Many of the world’s fortunes have been built with real estate. This includes not only billionaires who own skyscrapers and are featured in glossy business magazines but also perhaps maybe a small rental unit of a coworker or friend you know. People will always need a place to sleep and providing that service can be very profitable. With the age of the internet, there’s a new real estate business model that does not require ownership.
Drawbacks of Owning
The bread-and-butter business model of real estate has always been land-lording. Everything from a massive mall to a tiny single-family home, people for ages have made money by owning and renting it out to tenants. This can be a very profitable arrangement, but there is a serious drawback to ownership.
The biggest disadvantage is that you usually need a massive amount of cash for the downpayment. Most banks require 20 to 25 percent as a downpayment when buying. If you’re purchasing in a major metropolitan area, this can be high five figures or even six figures. It will take the average American many years (if not over a decade) to save enough to buy a single property.
You also need a good credit score and stable wage income. Good luck if you have bad credit, are self-employed or a contractor.
Additionally, this capital investment is not liquid. If you need to sell, it often takes at least a few months (not to mention you need to pay a large commission). If you have to sell in a recession, your investment might even be wiped out.
The Alternative
What else can you do? After all, people spend billions on housing every month. It’s a basic necessity like food or electricity.With the advent of the internet, there’s a business model that allows you to profit from real estate without owning it.
It utilizes a website called Airbnb. The site is a marketplace where people can list and rent out their apartment like a hotel. To provide quality control, both renters and hosts can rate each other. Airbnb has over 150 million users worldwide and on any given night, 2 million people are staying in an Airbnb.
Instead of saving for years to buy a rental property, you can sign a regular apartment lease and then make the unit available on Airbnb. Airbnb rates in most cities are much higher than the lease, even after factoring in vacancy. For some extra tips, there is an Airbnb course available to help you maximize your Airbnb investment approach.
The Advantages
There are numerous advantages to this business model. Arguably, when properly executed it’s better than regular land-lording.
The biggest one is that it scales very well. With a limited amount of capital, it’s possible to build a small empire of Airbnb rentals. There’s no need for a bank loan or saving a massive sum of money for the down payment. You just need to sign an apartment lease. If it doesn’t work you can simply not renew or even cancel early if there’s a small penalty.
With the right systems in place, this can be an excellent passive income source.
You don’t like cleaning or don’t have the time? You can hire a maid to visit after each stay.
Customer contact can just be phone and email. This means that it’s safe as it can be done at a distance. It can be done on your schedule and often at work.
You can still hold a full-time job while making thousands monthly from your Airbnb units. It can be a great side hustle.
The disadvantages
So what’s not to like? At least, in the beginning, you’ll need to deal with customers in a limited way. Remember, this is with email and phone so it’s going to be easier. However, some people simply don’t want to deal with it.
Also, this is business and business is not always smooth sailing. You’ll have to deal with things like the occasional bad review or if your cleaner quits without any notice.
Real estate is a great market to be in. Previously, you had to own property to make money with it. Now you don’t have to. Airbnb is the way of the future.
