Thoughts on hosting to an Airbnb arbitrage company?

[Michael6116]

I got a Airbnb alert on my listing page yesterday saying "Start hosting longer stays. We've seen a recent increase in guests looking for weekly and monthly stays close to home". So I clicked Review. Airbnb recommended a 63% discount for a month long stay, so I set up a very significant monthly discount.

This morning I received a booking request for a month, so all seemed good.

However, without going into details that might breach forum guidelines, there was something fishy about the request, so I did a bit of due diligence. I quickly found out about something called "airbnb arbitrage". If you search the internet for that phrase, or something like "make money from airbnb without owning property", you will find a lot of sites about it, so it seems to be quite popular. The gist is that you take a longer let at reduced price, and then sublet at hopefully significantly higher prices, e.g. if you let for a month at Airbnb's suggested 63% monthly discount and then fully sublet it you could triple your investment without having to actually own any property.

Personally I know my mortgage terms specifically prohibit me from allowing my tenants/guests to sublet, but even if it didn't I wouldn't be comfortable hosting a potentially large number of people I couldn't vet, and would also feel it would be dishonest if a guest subsequently relisted my property for the period of their stay.

What are other people's views on "airbnb arbitrage"? How can you protect yourself from this if it would have serious consequences for you, e.g. breaching your mortgage terms? Are a lot of these big Airbnb hosting company "superhosts" you see actually performing arbitrage themselves? And is that why Airbnb has "seen a recent increase in guests looking for weekly and monthly stays close to home"?

[Mike-And-Jane0]

@Michael6116 I would have thought this type of arbitrage is high risk at present given the covid situation. I would just check with the guest to ask if they realise that they cannot sublet and also monitor Airbnb to see if anyone is listing your property.

[Brian2169]

@Michael6116 

Airbnb's suggestions regarding price and discounts are usually absurd and should be ignored.

I don't know why they do that but hosts who offer 63% discounts will almost certainly be taken advantage of in various ways.

Depending on your refund policy an unscrupulous entrepreneur might be able to offer sublets on your property at no risk to himself.

There's no way I would allow someone to do this.

Furthermore, someone "close to home" trying to obtain a deeply discounted long-term stay should be asked to provide a reasonable explanation.

[Ann72]

@Michael6116  I agree that the deep discount you offered put you squarely in the sights of what I consider a bad operator, but it sounds like you’ve got a handle on it.

The increase in guests looking for the stays described is due to the pandemic and the increase in remote work combined with shifting travel restrictions the world over. 

[Michael6116]

Thanks @Mike-And-Jane0, @Brian2169 and @Ann72 for your advice. I've taken the massive discounts for long stays which Airbnb recommended off now.

I wonder if Airbnb have any analytics or data on why (to use their words) "We've seen a recent increase in guests looking for weekly and monthly stays close to home", because that does sound suspicious as @Brian2169 suggests. Close to work, or even further from home if you live close to work, I would understand, given pandemic and increased remote working, but why long stays close to home? Of course subletting would mean two lots of fees for the same property at the same time.

[Mike-And-Jane0]

@Michael6116 close to home probably means 3 or 4 hours away in American speak. We were always confused by driving directions in the USA when told it's just around the corner when actually it was mile around the corner. Its all a matter of scale!

[Ann72]

@Mike-And-Jane0 is right about defining "close to home."  I've gotten more guests than ever from the state of Maine, where I host, and neighboring states of New Hampshire, Vermont, and Massachusetts.  They come for longer than they used to and usually say they want to spend some time relaxing but also doing some remote work.  "Close to home" for these guests is at least a 4-hour drive.

[Sarah977]

@Michael6116  Ignore Airbnb's pricing suggestions entirely. They're ludicrous.

[Carolyn--J0]

Right!  I am geared up for dogs. Have had mine on snooze for awhile for friends. Just unsnoozed it, for Christmas on. Airbnb says my price is too high.   I get an inquiry within in 1/2 an hour! You know what been working.

[Brian2169]

@Michael6116 

"Of course subletting would mean two lots of fees for the same property at the same time."

That's precisely what I was thinking and perhaps that occurred to someone in management as well, but I would really hope that they have enough sense to realize that encouraging this would be counter-productive in the long run.

The sublessor would have no interest in screening guests. Damage to the property would be the owner's problem. The sublessor could just walk away and quit paying the monthly rent.

The owner would most likely cancel their listing after finding that they have no actual likelihood of collecting damages and that repair costs would exceed likely future profits.

There is a property management company near here that appears to be doing something like this. I have heard complaints indicating that they have been "managing" STR's for absentee owners and when the properties become so devastated that the owners are unwilling to pay for the necessary repairs, the company has graciously agreed to buy them out.

At that point the owners are often glad to get out of them at any price.

Parties? NO PROBLEM! Animals, extra guests, smoking, stealing, general destruction?  WHY NOT?

And best of all, every guest is guaranteed a 5* review!

[Anonymous]

@Michael6116   On the one hand, it's not incorrect that the pandemic has caused a lot of travelers to choose trips that are closer to where they live, due to border restrictions, the risk of getting stuck, the fear of virus exposure in long plane/train/bus journeys, and all the other things that make the situation unpredictable. It's also true that people who are fortunate enough to be able to work remotely are choosing longer stays than they would have booked for a non-working holiday. And in the UK, let's face it, if it weren't for Corona, millions of those domestic getaways people took in the last 2 years would have instead been to somewhere warmer and drier - all those orgiastic resort towns in Spain didn't empty out just because the EasyJetSet suddenly felt an overwhelming urge to experiment with Cockermouth.

But good intel is often a cover for bad advice.

Case in point:  if something is suddenly in much higher demand, and the supply is finite, why would you start charging less for it? 

Those automated pricing suggestions were never designed to make your listing more profitable to you. They're just there to help Airbnb undercut its corporate competitors at your expense. Think of every "helpful" tip the algorithm feeds you the same way - they're just behavior modification tools that have nothing to do with your business. 

The risk of someone illegally subletting your home is a valid concern, and one of many good reasons to never allow long-term rentals through Airbnb. But any occasion where you lose control of your property to a stranger just because you listed it on an extremely underregulated platform is going to end badly, so it's crucial to set parameters (including maximum length of stay) that prevent this from happening.

[Michael6116]

@Anonymous Thanks for the gentle reminder of economics 101 - if demand is going up, and supply remaining the same, why on earth would Airbnb suggest I significantly reduce the price? I've now set the weekly and monthly discounts to more reasonable levels, which should make it unattractive to people who want to attempt to sublet it.

[Mary996]

Re:Automated price suggestions.

This is the critical point of conflict of interest between the business model of Airbnb and our use of the company as an effective Agent. 

[Helen3]

Hello @Michael6116 

So because you are offering a massive discount you have attracted someone who wants to sublet your place and offer it for a much higher price on Airbnb and other channels?

why would you even consider it

1. If it can sub let for a higher price on Airbnb then no reason you can't do it yourself 

2. how do you know they would comply with the 90 day limit ?

3. what happens if their guests damage your place/ upset your neighbours 

any sensible host would run a mile 

[Michael6116]

@Helen3 I wasn't considering it, far from it, I was just surprised to find out that this was even "a thing", and was wondering if it is actually a wide-scale but hidden problem. In my case there were several red flags which made me strongly suspect the guest wasn't being entirely honest and were planning multiple sublets, but they weren't exactly a new joiner - they were an established "superhost" with dozens of properties listed (including several which looked like duplicates, and all with 5 star reviews within short time windows). That's why I was wondering how many other such "superhosts" might be doing this sort of thing, and whether Airbnb might be turning a blind eye to the practice.