The Complete Guide To Airbnb Rental Arbitrage

Becoming a host on Airbnb is quickly becoming one of the most popular ways for people to make some additional cash. With the platform’s easy-to-use interface and versatile demand for properties in different areas, many people are making a good income by listing their properties on Airbnb. 

Of course, being an Airbnb host is no longer limited to those who own properties. In some cases, people can rent out the property at a lower price to market them as short-term rentals (STRs) at a markup, thereby making a profit. In the following guide to Airbnb rental arbitrage, we’ll look at some effective business models that will optimize the way you make money from a rented property as well as some of the legalities surrounding Airbnb arbitrage. 

By the end of this guide, you’ll be able to decide whether or not to go down the Airbnb arbitrage route is for you. Read on to find out more.

What is Airbnb rental arbitrage?

Having an Airbnb is a great way to boost your earnings, but most people think they can only access the Airbnb market by owning a property. The truth is, Airbnb arbitrage allows you to become an Airbnb host using property you rent from the owner. 

As the main renter or tenant, you are still responsible for paying rent to the landlord at the end of every month. However, you’re also able to make a profit by marking up the rental of the property rent on a short-term rental basis. Subletting a rented property on Airbnb is what is known as Airbnb rental arbitrage.

Why does Airbnb arbitrage exist?

For some Airbnb arbitrage business models, the profits obtained can benefit both the Airbnb host as well as the property’s owner. The concept of buying a product and selling it at a higher price is one of the oldest ways to make money so naturally, it would have come about when it came to property rentals too. 

The property market and the rise in real estate-centered businesses have also meant that more and more people are looking for different ways to break into the property market. Airbnb arbitrage seems like one of the most natural paths for the short-term rental market to take, given the ease of access to the market online platform has provided.

Is Airbnb arbitrage legal?

Anyone who is thinking about doing Airbnb arbitrage has to make sure they are not breaking any contractual clauses in their current lease agreement and that the landlord and the neighbors have given written permission for you to sublet a property. 

It is therefore legal as long as all stakeholders are in agreement that airbnb arbitrage can take place and that all those involved are happy with the arrangement. Before you list an arbitrage property on airbnb, you have to make the landlord aware you are doing so. Many residential lease agreements prohibit the subletting of properties, therefore the first thing to consult before listing a property is the current agreement in place. 

If you want to change the clause of a contract to be able to sublet a property for Airbnb Arbitrage, then you may need to put together a formal business proposal for the landlord of the property.

What are the benefits of Airbnb rental arbitrage?

Of course, there are several benefits associated with Airbnb arbitrage, given the fact that there is minimal upfront costs for the host and much of the maintenance and property upkeep still falls to the responsibility of the property owner. It’s therefore a great way to make money before you have a property of your own. Let’s take a look at some of the other benefits of Airbnb rental arbitrage.

Small upfront investment

If you start renting out your Airbnb straight away, the only upfront cost you will have will be the damage deposit and the first month’s rent. This means that there are minimal upfront costs associated with starting out with Airbnb rental arbitrage. You may need to fork out a bit to make sure the place is furnished appropriately for an Airbnb and also make sure the decor is appealing for when people view the property online. Aside from these factors, there is very little upfront investment required from the host’s side when it comes to running an Airbnb rental arbitrage.

Low risk

Given the fact that you do not own a property, there is also lower risk associated with Airbnb rental arbitrage. Any of the maintenance and damage is for the owner of the property to sort out. The only obligation you have is to make sure you have enough bookings lined up to cover the initial rent of the property and of course make a profit.

Allows you to scale rapidly

When you have a property under your own management, it gives you more room to scale your business. Once you’ve mastered the art of running a successful airbnb, it becomes easier and easier to scale your business and get more properties under your management portfolio.

Easier to manage expenses

The only expense you will have as the host of an Airbnb rental arbitrage is the rent you will owe to the landlord each month. Other than that, all utilities, maintenance and the mortgage are the financial responsibilities of the landlord.

How to calculate ROI for Airbnb arbitrage

Calculating your return on investment (ROI) is far easier for an Airbnb rental arbitrage than it is for investing in your own property. Simply, the formula for your ROI is as follows: 

(Start-up Costs / Annual Profit) X 100%

You will need to calculate your annual profit beforehand by deducting your expenses from your revenue. You can work out your start-up costs relatively easily with an Airbnb rental arbitrage, by adding up your first month’s rent with your damage deposit and any money you spend on furnishing and decorating the place.

How to run a successful Airbnb rental arbitrage business

Like any business, there is no easy way to make a quick buck, but there are a few simple steps you can take which will ensure you run a successful Airbnb rental arbitrage business. Let’s take a look at these.

Conduct market research

You have to know what your competition in a given area is, as well as the sort of thing people who want to stay in the area look for. Get to understand the area’s main attractions and consider some of the amenities you can advertise.

Understand your local regulations

The last thing you want is to be told off by the local authorities and to shut down, so make sure you’re familiar with the rules and regulations associated with running an Airbnb for your area. As the person managing the property, the legal aspects may fall onto you to manage.

Estimate the initial costs

The rent and the damage deposit is easy enough to obtain from the property owner, but you should have an idea about how you want to furnish and decorate the place before you sign any contracts. The initial costs will contribute towards your start-up costs therefore they are important to know beforehand.

Prepare your unit for rent

When you list an Airbnb, you have to make sure the place is suitable for short-term guests and therefore furnish the unit accordingly. You will also have to make sure the unit is properly cleaned so that there are no health and safety hazards in the property, although the landlord should have done this before allowing a tenant to occupy the space.

List your property

It’s finally time to advertise your property on Airbnb! Make sure you have some professional looking photos to showcase the best aspects of your property. Before you list the property, make sure you know when the property is available, so that you don’t accidentally advertise the incorrect days on the site. You can also promote the listing on social media to give the property an extra boost.

Optimize your listing

Other than promoting your Airbnb on social media, you will also want to make sure that the listing itself is optimized to appear in the right search results on the Airbnb site itself. This means your property should have all the correct tags and locations that someone might search for attached to it. This will ensure your listing is seen by the right audience.

Is Airbnb arbitrage right for you?

Managing and Airbnb rental arbitrage is not for everyone, although it is a great way to earn extra cash and gain property management experience. If you know of a property where the landlords would be happy to support such a venture, then this is definitely something you should investigate. However, if you’re unsure about starting an arbitrage for any reason, it’s always best to do your research beforehand to avoid getting into trouble. 

An Aribnb arbitrage could also be for you if you are willing to put in time and effort into the property. Managing a property is hard work and it’s not an easy gig to make money quickly. With the right attention to detail and a good management style, an Airbnb rental arbitrage could be the perfect next project for you!