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, Bloomberg Intelligence analysts have identified Airbnb company stocks as one of the global stocks to watch in the new year. It is suggested that bookings could surpass the expectations of analysts by as much as $2 to $4 billion in 2022.
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 corporate leasing on Airbnb 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 corporate leasing really is.
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 platforms 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 and other short-term rental platforms.
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 a corporate lease.
Also, keep in mind that while it is completely legal, a number of landlords will prohibit subletting. If you disregard their rules and wishes you could encounter legal issues, hefty fines, and/or eviction. So, it is best to make sure that you obtain their permission beforehand.
Entering into a corporate lease via Airbnb can offer a number of lucrative benefits. Here are three main reasons why increasingly more 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.
If you plan on buying your own investment property later but are still busy with market research, corporate leasing also gives you the opportunity to get started so long and get your foot in the door 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 the chance to start a side hustle so that you can first get a feel for the industry and responsibilities before having to make a huge financial investment such as buying a 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:
However, you could also possibly 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 it also means that you can start renting out immediately as the rental property is ready for the guests.
Once you have gotten the hang of how a corporate lease on Airbnb works, you can basically apply the same strategy to get a second property. This way you can grow your property portfolio and ultimately your business much faster.
There are a number of local laws and regulations that may apply to short-term rentals. So, even if you opted not to enter into corporate leasing but rather to buy the property from the start, you would still have to follow certain rules and regulations.
For example, depending on the location of the rental property, local laws may completely restrict or ban short-term rentals altogether. In other locations, the number of short-term rental properties in one location may be limited, or special licenses may be required. Therefore, it is up to you to do thorough research into the local laws of an area before looking for a vacation rental sublet opportunity.
If you are subletting short-term rentals on Airbnb, you will also need to double-check if 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, you also need to keep in mind that the apartment buildings might have their 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.
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, while other months it could be significantly lower. By completing the following steps, your short-term vacation rentals will have a much better chance of succeeding:
If you put in the extra effort to research the property, area, and seasonality thoroughly before you simply 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 think through what they could earn per night, versus the costs of running the business, furnishing the place (if need be), costs of marketing, maintenance, repairs, etc. Depending on the location (and the size) of the property, you can possibly make up to three times more than your expenses added up.
Take the time to make 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.
It can’t be stressed enough – location is key. The success of your Airbnb rentals will be impacted a lot by the location. In some areas, the difference between long-term rental rates and short-term rental rates is much higher. These are the markets that 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 success of your venture. The reality is that sadly this is the case for many cities. So, do your homework.
If you are new to vacation rentals, you might want to think about working with an estate agent whose specialty is short-term rental real estate. Alternatively, you use analytics tools like AirDNA, Mashvisor, or AllTheRooms. These vacation rental data sites will help you to work out the potential occupancy rate and Airbnb income beforehand. This way, you can eliminate the cities that are too risky 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 as many property owners are open to and keen about the idea of subletting. It is more unconventional than standard long-term leasing.
So, you will need to be willing and ready to explain what it involves and zoom in on the benefits that it can offer to both parties. In some instances, you might need to take a creative approach. Obviously, you still need to make sure that whatever details you share are completely accurate.
Here are some key points to keep in mind:
While it might be tempting to ignore the possible risks altogether, be sure to give some attention to them too. In fact, you could find a way to make them work to your advantage.
For example, while there will be more different guests staying at the property, it gives you the opportunity to inspect the property more often and possibly identify issues sooner. After all, a stitch in time saves nine.
Your goal is to make sure that the landlord understands clearly how Airbnb and the corporate lease work. Also, take the time to ask the landlord if they have any questions or concerns. 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 too.
Sometimes, even if you give a great pitch, you show that your landlord’s interests will be protected, and they too will enjoy a number of benefits, it could happen that they decide to reject your proposal, or even explore Airbnb on their own and cut you out of the picture. Some untrustworthy landlords might even decide to raise your lease payments when they see that you are doing remarkably well.
Instead of feeling defeated, view it as a sign that you have done such a great job of pitching the idea or starting a 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 make or break your new venture. If you will be 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 to have other people stay on the property during the lease period, keep the following in mind:
If you are strongly considering corporate leasing, it can be a good idea to create an LLC (Limited Liability Corporation).
The reason for this is that 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 legal way to circumvent the issues regarding third parties as you will be able to sublet the property.
Once you have the approval of the property owner, your next step is to create the listing. All your hard work till now will all be in vain if your listing fails to attract guests.
High-quality photos, an attention-grabbing title, and an engaging, yet accurate, description are the three key ingredients to making sure your listing on Airbnb is attractive. If you have some extra cash, it is best to hire a professional photographer. Your photos are really a deal-breaker and this is one area that many hosts neglect.
You will probably feel more comfortable behind the pen than the camera. With regards to writing your title and description, focus on the best features that the property has to offer. That said, if there are any issues that could cause a problem like a noisy street, be sure to mention this too.
Here are some other practical tips for creating your listing on Airbnb:
Automation software like iGMS can help to streamline tedious admin tasks. The time that you will save you can use to grow your business by looking for more units.
It can also help you to 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.
The following are just some of the daily tasks that iGMS takes off your hands:
Once you have become more familiar with the ins and outs of corporate leasing and your first unit is up and running, you should start thinking about acquiring a second property. Some hosts have multiple units rented out under this business model. You can do the same by automating your business and letting it generate rental income on its own.
About the Author
Callan Riddles is the Content and Social Media Specialist at iGMS. Callan has a passion for finding new ways to help vacation rental businesses thrive. In her free time, she loves to travel, read, and experience all the new things that life has to offer.
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