Entering into a corporate lease for Airbnb rentals does come with some risks, but so does virtually everything else in life. What makes it attractive, though, is that Airbnb offers a lot of flexibility.
What’s more, Airbnb is still growing in popularity. In fact, CNN Business is forecasting that Airbnb’s stock price will increase by 16% into 2024, showing strong growth despite an increasingly cautious market and stringent local laws and regulations aimed at controlling the vacation rental business.
Yet, many property owners underestimate the strength of short-term rentals and prefer to stick to long-term rentals out of fear. If you are an entrepreneur and looking to enter the real estate industry but do not necessarily want to invest in your own property, you can look into subletting or Airbnb corporate leasing as a viable business model.
If you find a smart landlord who you can trust, it is as straightforward as drawing up a corporate lease. This way you are on the same page and all parties are protected. Let’s take a closer look at what qualifies as corporate leasing.
Corporate leasing, subletting, or subleasing refers to when you find a property, sign a long-term lease agreement, and then rent it out on vacation rental sites on a short-term basis.
To put it in more legal terms, it’s a lease for a residential unit where one party will rent the unit from the property owner or landlord but have the right to sublease the unit to individual subtenants.
The term, “rental arbitrage”, is another name that is used to describe this business model. Rental arbitrage refers to renting out a long-term rental and listing it on Airbnb or any other vacation rental platforms like Booking.com and Vrbo.
As you can charge a higher daily rate, you will be able to make a profit if it works out to more than the sum of your rent and other monthly expenses related to running a rental arbitrage business.
While it might come as a surprise to you, corporate leasing is legal on Airbnb. However, you will need to have the permission of the landlord in writing before entering into an Airbnb corporate lease agreement.
Always keep in mind that while corporate leasing is completely legal, a number of landlords will prohibit subletting a residential property they own on Airbnb or other vacation rental sites. If you disregard their rules and wishes you could encounter legal issues, hefty fines, and/or eviction. Thus, it is best to obtain their permission beforehand and get it in writing.
Entering into a corporate lease Airbnb can offer a number of lucrative benefits. Here are three main reasons why an increasing number of people are exploring this route:
As you will be using others’ properties, you can start a short-term rental business without owning any of your own rental properties and therefore, avoiding the majority of the risk involved.
If you plan on buying your own investment property later but are still conducting market research, corporate leasing also allows you to get started and get some practical experience while you continue with your property search.
Perhaps you are considering starting a short-term rental business but are not entirely sure you are cut out for managing vacation rentals. Corporate leasing allows you to explore the industry and ascertain whether you think you could make this business model a success or not before having to make a huge financial investment such as buying a rental property.
As you can start without owning any property, you do not need loads of capital to get started. The starting costs typically include the following:
You could also find a place that is already furnished. This setup can work to your advantage. Not only will you be able to save money on furnishings, but you can also start renting the property out immediately as the rental property is ready for the guests.
Once you have the hang of how a corporate lease on Airbnb works, you can apply the same strategy to acquire a second property. This way you can grow your property portfolio and ultimately your business much faster.
Depending on where you are located, there will be a number of local laws and regulations that may apply to properties listed on short-term rental platforms. Even if you opted not to enter into corporate leasing but rather decided to buy the property instead, you would still have to follow certain rules and regulations.
In some places, local laws may restrict or ban short-term rentals altogether. In other locations, special licenses may be required. Therefore, it is up to you to do thorough research into an area’s local laws before looking for a vacation rental sublet opportunity.
If you are subletting short-term rental properties on Airbnb, you will also need to double-check that there are no other HOA rules that also apply to subletting in addition to the regular short-term rental regulations in your location. For example, if you are renting out apartments, the apartment building might have its own rules regarding subletting and short-term rentals. Some condo buildings might ban it altogether while others might require you to complete a background check on guests first and adhere to minimum booking durations to minimize the effect on fellow tenants. Local laws and regulations can stop a subletting agreement in its tracks.
Not only do you need to build your business around local regulations, but you will also need to plan for changing marketing conditions and unexpected events.
Market conditions will change continuously. One month the booking demand will be high, and the next, it could be significantly lower. By completing the following steps, your short-term vacation rentals will have a much better chance of succeeding in the long run:
If you put in the effort to research the property, the area that it is located in, and the seasonality of the market thoroughly before you sign on any dotted lines, corporate leasing can be one of the best ways to get a foothold in the industry. The key areas to research are:
When deciding on the property you want to sublet, make sure that the earning potential on Airbnb outweighs the leasing costs.
Hosts need to research what they could earn per night, versus the costs of running the business, furnishing the property (if need be), plus the costs of marketing, maintenance, repairs, etc. Depending on the location and the size of the property, you could potentially make up to three times more than your total expenses.
Take the time to develop a list of the best cities for running an Airbnb business. Factors like occupancy rate and average daily rate will make some destinations more attractive for renting out on a short-term basis, as will the legalities and requirements of the market.
It can’t be stressed enough – location is key. The success of your Airbnb rentals will depend on the location. In some areas, the difference between short-term rental rates and long-term rental rates is much larger. The markets with higher short-term rental rates are better suited for using the corporate leasing business model.
In addition to market rates, you also need to study seasonality. If the area is popular only for a few months of the year, it can jeopardize the overall success of your venture. The reality is that this is the case for many cities. Be sure to do your homework.
If you are new to vacation rentals, you might want to think about working with an estate agent or agency whose specialty is short-term rental real estate. Alternatively, you use analytical tools like AirDNA, Mashvisor, or AllTheRooms. These vacation rental data sites will help you calculate the potential occupancy rate and overall Airbnb income beforehand. This way, you can eliminate the cities that are too low reward for corporate leasing via Airbnb.
Finding a property owner who is willing to allow corporate leasing is arguably the biggest challenge. Truth be told, not many property owners are open to the idea of subletting. It is more unconventional than a standard long-term lease and is far from risk free for the property owner.
You will need to be willing and ready to explain what it involves and zoom in on the benefits it can offer both parties. In some instances, you may need to get creative with your approach. You still need to make sure that whatever details you share are completely accurate and that you present both sides of the coin.
Here are some key points to keep in mind:
While it might be tempting to ignore the possible risks when making a pitch to a property owner, be sure to pay them some attention. You should find a way to make these risks work to your advantage.
For example, while there will be more guest traffic through the property, it allows you to stay on top of any maintenance issues that might pop up and remedy the issues much sooner. After all, a stitch in time saves nine.
Your goal is to ensure the landlord understands how the Airbnb corporate leasing process works. Also, take the time to ask the landlord if they have any questions or concerns and then address them fully. Not only will this step help to ensure that both parties are in complete agreement, but it will also communicate that you want to protect their interests as well as your own.
Sometimes, even if you give a great pitch, highlight the benefits, and show that your landlord’s interests will be protected, they might still reject your proposal. They could even decide to explore the Airbnb market on their own and cut you out of the picture. Some landlords might even decide to raise your lease payments when they see that you are doing well to make themselves some extra money.
Instead of feeling defeated, see it as a sign that you have done a great job of pitching the idea or making a success of your rental arbitrage business. Cut your losses and move on. There will be other property owners who are interested in switching from traditional long-term rentals to short-term rentals but do not want to do it on their own.
This is one of the most important steps and can easily make or break your new venture. If you’re signing as an individual, you will need to ensure that the terms stipulate that you may rent it out on a short-term basis to other guests. To help you negotiate a corporate leases like this, keep the following in mind:
If you are strongly considering corporate leasing, it may be a good idea to create an LLC (Limited Liability Company).
If you sign the lease agreement in the name of your LLC, you do not have to identify the individual guest who will be staying at the property. This is a completely legal way to circumvent the issues regarding third parties.
Once you have the approval of the property owner, your next step is to create the listing page. All of your hard work until now will all have been in vain if your listing fails to attract guests.
High-quality photos, an attention-grabbing title, and an engaging property description are the three key ingredients to making sure your listing on Airbnb is attractive. If you want to give your listing the best chance of success, it’s best to hire a professional photographer. Your photos are the first thing Airbnb users see about your property and they need to be as alluring as possible to stand out from the crowd.
You will likely feel more comfortable behind a keyboard than you will behind a camera. With regards to writing your title and description, focus on the unique features of your Airbnb property. In the age of AI, you can always ask ChatGPT or Salesforce Einstein (if you are looking for a more comprehensive solution) to help you out with the written aspects! If any issues could cause a problem like a noisy street, be sure to mention this too in order to avoid issues further down the line.
Here are some other practical tips for creating your listing on Airbnb:
Automation software like iGMS can help eliminate tedious admin tasks. Instead, you’ll be able to use that saved time to grow your business.
It can also help you cut costs by offering an all-in-one platform to manage your properties without the need for a third-party property manager. Even if you manage only a single property, you will still reap the rewards of property management optimization.
The following are just some of the daily tasks that iGMS takes off your hands:
Once you’re more familiar with the ins and outs of corporate leasing Airbnb properties and your first unit is up and running, you should start thinking about acquiring a second property. Many successful hosts have multiple units rented out under this business model. You can follow the same expansion plan by automating your business and letting your new property generate rental income on its own while you explore more properties for investment.
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