Many are looking to get a piece of their own Airbnb pie. A common misbelief is that only bonafide homeowners can break into this booming market, but the truth is that Airbnb is even possible for renters!
If you skim through the legalese, you’ll find that Airbnb arbitrage is often legal (and beneficial at that). Look out for the exceptions to the rule and prepare your home for short-term stays.
What is Airbnb arbitrage?
Airbnb rental arbitrage is when a long-term residential rental is then rerented for short-term purposes by the tenants. You can think of it as subletting but for leisure purposes.
This can be carried out through any type of residential rental, whether your contract is for one year or five. Likewise, the terms of your short-term rental would be on you. If you only want to host weekend warriors or prefer long-term stays, you (the tenant/Airbnb host) would set the conditions.
Is Airbnb arbitrage still profitable in 2024?
Yes, Airbnb arbitrage continues to be profitable. To start, you don’t need much cash upfront to get started—just enough to start renting a long-term rental. What’s more, Airbnb nightly rates are typically much higher than what you’d pay in long-term rent, enabling you to make a profit.
Of course, just how profitable Airbnb arbitrage is depends on the price of your rent, how much you charge, and how well you run your business.
Is Airbnb arbitrage legal?
On a federal level, Airbnb arbitrage is legal in the U.S. There are no federal laws prohibiting renting out your rented property as a vacation rental.
However, laws vary by state and even county. So, it’s essential to consider local regulations before starting Airbnb arbitrage to avoid potential legal and financial consequences.
How to legally do Airbnb arbitrage
To do Airbnb arbitrage legally, you’ll need to check your short-term rental regulations, rental contract, and homeowners association (HOA) rules.
First, check the local short-term rental laws and regulations in your area. Or, if you aren’t tied to a specific city, look for a city in which Airbnb arbitrage is permitted. Specifically, you’ll want to check whether nonowner-occupied short-term rentals are allowed and whether there’s a limit on the number of nights per year that properties can be rented.
Even if Airbnb arbitrage is allowed in your area, you’ll need to make sure it’s allowed at your specific property as well. Your long-term rental contract should specify whether the owner allows subleasing, something which many owners prohibit in order to maintain more control of the property and prevent damage. If your contract doesn’t mention subleasing, it’s best practice to ask your landlord before moving forward to avoid issues.
Finally, if the property you rent falls under the governance of an HOA, you’ll also need to check the HOA’s rules and restrictions. It’s not uncommon for HOAs to prohibit Airbnb arbitrage to maintain their properties’ condition and the comfort and safety of their residents.
Pros and cons of Airbnb arbitrage
When you see headlines like “make 200k from Airbnb rental arbitrage” or “how I got rich from starting an Airbnb arbitrage business,” it’s all too enticing. Airbnb arbitration is profitable and has some nice perks, but you should still weigh all the positives and negatives before rushing into it.
Pros: Minor investment needed
Most people’s first question is, do you need money to start Airbnb arbitrage? The simple answer is: not as much as you’d need to rent out an Airbnb you actually own.
Odds are, if you’re already living on a property you rent, it’s in good enough condition to rent out for Airbnb. Further, it’s the landlord’s responsibility to make sure that everything on the property is in working order, so you wouldn’t have to worry about major repairs or renovations before listing your Airbnb.
You might want to consider some smaller changes, upgrades, or added amenities to increase the profits you’ll make from hosting, but this would be entirely up to you. Additionally, you may have costs related to setting up an LLC, cleaning services, and other costs of doing business. But at the end of the day, these expenses won’t come anywhere near the cost of getting a mortgage to purchase a property.
Con: Risky
Remember that any Airbnb, regardless of ownership, comes with risks such as house parties, cancellations, and theft. When you aren’t the owner of the house, it might be more difficult to get insurance or coverage for these incidentals, putting you in a more vulnerable position in case of something going awry.
Pro: Scalability
Your Airbnb rental arbitrage business can grow quickly without being weighed down by growth costs or available resources. Your property is there and ready to rent 365 days a year if you choose. Your overhead and additional costs will remain relatively constant, no matter how successful your business gets, which is one of the biggest perks of arbitrage.
Con: Your own rent to pay
At the end of the day, your landlord doesn’t care how many cancellations you had this month. Your rent will always be expected regardless of the success of your business. If you plan for Airbnb to be your primary income or if this is your second home, make sure you can confidently pay your bills at the end of every month regardless of your Airbnb earnings.
It could end up costing you more than you make if you’re accruing late fees and penalties on your residential rent.
Pro: Avoid fees
As a renter, you limit the expenses you would pay from owning a home. Many landlords have to pay HOA fees, mortgages, and maintenance expenses. As an Airbnb host, you’ll have your own fees to worry about, but it’s still likely to amount to less than what you would pay when purchasing a property.
Con: Property damage
Some extent of property damage is inevitable. Accidents happen, things break, and sometimes your belongings or the property itself gets damaged. There’s not much you can do to avoid this besides explaining the details and consequences of property damage in your Airbnb house rules to encourage guests to be a little more careful.
Still, even with the most cautious guests, you’ll need to be prepared for property damage. Ask for a damage deposit before guests arrive, but also be ready for this to come out of your own security deposit at the end of the lease if it’s not resolved.
How to make money with Airbnb arbitrage
Starting an Airbnb business isn’t always easy, but thankfully the money usually is. Once you’ve factored in starting costs, like renovations, insurance, and application fees, you can start crunching the numbers to see how much you’ll make from Airbnb arbitrage.
To get a rough idea of your net income, subtract your fixed costs, like utilities, rent and Airbnb fees, from your expected gross earnings. If you think the margin between cost and income is worth it, go for it! Now, how exactly do you make money with Airbnb rental arbitrage?
Airbnb rental arbitration earns money much as a traditional Airbnb would. You list your property, indicate what nights it will be available, and get ready for hosting. If you’re worried about your own rent to pay at the end of the month, then it’s imperative that you make a decent income from Airbnb.
Here are some of the tools you’ll need to make money with Airbnb rental arbitrage.
Dynamic pricing
Chances are, you’re not going to have your property listed every single day of the year. Even if you’re planning to rent it out commercially, vacation rental properties require some downtime for things like check-outs, repairs, and cleaning. On the other side, your property will sadly never have a 100% occupancy rate, even if you did keep your Airbnb available every day.
Because there’s ebb and flow in bookings, you’ll need a dynamic pricing tool that keeps up with demand and gets you the most money for your reservations. Making a profit starts with setting smart prices to increase bookings and income.
Want to try out dynamic pricing? Lodgify Dynamic Pricing is incredibly easy to implement, lets you set minimum rates so you remain in control of your pricing strategy, and generates an average revenue increase of 20%.
Airbnb connection
In the vacation rental industry, most hosts opt for listing on multiple websites to maximize listings. If you’re promoting your short-term rental arbitrage business on more than one OTA, you’ll need a channel manager with a good Airbnb connection.
What makes a good connection? An Airbnb channel manager that offers two-way sync, a real-time calendar, and automated messages sent through your Airbnb account. By saving time on these administrative tasks, you earn extra money in what it would have cost you in labor.
Guest experience
Don’t let your guests feel like they are subletting a place to stay. As a host, you want to emphasize comfort and quality. If your guests see you as a confident host who knows their way around their home, the guest experience will substantially increase, earning you more money and more bookings.
Additional Airbnb arbitrage FAQs
Is Airbnb arbitrage subleasing?
Yes, Airbnb arbitrage is a business model that involves subleasing long-term rental properties on a short-term basis, often through vacation rental platforms such as Airbnb or Vrbo.
What is an example of arbitrage on Airbnb?
Imagine that you rent an apartment with a long-term contract for $1,500 per month. If you sublet the apartment via Airbnb arbitrage for $100 per night, you’d earn more than you pay in rent in 15 days, enabling you to make a profit the second half of the month.
Of course, you’d need to factor in expenses such as utilities, cleaning services, and other costs of doing business. You’d also want to do market research to make sure the nightly rate you charge makes sense given your total rent price and your competition. However, this example gives you an idea of just how profitable Airbnb arbitrage can be.
Do you need an LLC for Airbnb arbitrage?
It’s best practice to form an LLC for Airbnb, whether you’re doing arbitrage or renting out a property you own, in order to protect your personal assets, lend professionalism to your business, and provide tax benefits.
Most importantly, an LLC separates your business and personal assets. This is essential to protect your personal assets in the case of guest- or property-related incidents or creditors going after your business. Having an LLC can also make your business seem more professional, instilling confidence in guests, and grant you tax benefits that can save you money.
How much does it cost to do Airbnb arbitrage?
Airbnb arbitrage costs vary widely depending on where your property is located, how much your rent is, and how much you plan to do yourself or outsource. However, it typically costs between $3,000 to $5,000 to get started.
Costs involved in Airbnb arbitrage include:
- Rental deposits
- Legal paperwork
- LLC incorporation
- Furnishings and decorations
- Cleaning services
Of course, it’s possible to start Airbnb arbitrage for less (and more). Even so, the cost of Airbnb arbitrage is minimal compared to the hundreds of thousands of dollars typically involved in getting a mortgage.
Is Airbnb arbitrage worth it?
Whether Airbnb arbitrage is worth it largely depends on your specific goals and circumstances. If you’re looking to make money with Airbnb without owning property, and without investing much, it can be a great option. However, if your local government, landlord, or HOA doesn’t permit subleasing and navigating these restrictions is going to be complicated, you might be better off seeking a different business path.
The most important thing is to do your research, understand the regulations and the profit potential in your area, and consider your options.
Summary
You don’t have to be a millionaire to start an Airbnb business. Thanks to Airbnb arbitrage, just about anybody can become a host if they’ve got the space for it. Of course, it’s important to bear in mind the negatives, like risk and property damage, before creating a listing. The plus side is that the benefits of arbitrage for Airbnb are incredible: It helps to cover your own rent, you can scale quickly, and you don’t assume the same risks that a homeowner would.
That being said, you will need to check with the owner of the property to make sure it’s allowed. Failure to do so could result in early termination of your lease or loss of the security deposit. Double-check your local and state laws as well. In some cases, Airbnb arbitrage is banned, so it’s better to be on the safe side.
If you do decide to move forward with Airbnb arbitrage, you’re going to need the right tools. Airbnb management software will be crucial in streamlining your operations, and an Airbnb channel manager will help you list across multiple OTAs to increase your visibility. Finally, a dynamic pricing tool will guarantee you’re getting the most out of the nights you have available so you turn an actual profit (and not simply cover your rent).
Thankfully, Lodgify can help with all of that! If you haven’t tried Lodgify yet, sign up for a free 7-day trial today to set your Airbnb arbitrage business up for success!
