didn’t see as strong a drop in urban demand for Airbnb stays. Cities like Brisbane and Adelaide were able to remain open, for the most part, at least to travellers from within their own state. But as in other countries, destination locations, smaller towns and regional locations were undoubtedly the winners in terms of demand for stays in 2020 and 2021. Once again, it’s all in knowing the numbers. With 71% of Australians living in ‘major cities‘, there’s just a bigger pool of travellers heading to the regions for holidays or time away.

What’s in store for 2022?

No-one has a crystal ball, but in an attempt to help you start your Airbnb income we’ve done some research, reviewed the data, and had a crack at some predictions for 2022.

What history tells us about how a Pandemic ends

According to this 2020 Washington Post article, the last pandemic – the Spanish Flu of 1918 – ended slowly. The virus – H1N1 – is still with us today. But people developed an immunity to it over time, and it became less lethal as the pandemic carried on in waves.

The key ingredient here, if you’re wondering how to start an Airbnb, is time.

If history is any guide, we think life will be uncertain for a while yet. Maybe we’ll continue as in previous pandemics to have waves of different Covid variants wreaking havoc until illness subsides over time.

So if you’re starting an Airbnb, expect people to make decisions accordingly. This includes decisions about if, when and where to travel and what type of accommodation to stay in. Think about how to start an Airbnb where bookings are insulated as much as possible from pandemic impacts. Understand the trends looking forward, so you can mitigate your risks and take advantage of new opportunities. Here are our 2022 predictions, based on AirDNA data and analysis.

Pent up demand for travel will play out (in waves)

We’ve all been wearing masks and staying home for 2 years now and WE’RE EXHAUSTED!!! It totally makes sense that people want to get out and about again.

According to Destination Analysts, “Nearly 80% of American travellers have trips currently planned in 2022.”

But we are also still worried about catching Covid. This survey data from Destination Analysts shows that 40% of Americans with intent to travel have cancelled or postponed a trip due to the latest Omicron wave.

So people will continue to want to travel. And the good news is that many Airbnbs are better positioned than hotels and resorts to take advantage of pent up travel demand. This is due to the type of accommodation typical of Airbnbs and in many cases, their dispersed location. Huzzah!

While we think guests will book more trips and they’re more likely to look to Airbnbs than to hotels and resorts, they’ll also cancel quickly if Covid safe travel is at risk. We know our cancellation rates are up since the pandemic due to traveller uncertainty.

The Airbnb ‘go rural’ trend will not end

Urban Airbnb demand in the US only recovered 8% in 2021 according to AirDNA, possibly due to the waves of new Covid variants like Delta and now Omicron upending travel plans. But that number means bookings are still down over 30% on 2019 levels. And that is enough to turn most Airbnb properties from a profit making venture to a loss making one. By our estimation, you’d need to have been booked at over 80% average occupancy in 2019 to sustain a 30% drop in bookings and still turn a slim profit. The average Airbnb occupancy rate in 2019 was closer to 50%. Supply of Airbnb listings in urban locations has dropped as a result.

Expect this theme to continue until people feel safe travelling to highly populated areas once again. AirDNA predict that demand for urban Airbnbs will not return until 2023.

We also think that if the pandemic goes on in waves, the Airbnb ‘go rural” trend will not end. Not just yet anyway. Be aware though that new supply has already moved into this market so you will find more competition for ongoing booking demand. If running a rural Airbnb listing appeals to you, leave room in your due diligence for bookings to drop off when the pandemic does end. Look at 2019 occupancy rates and nightly pricing on AirDNA to understand what your bookings might look like if ‘things return to normal”.

A new class of Airbnb guest has emerged: flexible workers

With waves like Delta and now Omicron, we’re predicting that flexible work arrangements will not phase out anytime soon. Employers just can’t have their staff all in one place and at risk of all getting ill. Diversifying staff accommodation is now a risk mitigation strategy. So there will continue to be a cohort of employed people who can live anywhere and still work remotely. We think that a portion of these folks will chose to move out of heavily restricted population dense areas, at least temporarily. They’ll situate instead in smaller cities, rural areas, or even in countries less impacted by Covid. And because they need temporary lodgings, flexible workers might just book your Airbnb to stay in.

AirDNA data shows an increase in the number of longer term stays (28 days +) to 15% of total bookings, which they attribute to flexible workers.

6 tips on how to start an Airbnb in a pandemic

Before 2020 there was no ‘right’ type of Airbnb property to list. If you put up a great looking property on Airbnb with good amenities you could make money just about anywhere. But Airbnb data during 2020 and 2021 shows that listing type now matters A LOT. Picking the right location and type of property is critical if you want to start an Airbnb in 2022.

Breaking down the trends, reading the data, and learning from our own Airbnb host experiences over the last 2 years here are our top 6 tips on how to start an Airbnb in a pandemic and still make money.

  1. Stay away from large city listings. We can’t see these coming back during 2022.
  2. Look at destination locations and rural areas. Just plan for booking demand to dampen at some point in the future. Factor this into your numbers!
  3. Small and mid-tier cities are a pretty safe bet during and post pandemic. We suggest looking for:
    • Mid tier cities people travel to for multiple reasons.
    • Gateway cities to regional areas as rural dwellers need access to major services.
    • Satellite cities with tourist attractions as lots of people can travel there by car.
  4. The type of property you list is now more important. Data shows that larger homes are more in demand as families fear snap lock downs in small spaces. Unique stays in less populated areas are rocking it. Stay away from small apartments in buildings with more than 2 stories.
  5. Make sure you can accommodate longer stays (28 days plus). Amenities such as wifi, cooking facilities, clothes storage, a washer and dryer, a place to work and an outdoor space are all really important to longer term guests. Proximity to services like medical care and supermarkets are also critical.
  6. Pandemic proof your listing. Make sure you have a property with a separate walk up entrance (no lifts), no shared utilities, no common areas, self check-in, and private outdoor spaces.
How to start an Airbnb
US data

The final word

The good news is that AirDNA data shows you can start an Airbnb in a pandemic and still make good money. Booking demand has increased for certain listings in certain locations with certain amenities, and so have nightly prices. But the data also shows that not all Airbnbs are equal during a pandemic. Where and what to list are now critical questions you need to answer before you start acquiring or setting up your first / next property.

If you want to learn more about how to start an Airbnb, bookmark our Airbnb Host Hub page where you’ll find out upcoming eBook on exactly this topic!

If you’re serious about starting an Airbnb you really need to understand the data and trends before you leap. We recommend using AirDNA. Their low-cost monthly subscriptions that you can turn off any time are golden.

Can you really make money with rental arbitrage?

rental arbitrage

You don’t need a lot of start up capital or to be a real estate mogul to make money on Airbnb. Hell, you don’t even need to own any property. You just need to know the shit outta how to find and run a great rental arbitrage opportunity. So let’s dive in and get started! Rental arbitrage has become an increasingly popular strategy for making extra money in real estate, and many people are interested in learning how to do it themselves. In this blog post we will cover:

  • what rental arbitrage is,
  • how rental arbitrage works on Airbnb,
  • what to look for in a rental arbitrage property,
  • 6 traps to avoid when rental arbitraging, and
  • our own personal rental arbitrage case study!

What is ‘arbitrage’?

In its simplest form, arbitrage is the process of buying a product in one market and then immediately selling it in another market for a higher price. This can be done by taking advantage of price differences between two different markets, or by taking advantage of discrepancies in the price of similar products offered by different sellers.

There are tonne of arbitrage opportunities available nowadays with the internet giving everyone access to different marketplaces instantaneously.

One well known arbitrage strategy is ‘rental arbitrage’.

What is rental arbitrage?

rental arbitrage

Rental arbitrage is about taking advantage of price differences in different property rental markets. There are different ways to do this. For example, you might buy a rental property in disrepair for a price based on the current rental return. You can arbitrage the rent by fixing the property up cheaply and increasing the rent. In this case you are arbitraging rental sub-markets between run down and well-presented rentals. The difference could literally be a lick of paint, some gardening and new curtains!

Another rental arbitrage technique – and the one we’re going to focus on here – is the practice renting a property long-term and then re-renting it on short term accommodation sites like Airbnb or Vrbo.

This kind of rental arbitrage is also known as ‘house hacking’ and there are two main ways to go about it.

  1. You can rent a property, live in it and rent out a room in that property short term.
  2. you can rent a property long term solely to rent it out to others on a short term basis. You don’t live in it at all.

We’ve made money with the second strategy, but this post applies to both methods.

The rental arbitrage model

The model for rental arbitrage using Airbnb is simple – your Airbnb earnings need to more than cover your cost to rent the property from the owner, plus your operating expenses as a short term rental. If you’re able to find a property where the Airbnb income will be more than your costs, you have created an opportunity for rental arbitrage!

Making money from rental arbitrage is highly location and market dependent as you can see from the AirDNA graph below. AirDNA is a great source of real data from Airbnb rentals.

This image shows the short term rental premium for different US markets based on real Airbnb and long term rental data.

The graph shows that long term rental rates have increased in some US markets and decreased in others due to changes in demand. Short term rental nightly rates and occupancy rates have also changed with demand. But what does all this mean? Well, markets where growth in short term rental demand and nightly pricing exceeds long term rental rates are golden!

In this post we are going to demonstrate that rental arbitrage can be satisfyingly profitable if done correctly, but there are also risks involved. You need to know your numbers and market trends (like those illustrated above) to make money. But don’t worry, this data is available on the internet! We use AirDNA for all of our Airbnb analysis.

Make sure you keep on reading right to the end where we share our own personal case study showing how we made money with rental arbitrage.

6 rental arbitrage traps to avoid

Once you understand the basics of rental arbitrage, it’s important to be aware of some traps that can derail your profits. Here are five to watch out for:Your own time commitment – managing a short term rental takes time, so make sure you factor this into your calculations

  1. Not properly researching an area – if the short term rental market is weak or there are too many short term rentals in the area, your earnings will be lower than expected. You need to be clear what your Airbnb occupancy rate will be and the nightly rate you can charge.
  2. Underestimating operating costs – from cleaning supplies to wifi service, make sure you have a realistic estimate of all your expenses. You can take a look at our case study below to get a better idea of what these might be.
  3. Ignoring the rules – governments and municipalities can make and change rules related to short term rentals, so always stay up-to-date on any new rules that could impact your bottom line. It’s best to find a location where there are already clear rules about running Airbnbs.
  4. Finding properties with hostile building management – some building managers or body corporates will do everything in their power to keep Airbnb businesses out of the building. Airbnbs can undercut their profits. Find Airbnb friendly buildings in rent in!
  5. Not managing risk – from damages to rental theft, there are a number of things that can go wrong with Airbnb properties or guests. Make sure you have enough in your budget to cover any unexpected costs and get short term rental insurance!
  6. Make sure you have a clear written agreement with the property owner stating your intention to rent the place short term. Be crystal clear about who will pay what costs – utilities, maintenance, and repairs.

What to look for in a rental arbitrage property

There are several things we recommend that you look for when identifying rental arbitrage opportunities:

  • The numbers of course! There must be a good short term rental premium in that location. We talk about ‘short term rental premium’ above.
  • The property should be in a desirable location with high demand from Airbnb guests. You can check short term rental demand for an area using AirDNA.
  • The rental rate that you pay should be below or at market value.
  • The property should be well-maintained and (ideally) furnished. This will reduce your Airbnb set up costs to things like small appliances, kitchenware, and consumable items (bath products). Lower costs mean quicker profits!
  • Properties that offer extra value that isn’t reflected in the rent. Like plenty of room to sleep more people using sofa beds or ways to turn dead spaces into a profit. Examples might be transforming a study into an extra bedroom, or an ‘insta-worthy’ view that’s not reflected in the rent.
  • A property that can out compete other Airbnb listings in the area. This means that the amenities, the interior design, the space, the light and the comfort level are better than the average local listing.

When considering a rental arbitrage opportunity, always do your research to make sure these factors are present!

Now you understand what rental arbitrage is, how it works, some of the traps to avoid, and what to look for. Huzzah! Now let’s take a look at an example of how we successfully made money with this strategy.

Our rental arbitrage case study

We’re going to share with you a personal case study using rental arbitrage. Hopefully it helps you understand how to go about finding these opportunities and how much you can actually make, if you do it well!

Due diligence

When looking for an investment opportunity, we always start with a due diligence phase. For Airbnb, we use AirDNA to do our research, as well as the Airbnb platform itself. Our aim was to find a rental arbitrage opportunity and set up a new Airbnb income stream for our financial freedom goals!

Our due diligence on AirDNA discovered:

  • strong demand for Airbnbs in a particular Brisbane CBD area; an entertainment district featuring restaurants, bars, clubs, and cultural venues
  • a limited supply of quality 1 bedroom apartments in the direct vicinity
  • a pricing gap in the nightly rate for singles or couples wanting to stay in the area
  • the most successful Airbnb listings in the area had a ‘wow factor’ to them.

Once we identified this gap in the market we went about finding an apartment to rent to specifically fill that gap in market demand and pricing…

The property

We found a one bedroom apartment for rent in the area through a real estate agent in our network. These are the features that we felt made the property a potentially good Airbnb option:

  • spectacular city views
  • walking distance to entertainment venues, restaurants, pubs and clubs
  • spacious apartment for a 1 bedroom
  • all new interior
  • Airbnb friendly apartment building.

The rental arbitrage deal

After further discussion with the agent, the apartment was offered to rent for $460 per week.

Next it was time to do the numbers….

After crunching some high and low scenarios we realised from the combination of Airbnb demand (occupancy) and achievable nightly price, compared with the weekly long term rent and likely expenses that this particular would be a good rental arbitrage opportunity.

We signed the lease, snapped into action and began to set up the Airbnb listing.

Set up costs

The apartment did not come furnished, which meant that we had higher start up costs. We would also face a pay back period before we started making actual profit. We needed to limit the set up costs to achieve a payback period of under 6 months if possible, given we had a 12 month rental lease.

It cost us $7000 AUD to furnish, decorate and equip the apartment for Airbnb guests. This included all new items and buying our own linen. It did not include the 7 days it took to set everything up, which you’re paying rent for. Make sure you factor this in to your analysis.

Income and expenses

Here is our actual income and expenses ledger for the month of January.

January ExpensesCost per month**
Rent$1993
Maintenance$0
Power$89
Water$15.40
Hot Water$165.50
Internet$70
Insurance$30.50
Cleaning and laundry$370
Consumables$163
Total cost$2896
Total income (net of fees)$4519
Monthly profit$1622
** numbers are rounded

Annual profit

Extrapolating from these monthly figures we can get an indication of annual profits.

Year 1 profit is equal to the net income after start up costs….

= $1600 x 12 months – $7000

= $12,200

Year 2 profit is more like $19,200.

Thats just from one x 1 bed apartment! You get three of these things that work well and you could consider quitting your job and building an empire!

Final word

It’s worth knowing that not all months are equal in Airbnb income – some have higher demand and some have lower demand. CBD locations like this one are not particularly seasonal however, and can experience strong demand all year round due to the variety of entertainment options in the area. What you really need to watch out for is oversupply of properties locally – this can really impact your occupancy rates and your bottom line. We have ways to manage this risk which you can read about in our upcoming ebook!

Our eBook will also share the due diligence strategies we use to help our Airbnb business ride through business risks like unexpected dips in demand (from a pandemic maybe!).

If you’re doing due diligence on a potential property of your own, AirDNA will show you average occupancy for a particular area as well as average nightly price for different types of properties. Base your due diligence off of this data but allow a buffer for expenses. We also recommend running some sensitivities on your analysis based on higher and lower demand scenarios!

Next steps

In this post we’ve shared some beginners knowledge about rental arbitrage and how we make real honest to god money from it.

If you want to learn more and set up an Airbnb income for yourself, here are two things you can do:

  1. Sign up for the BNBformula training and get cracking on building your own Airbnb business empire, OR
  2. Bookmark our Host Hub page and stay tuned for our upcoming eBook. It’ll cover all of our hacks and tips with this rental arbitrage strategy.

Financial freedom with Airbnb using rental arbitrage is real peeps. Let’s get stacking those Benjamins (or Pineapples if you’re from Oz!).

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