I increased my Airbnb side hustle to 134 properties using Rent-to-Rent

• Ryan Luke used a lease option agreement to secure a property he could rent out in March 2019.
• When he couldn’t find a tenant, he put the rental on Airbnb – within days he had thousands of reservations.
• Luke now runs his Airbnb business full time and owns 134 properties in the UK and Dubai.

This essay is based on a transcribed conversation with Ryan Luke, a 37-year-old property investor from Newcastle, England. It has been edited for length and clarity.

I worked in my wife’s family business, a chain of garages, for nine years as a sales manager. I kept intending to set up a pension in my 20s and then in my 30s. Once I hit my mid-thirties, I started to worry.

I wanted to break into the property to start building a pension fund.

I started looking for properties that would be good deals for sale. The plan was to make enough money to invest in my own rental property for passive income.

I found a landlord who was in arrears on her mortgage and no longer wanted to manage her property. I entered into a lease option agreement with her.

This meant that I rented with the option to buy the property in five years and was responsible for maintenance. It gave me the freedom to do renovations and sublet at a higher price.

I only had £3,000 ($4,050) to invest

The deal cost me £238 a month to take over the mortgage and £250 in legal fees. It was March 2019. I then renovated the house for £2,000 and spent £1,500 on a credit card for furniture. The plan was to rent it to a tenant and pay the rent and pay off my debt.

I put it on the market and there was no interest — I started to panic.

Disheartened, I met a friend who advertised his properties on Airbnb.

I drove straight to Ikea and spent an extra £1500 on credit to buy the furniture and appliances from a vacation rental. I put it on Airbnb and it immediately got bookings.

In four days I had made £3,500 worth of reservations.

It got me addicted to Airbnbs. I was still working full time but started reaching out to investors, using my first property case study.

I managed to secure £240,000 from private investors which allowed me to buy eight properties in 2019 and do minor renovations and decorations to make them presentable as holiday rentals.

lukestays.com

This method could take months to close and you needed time to renovate on top of that. There was a significant gap between investment and cash flow.

I had also learned about the rent-to-rent or lease-arbitrage strategy, when a landlord allows you to rent a property on a three to five year lease, and enhance the property with renovations or redecorations. Then you can rent this property short term. Within a week of agreeing on a property, I could rent it out and make a profit in the first month.

Within seven months of setting up my first rental option on Airbnb, I was managing 21 properties as a side business

In my first year, I had very little money to cover the costs of fitting out new apartments, so I pushed every negotiation not to pay a deposit or lower the rent. I think my monthly costs were lower than average to begin with because I was so good at getting these deals done, which meant my profit margins were higher and I could reinvest capital.

I was tinkering and decorating Airbnbs until 2 a.m. most days, constantly running from house to house and liaising with housekeepers.

One day in October 2019, I hit my head while working on a property and had to go to the hospital for stitches. I was working 70 hours a week with my full time job included.

I remember sitting in the hospital bed thinking, “Do I have to give it all up?” I decided to take a four week vacation. I just kept rotating my current rentals while I came up with a plan for how I could reasonably move forward.

I had a virtual assistant who handled reservations and customer service calls. I have an accountant. I implemented software that would allow my cleaners to have a checklist to maintain properties and report any damage.

I created a Google spreadsheet where I could put the numbers for a property and calculate if it would be a viable investment.

Reservations for a property must pay rent plus set-up costs within six months

I would look at the rates per night in the area and the average length of stay. Then I would just trust the math, and it works.

If the furniture was going to cost £3,000, I knew I had to make at least £500 profit per month for the first six months.

This allowed me to go out and find more properties, and I was able to acquire 41 units over the next six months.

There are no key factors that I am looking for. Some properties are booked weekly, and others turn over just enough to cover their rents with a relatively small margin.

lukestays.com

This changes seasonally, so over 12 months most properties will make a profit from my formula. When we have a property that is losing money three months in a row, we will assess why. Do we need to add amenities? I have only had to dispose of one property in the last three years.

Because these are short-term rentals, the benefits are varied. I had a reservation for 61 days. The property cost nearly £700 a night, which was a £40,000 booking. They only come once or twice a year. Some properties only make £200 profit per month, but that’s an extra £2,400 per year in my bank account.

Some make over £1,000 a month in profit.

The biggest risk with rental arbitration is paying rent to the landlord even if you don’t have Airbnb reservations.

I had 461 bookings canceled within five days of the lockdown announcement in March 2020.

I just turned off my phone and pulled out our spreadsheets. I looked at how much money we had and how long we could continue to make all our payments without new bookings.

Business picked up in May and in June there was a lot of UK travel so we never reached the point where we couldn’t pay the bills.

We expanded to Dubai in May with serviced apartments in vacant buildings.

LukeStays.com

I went there full time in September. Until then, I was working fewer and fewer days in my wife’s family business, and it wasn’t fair to divide my time between the two.

I would rather own than rent because mortgages are cheaper. But with rental arbitrage, you can get around much faster.