11 Apr Creative Financing for Airbnb Rental Arbitrage Operators

Hello boys and girls, ladies and germs. This blog post is bought to you by the one and only, Ray Licardo.

Ray became a student a little more than a year ago. This blog post is about creative financing to help your Airbnb.

What I want to highlight is his ingenuity to find creative solutions in times of crisis. This is the exact type of thinking that a business owner needs…

So without further ado, here is Ray.

It’s been an absolute trying time for hosts all over the world during the COVID19 crisis.  The entire travel industry has floored the breaks to reach a screeching stop.  A lot of rental arbitrage operators became discouraged by the current outcomes they are currently facing, but there is hope at the end of the tunnel! 

Here are a few tips to help rental arbitrage operators to stop the bleeding from all the COVID19 cancellations.

Start an open communication channel with your landlord

100% un-occupied and no inquires from the past few weeks? 

LET YOUR LANDLORD KNOW ASAP! 

It’s much better to keep open communication with your landlords on how business is doing because on the other side of that lease, there is also a person who may be suffering from the effects of this world crisis.  More than likely, your landlord will be willing to help work with you during this time.  

Tip #1: request for rental deferment

Landlords may be able to work with their mortgage company to defer the rent to the end of their mortgage payments.  This may be beneficial to the landlord if they don’t plan to holding the property long term and will want to sell later, say 4-5 years from now. 

Lenders are offering for an up to a 120-day deferment plan, depending on their credit/payment history.  They’ll skip out on mortgage payments for a few months and use the other income they may be getting from their regular W2 job to re-invest in stocks, or savings, or that new car they’ve always wanted. 

*HUGE NOTE: DO NOT LEAD WITH THEIR MORTGAGE DEFERMENT.   

Only ask if you’re able to defer the rent to another month.  If they’re iffy, then mention that you’ve done your research and saw that there are options for deferring mortgage payments during this time.  If they’re able to get approved, ask if they’re willing to pass on the deferment to you.  You have to remember that this is a privilege, not a right. 

Still continue to build a good rapport with them, because THIS TOO SHALL PASS.

 If your landlord is a large corporate community, still request for the deferment.  Most likely, they will ask for you to provide a Hardship letter (how was your business impacted by COVID19, and documentation supporting that. 

The hardship letter is pretty straight forward.  Let them know that you’ve experienced a huge wave of cancellations from (insert date), and could not recover your calendar.  You may go into better detail about your situation, but be truthful and honest. 

This doesn’t mean your entirely off the hook for rent!  The company may work with you on a payment plan to pay back the months that were deferred. 

For example, if you defer one month, they may be willing to split up that month by the number amount of months you have left on the lease (defer 1 month at $1500, 10 months left, $1500/10 months =$150, you’ll owe them an extra $150 each month, bringing you to $1650 for the next 10 months. 

Pro tip: P&L that shows a month-to-month decrease in your reservations from back in Nov.  It’s helpful to put this in a graph for visual representation, but not necessary.

• Screenshots or emails of your cancellations and a summary of the revenue potential and what was lost.
• A screenshot of your current Airbnb calendar and performance showing your occupancy level and the associate unit.

Tip #2: if you’re doing Rev-share model with your landlords

As your landlord, if he’d like to forgo this month’s rent and starting the next month you do a revenue share model (50/50 or 70/30).  You work out the right percentage for yourself to make sure your overhead is still covered (Utilities and furniture rental if you have it). 

You can recommend this as a short term solution for a few months until the market picks back up again, or a long term solution.  This may be better, so you can renegotiate your lease to a revenue share model.  This takes your rental obligations away!

Tip #3: use your security deposit to pay rent

(Sam’s note: I’m using my one of my 2 months security deposit for May’s rent. This is a great way to bridge in the short-term.)

Some landlords may have collected a security deposit, + first and last month’s rent.  You may request to utilize one of the security deposits for this purpose to get you rent-free for the month.

If you have an incoming reservation that’s long term but coming in the middle/end of the month, request your landlord to waive this month’s late fee

If any of these ways gets you rent free for the month, don’t stop yourself from marketing your property on Airbnb or other platforms.  Keep that occupancy up and start bringing in revenue to help keep you afloat.

What are some other creative financing solutions that you have found for your business as an Airbnb arbitrage operator? Share it below and let us know!

You can follow Ray’s LinkedIn or see his current Airbnb portfolio.