Strategy #1: Renting Out Your Property
If you purchase a property or already own a property, you have two rental options.
1) Shared Housing: You live in one bedroom and rent out the remaining bedrooms. You must define what areas Guests have access to, such as Kitchen, Laundry, Backyard, etc.
2) Entire Place: You do not live in the property and allow the Guests to have complete privacy and access to the whole place.
Remember, you’ll also have to fully furnish your property, especially if it’s a house because that’s what guests have grown accustomed to. The best part of owning your property and running it as a short-term rental is that the business can continue for the long term. However, it also means that any repair issues are also your responsibility.
Strategy #2: Lease and Re-Rent a property (a.k.a. Rental Arbitrage)
Rental arbitrage is the act of renting out a property you leased from a landlord. You find a desirable property, sign a month-to-month or annual lease with a landlord, furnish it, and offer a short-term rental. This requires a contractual agreement between you and the landlord, who must consent to re-rent it to short-term Guests. The good news is that it requires low startup costs for employing this strategy. Any repair issues are the landlord’s responsibility.
For example, suppose you rent a three-bedroom, two-bathroom house for $1,800 a month (including expenses) and charge $130 per day x 20 days in a month = $2,600. In that case, you’ll generate a monthly profit of $800. Sometimes, you may even find a landlord with an already furnished house, which means you save on the cost of furnishing it yourself.
A significant downside in this strategy lies in whether you paid for the cost of furnishing a leased house. After one year, the landlord decides not to renew your lease. Then you’re left with all of the furniture to either put into storage, sell, or move to a new house that you acquire. Also, your property listing, along with all of the Guest reviews, will no longer exist after you unpublished it from the website.
Strategy #3: Short Term Rental Management
You can contact existing Hosts and offer to manage their property for a commission, typically in the range of 15-25%. Some Hosts will agree to this if they’ve grown tired of managing their listing and are willing to give up a percentage of profits to earn actual passive income. Keep in mind that if you manage for a commission at 20%, you will make far less than managing a property you own.
While you won’t have the responsibility of paying the mortgage, insurance, taxes, or utilities, a 20% commission means that you will need to manage 5x the properties to earn the same amount of money as you would on one property you owned or leased where you keep 100% of the profits. This leads to 5x the amount of management and customer service. This approach does not lend itself well to creating passive income unless you manage enough properties to bring in a substantial amount of overall revenue to eventually hire someone to replace you in the management position.