39. Why This Airbnb Arbitrage Business Failed in the First Month (And How to Avoid It)

What if Airbnb arbitrage seems like the perfect way to get into real estate—until everything falls apart in the very first month?

In this episode, Violeta and Lindsay break down one of the most talked-about real estate investing strategies: Airbnb arbitrage. They explain how the model works, why it's become popular among new investors, and the advantages of getting started without purchasing a property. But they also reveal the hidden risks that many beginners overlook before jumping in.

Using a real-life story from someone in their community, they walk through how an Airbnb arbitrage business went from exciting new venture to complete shutdown in just a matter of weeks. After investing thousands of dollars furnishing two rental units, one guest's reckless behavior led the landlord to terminate the lease, leaving the new investors without a business and scrambling to recover their losses.

Throughout the conversation, Violeta and Lindsay unpack the biggest lessons from the experience, including the dangers of shiny object syndrome, why proper planning matters more than speed, and how borrowing money before validating a business model can increase your financial risk. They also discuss the importance of screening guests, understanding local regulations, preparing for unexpected setbacks, and treating short-term rentals like a real hospitality business rather than passive income.

Whether you're considering Airbnb arbitrage, exploring your first real estate investment, or simply looking for ways to build wealth with less capital, this episode offers a balanced look at both the opportunities and the challenges of this strategy.

Before signing your first lease or furnishing your first Airbnb, tune in for practical advice, real-world lessons, and the questions every aspiring short-term rental investor should ask before getting started.

Link Mentioned:
Free Latinas in Real Estate Community: https://www.skool.com/real-estate-jefas-9075/about

Transcript

How an Airbnb Business Failed in One Month

SPEAKER_00 0:00

Imagine starting your Airbnb business via Airbnb arbitrage and it fails within the first month. You finally get excited, you do a little bit of your homework, and decide to finally jump in. All for it to just like bam, in the first month, it just comes crumbling down. What happened? Today I am going to be sharing a story from someone that recently went through this. We're going to be covering what Airbnb arbitrage is, some of the pros and cons, and then I'm going to share the story and we're going to, you know, take some lessons learned of what they possibly did wrong, how they can do better next time. Because this is a strategy that many investors successfully use to get into real estate investing. But before we get into that, I do want to plug in the Latinas in real estate investing community. It's hosted in school. This is where you can catch me and Lynn out there. It's just I just launched it, so definitely come over and be a founding member. It's free to join. I have resources. You can ask us questions and start networking. So all that information is down below. And if you want to get started in real estate, I do have a free starter kit. It walks you through the first few steps to actually get out there and start investing in real estate. So again, all of that information is down below.

What Is Airbnb Arbitrage?

SPEAKER_01 1:32

And now to start the episode, what is Airbnb arbitrage? So this is a fancy term to basically define this real estate strategy where you lease a property that is available in the market for long-term rental. So you go and get that property as a long-term rental, and then you ask the landlord if you can sublet it. And because you can sublet it, you could potentially short-term rental that property that you put on your lease. So your profit is the basically the difference between what you pay in monthly rent for that long-term rental and what you could earn for nightly booking bookings in Airbnb, any platform, BRBO, right? So when people think about this, they just go and they go like, Wow, there's a lot of apartments out there, apartments, houses, vacation homes that you could with your credit score, with your income to the rate show, you can potentially apply for a long-term rental, but you can also make it a business, right? Some of the pros of using this real estate strategy is you don't own the property. So when you are renting, right, there is still a landlord and there's still somebody in charge for any types of like repairs. For example, you won't have to buy the property, so you won't have any down payments or mortgages and closing costs. So you're not talking about purchasing something. And once you establish like you rent out from a landlord and you're able to get one, nobody is stopping you from getting others, right? So when you do get a loan and then you purchase a property via cash or conventional loan, your debt incorporation is affected. So the more properties that you have, the less likely you're gonna be able to apply for another loan. With early every trash, you don't have that because you can rent as many properties as you possibly can. And another pro is like, for example, if you're not sure about the market that you're going into, this provides you a great way to learn about the short-term rental industry without the long-term debt. So, if for example, you're just testing the waters of like real estate ownership or real estate investing or whatever, this is technically the less risky thing to do without going and buying an actual property, right? Going and getting a loan, going and getting pre-qualified. But don't let me stop there because there are also things that you have to consider that are counts.

The Biggest Risks of Airbnb Arbitrage

SPEAKER_01 4:06

So, for example, one of the counts of Airbnb arbitrage is you don't have any equity, right? Zero equity. So when you are paying your rent, you're not amounting any type of equity in the home. The home still belongs to the landlord, so you're just running the spread, right? So the asset is not your own. You also have fixed cost and variable income. So what I mean when I said fixed cost is mean that you owe the monthly rent to the landlord, right? Whether the property is book or not book, and we all know where Airbnb short-term rentals uh bookings are different, right? Sometimes you can get longer bookings, sometimes you can get short bookings, sometimes you can get one-day bookings. So that is where we're talking about variable income. You don't you're not able to specify how much money you're gonna make from one month and the seasonality of short-term rentals, too. Sometimes, you know, during the summer, some places get booked all the time, sometimes during the winter it's completely dead. So that is something you have to consider in your mind. It's also in any city, for example, in Los Angeles, we have regulatory risks in New York, Airbnbs are banned. So you need to know the market, your city ordinances, the need for a permit, HOA rules, and all the other requirements that may restrict you from running that business, from running that arbitrage. So when even with the pros of like the entry cost being low, what not having to qualify for a loan or not having to deploy a massive amount of cash as a down payment and costing costs, you still are taking financial responsibility and financial risk. And there's going to be an initial investment money, right? Most of the rentals that you do see out there are unfurnished, and then so some of the things that you're gonna have to do to make your Airbnb or short-term rental competitive is to furnish, to get professional pictures, to paint the story of who would want to stay here, right? What are you targeting? Are you targeting students? Are you targeting families? Is it vacation? Is it party time? What are you targeting? You're gonna have to create the story and paint a picture of like they would want to stay there. And then so sometimes you may have a break-even point. So some of the experts require around 60 to 73% of occupancy just to cover your rent, the utilities, the cleaning, and the platform fees, because that would change, right? Some guests and some estates will be easy peasy. Somebody came, basically slept there, and then left. Some states are going to be they had a party in the unit, they had trash all over, there was a broken door or cups fell on the floor. You're gonna have to have more expenses, right? So you just have to make sure that also there is a margin, right? So if you do your research, like for example, there are a lot of platforms where you can estimate occupancy of Airbnbs, like air DNA, I think hospitality hosty also has a different way to see like how much is the demand for a short-term rental in that particular place, in the particular city that you're looking at before you go in, so it gives you a little more of data points to go in. So, like if you imagine something is gonna be occupied at 70% occupancy, like you run your numbers conservatively, you add your utilities possibly, you add your occupancy, your vacancy rates, and then see if that there gives you a margin, right? Because the point of this whole thing is to make money, to make it a business, to deliver a service. So now you have to know what are you okay with the margin? Is it 10%? Is it five percent? Is it 30? Like, what is it that is gonna be worth your time to spend this level of amount of time and also responsibility, right? People are gonna be contacting you, people are gonna be calling you, people are gonna be texting you, and you're gonna have to be the solution for everything.

The Real Story: What Went Wrong

SPEAKER_00 8:11

Yeah, so now let me share the story of where they went and tried out this strategy, but it ended up going wrong. And so, with these people, some people that I know that decided to jump into Airbnb because they heard about Airbnb, they live in an area that's in it's in Florida, and you have like people vacationing over the summer, which it's not necessarily a bad timing to get into Airbnb, it's the summer, so it's a good time for them to have jumped into it. The thing is that they heard about this, and I'm not sure where they learned about Airbnb arbitrage, which again it is a strategy that a lot of investors use successfully and all that. So they heard about it, they got motivated, and they decided to jump right in. So, what they did was they yes, they you they did a little bit of homework, they used Chat GPT to kind of like help them analyze some apartments that they found in a in an area that is kind of like known for like Airbnbs that's popular in that area. So they found a landlord that had some units, apartments that had been vacant. They approached them and said, Hey, you know, we want to rent two units out, and we plan to Airbnb them out. They did their contract, all that. Okay, cool. Landlord said, sure, fine. And so they went ahead, jumped right in, and Howlin was saying it does take a little bit of upfront cost, and they had to furnish, they had to fix up the unit as well because these units weren't, you know, uh, I'm assuming they needed maybe to paint, you know, because one of the things that attract phase is you know making your unit attractive, maybe have a theme that you know motivates them to choose yours because it's a fun unit to stay in. So they did that, they furnished it, did fixes, they did all of that, right? And so then they went ahead and put it on Airbnb, and it went well, right? As soon as they put it on there, they started getting bookings, all that, and all that was fine. But then it came to where I think I'm not sure if it was like the first stay, the second stay, or whatever yet, because they literally just launched it like this month and then closed down this month. So, what happened was that like Lynn was saying, that one of the problems is that you don't know what's going on with the stays. So it turns out that they had someone stay, and what's around the corner, it's 4th of July, so people are starting to like party mode. And one of their stays decided to light some sparklers inside the unit, which you know, I guess triggered the fire alarm, blah blah blah. Landlord found out, got scared off, and was like, you know what? Absolutely not. I'm going to cancel the leases, and I want you out, and I'm not like you know, basically broke the contract, and so now they're left with you know, they invested all this money because again, they had to furnish sofas, dishware, like these are things that you don't think about, like you had to provide plates, cups, detergent, linen, beds, all that stuff, right? On top of you know, like internet and things like that. So now they are out of that money, right? Because they got kicked out, and now I'm not even sure what their Airbnb, because Airbnb is pretty strict, they got lots of rules, so I can imagine how much it hurt their profile of canceling all these reservations because they were booked mostly pretty much the whole summer. I think they had already got some bookings, and now their business went up in flames because of this one person, and the landlord canceled

Lessons Learned from a Failed Airbnb Launch

SPEAKER_00 12:13

their lease. So, lessons learned is that they started this business in June and their business went down in June. So now it's like, what happened? What are some lessons learned? How can you prevent this? And you know, can they, you know, recover and come back and try again? I'm not sure because again, Airbnb is very nitpicky. I don't know if they'll be able to even use that profile anymore. So it might be done with the Airbnb portion of it, unless they try maybe another platform. I don't know. But one of the things that I see right off the bat as kind of you know, they could have done better is that they like saw something like shiny object syndrome. They're like, Oh, Airbnb is gonna make me money, blah blah blah, and they jumped right in. And yeah, they did a little bit of homework, but maybe they should have taken a little bit more time in creating their strategy and all that. So off the bat, I think it was more of an emotional jump into a strategy, into an investment that these are brand spanking new, don't know about real estate investing. They learned about Airbnb and they did it, and then again, they did two apartments. I think I would have just done one to start off with and get how it works, and you know, just get the experience first. And so they also like borrowed some funds from like friends and everything like that. So they already stretched themselves out thin because they didn't have the funds to start the business, and then they borrowed money from friends and family members, so now you know that's probably going to cause an issue as well because they have to pay this money back, right? So that's another

Why Guest Screening Matters

SPEAKER_00 13:58

one, and then I think the other one that I see right away is I don't think they vetted their stakes. So I was telling Lynn that you know I'm going to on vacation next month and I'm going to Mexico. And let me tell you, booking this one, she like I started a new profile because I couldn't log into my old one. I don't even know the password to that one anymore. And I tried to do the whole password, but it didn't let me. And I just started a new one. So that was a big red flag to the Airbnb hosts, and she asked me questions and yada yada. And there was a lot of like back and forth because she wanted to make sure that like I was just some rando, maybe I had a profile that got banned or whatever, right? And so I really saw how she vetted me to make sure that I would be a good stay, right? You know, I wouldn't mess up her Airbnb. And I think that's the difference here is that because they were kind of like all wanting the cash right away and wanting to start profiting and all that, I think they just accepted anybody and were doing maybe automatic accepting because I think she had to where she had to approve the booking first. So those are the first few things that I see off the bat. So I'm gonna pass it to Lynn to see like what she thinks, and again, it's a very brief story of background.

Is Airbnb Arbitrage Still Worth It?

SPEAKER_01 15:20

Yeah, this is a brief story, and don't let it deter you from trying or researching about it, because in every market and every strategy, there's people that are doing successfully, and there's people that are failing miserably, right? So, one of the things that we want you to open up your eyes to is like high risk, high reward, but also like how much risk are you willing to take on. Because, like we said, it's not a down payment that they lost, it's not closing costs that they lost, it's not a whole property they did trash, right? But it is some money that they did lose to furnish, to take the pictures, to make sure that the short-term rental is basically competitive, right? In a market that you can actually get a lot of bookings, but it can be an effective strategy to dip your toes into real estate, just have to be aware of customer service because I don't know if you ever worked in hospitality, you dealt ever dealt with people, there are all kinds of people in the world, and there's people that are super great to have as a host, and it just takes one person to like derail your whole perspective about short-term rentals or Airbnbs. I don't remember when Airbnb started and you were like, Why would I stay in somebody's house? Like, there's a hotel available, right? But if you ever heard about hotel parties, there's going to be parties at Airbnb too, and there are people that are gonna do things to push the boundaries. And when the property is not yours, you are at the mercy of somebody else's, right? And there are these rules and regulations. Now, when I booked an Airbnb, which I very am a fan of Airbnb, I book them all the time when I travel. Do you have the like 100 rules of the stay, right? And then some Airbnbs even require you to have additional insurance when you're booking their stays, and some Airbnbs, like Violeta mentioned that they will ask you questions: how long are you gonna be staying there? What is the reason of your stay? You're not there's people living over you, under you. Are you gonna be mindful of the people living over you? There's no more than four people, and we need names of all the people that are gonna stay. Like those are basically safety measures for the host, right? Those are things that you can put in place for your Airbnb to be like something that is gonna be less likely to be trash, right? To be just taking over some young people that are on spring break or whatever, right? So those are things that you can put into measure. There are like a lot of Airbnbs that I've been into, like that they have cameras outside, like in their common areas, so like patio, the backyard, just for safety measures, they do let you know before you're going to make sure there are cameras. Obviously, there's no cameras inside the house, but they are things like this that happens. So if you're thinking about it, just be aware of the risks and the benefits, right? Like it is not your own property, and you are for whatever reason your lease can be cut off, right? Just like any long-term rental. And it requires a lot of planning because you're dealing again with somebody else's

How to Reduce Your Risk Before You Start

SPEAKER_01 18:26

property. If you haven't done any of this strategies yet, or if you want to learn more about how we're investing or how we're minimizing our risk when we are jumping into new venture, Yelata has created a Latinas and real estate investing community at school. So it's a platform where you can join and become a member, and it's totally free right now to join. So if you ever have any questions, you're thinking about it, you don't have anybody in your circle that is basically you're able to ask questions, you can come there and ask us a do your registrate questions and start a conversation and the forum. I have a lot of resources in there as well. So you can take a look at it, you can network with the other people that are already there. And what more best place to have, you know, cafecito with like some girls that are just talking about building wealth for their future? We all come more likely from the same place and we're just trying to move forward in life.

Final Takeaways for New Real Estate Investors

SPEAKER_00 19:24

Yeah, and again, Airbnb arbitrage can be an effective strategy to dip your toes into real estate investing, especially if you aren't just quite there to get started, like you don't have again the down payment. It's a lower cost of entry, but there's still some risk there. But it's still a great way to maybe like raise some funds so that way you can get your own investment property. But again, it's going to take a little bit of strategy, a little bit of planning. Lynn covered some of the things that you should be understanding and learning about because it does take a lot of like hosting and knowing how to vet your stays and understanding your rules, and I think that's where one of the the ways that they kind of went wrong. Like they just started and didn't like have maybe rules and just allowed anybody to stay, and so which resulted unfortunately into this incident, which could have gone even more wrong because it could have caught the unit on fire, and then they could have gone into more trouble. So, again, maybe this is a learning experience for them. Hopefully, they learn from it and then try again with maybe a different strategy, or I don't know if they could try this again, but again, it just takes some doing some homework and also maybe trying to find somebody that has done it. If you can't find somebody that has done it, try maybe finding an experienced real estate investor because even though, like, for example, I haven't done Airbnb or things like that, the fundamentals are pretty much the same, and so we can kind of like point out some blind spots that you might be missing that you are not aware of. So having that experienced real estate investor in your network can definitely help you and increase your chances of success. So they already mentioned check out the group, it's linked down below. But don't forget that you can always ask some questions, reach out to us, we are here to help. Other than that, we will see you in the next episode. Bye. Bye guys.