13 Mar How to Make Money From Home: Most Profitable Business to Start in 2018
One of my answers on Quora got over 2000 views in one day! That tells me that there are lots of people looking for a profitable business to start.
Are you thinking of making some passive income online? Well, you landed on the right blog!
I created this blog to show people how to make money from home, specifically how to run an Airbnb rental arbitrage business online. The idea of rental arbitrage is a simple one: you rent a 1-bedroom apartment for 1000 dollars a month and then you turn it around to sublet it on Airbnb for 2000 dollars. In this case, your net profit is 1000 dollars.
Table of Contents
What is Airbnb?
To start things off, Airbnb is an online marketplace. People use this business opportunity rent out their spare bedrooms in a house or rent short-term lodging including apartment rentals, vacation rentals, hostel beds, homestays, and even hotel rooms.
Airbnb was founded in 2007 and have been around for a while now. They are not going away anytime soon.
It is very easy to sign up using your social media profile. The whole process will take less than 30 seconds. After you sign up, be sure to complete your account before booking a reservation.
Why Does Airbnb Exist?
The answer to that is simple- there’s a demand for it.
People are in need of short-term lodging and hotels have had a monopoly over the price. They’re just too expensive to stay at, especially for longer trips. Airbnb allows any individual to capitalize on available space through their listings. If you have a rate set at a price higher than your daily cost of the unit, you will see a profit.
How to Calculate Your Daily Unit Cost
This is easy. You take your monthly rent and divide it by 30 days. For example, my monthly rent for a 1-bedroom apartment is 1500 dollars / 30 days( in a month) = $50 is my daily cost of the unit.
How to Find a Profitable Location to Do Airbnb Rental Arbitrage
Before you get too excited and start to sublet your own home on Airbnb, you’ll have to do some market research to see if your area is a desirable area.
A rental arbitrage = achievable daily rental rate > daily rental cost( $1500/30 days = $50).
Airbnb Market Research
Here is how you can quickly tell if your real estate market is a profitable one. (If you haven’t signed up for Airbnb yet, please sign up via this link. You’ll get $75 dollars for your first trip).
- Go to Airbnb.com.
- Look up the city that you want to do rental arbitrage. For me, I chose the Bay Area. But for the sake of simplicity, let’s pick San Francisco. Type “San Francisco” into the search on the top left corner. See picture below.
- Click on “Homes” under “Explore San Francisco”
- Scroll to the bottom and it’ll tell you how many rentals are in the market. When you have 300+ rentals, it’s a good sign because it tells you that you have a market-fit.
- Click on the “Home type” and filter out “Shared Room” and “Private Room.” This is important because it’ll further narrow down your competition.
- Go one step further and filter out places that can accommodate 4. It depends on what you’re trying to go for. I find it that in order to maximize profit, 4 is the max for 1-bedroom and 6 is the max for 2-bedrooms.
- Look at your competition with the most reviews and see how much they’re charging per night. If they’re charging 200 dollars per night and can fit 4 people, then it’s good for you to come in at 160 or 170 dollars per night to build out your reputation.
- Airbnb gives higher ranking to hosts that have the most 5-star reviews. These hosts show up on the first page of the search engine.
If you’re a numbers guy then what you could is to add up all the listings and divide it by the total listings. For example, 30 listings at 150 a night = (30 * 150) / 30 = $150 dollars per average night. Again, it’s a bit tedious, but if you like numbers, then I’d go for it!
There you have it! This is how you use Airbnb to do free market research!! Once you have decided to go into a market, then it’s time to create your listing. Be sure to read it here on how to best create and optimize your listing.
Why is Airbnb Rental Arbitrage the Most Profitable Business to Start in 2018?
In my limited business experiences( software as a service, eBay drop shipping, Gift card reselling, and Airbnb Rental Arbitrage), I’d say the answer is Airbnb Rental Arbitrage.
Let’s explore all of them.
Software as a service
I have worked for 3 different software companies in San Francisco. The startup costs are high as tech workers cost a lot of money. Once you built a successful product, you not only have to think about product maintenance, but marketing, and customer support.
These costs are fixed costs. Not only that, you will have to figure out a product that people will want. Is your product going to be B2C or B2B?
The next phase is the market research. Well, you get the idea. Lots of work go into research…
Thissummarizes profit margins for software companies pretty good. Most software companies have margin less than 20%.
And most businesses would consider a 20% margin a great business.
I started an eBay drop shipping store in 2017. I’ve made probably $5000 in sales. Not a lot, but enough for me to understand my thruput.
Throughput = (time invested in researching for product ideas/niches + time running the dropshipping store) / the profit (revenue minus item costs)
So for example, I’d spend time researching for a niche product to sell on eBay, let’s say, snow gloves, and then I’d create an ad on eBay to dropship the snow gloves that I found from Alibaba.
Let’s assume the gloves go for $15 on Alibaba and I would charge 1.4x of the original cost, so 15 * 1.4 = 21 dollars.
21 dollars minus eBay and pay fees = 19 dollars. So my net profit would be 4 dollars.
So, I’d earn 4 dollars for every 21 dollars. That means my profit margin would be roughly 19%.
Well, 19% is still not a bad profit margin. Just to give you a reference point, Apple’s products are around.
Gift Card Reselling
I gave up on the business idea after 2 weeks even though this market is 1 billion dollars. Too many scammers tried to hustle me. My time ROI was negative.
If you want to read more about my lessons learned, please go to my Medium and read more about it.
Airbnb Rental Arbitrage
I’ve been doing this for over a year now. My profit margin varies from month to month, but it averages from 42% to 58%. This all depends on occupancy rate and the time of the month.
In the month August in 2017, my net income was $12,345. After my business expenses, my profit was 7089 dollars. That is a 58% profit margin!
The best part of this business model is that you lease homes and not own them. Once the business is up and running, I spend only a few hours each week managing the business.
Don’t wait. Start reading my blog posts!
Bonus: check out my 121+ most profitable ideas that you can start from home.
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