Airbnb rental arbitrage can be extremely profitable. However, it can be a complicated process. This blog post will serve as your guide to deciding whether or not Airbnb rental arbitrage is right for you.
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Table of Contents“What is Airbnb arbitrage?” has over one million searches on Google – so you’re not alone in asking this question! In short, Airbnb rental arbitrage is when a host rents a property from a landlord (like renting a standard apartment) and then rents out that apartment as a short-term rental on Airbnb and other channels.
Hosting short-term rentals can be extremely profitable, and Airbnb rental arbitrage is a great way to grow your business without the capital to invest in multiple properties.
You don’t need to own property:
One of the most appealing aspects of rental arbitrage is that it is possible for hosts who do not own property to make a hefty income. In the United States, it is becoming increasingly more difficult to own property. At the time of publishing, the average yearly income to own property begins at approximately $61,000. Currently, the average income in the United States is just under $50,000. Rental arbitrage gives an average person the ability to run a short-term rental business. Additionally – the extra income you make from rental arbitrage could help you save up to buy your own property.
Let’s take a look at the formula for Airbnb rental arbitrage income:
Monthly rent - Average Monthly RevPAR (Revenue per available room) = Monthly Arbitrage Potential
Let’s say you have a one-bedroom property in Nashville, TN. The average market price is about $1,400/month. The average Airbnb rental price for an entire space in Nashville is $188/night (the price was about $209/night pre-pandemic). This means that you could cover your entire property rent in just 8 days of renting. After eight days, you are pocketing the profit for Airbnb upkeep, cleaning, and disposable income. If your Airbnb is rented out 80% of the time (average of 24 days/month), you will turn a profit of over $3,000.
Autonomy:
The benefit of rental arbitrage over the property management model is that you only have to pay the landlord, and generally will keep 100% of the income. The property management model, where you manage properties for homeowners, would require shared profit and blackout dates if hosts decided to use the property for their personal enjoyment.
As with anything, there are risks to choosing the rental arbitrage path. Those risks include:
The market conditions are always changing, and your property could be affected. Before setting off on rental arbitrage it’s important to consider the stability of the housing market in your area. We’ll discuss the best and worst cities for Airbnb arbitrage in the next section of this post.
Are you in a high-risk area for hurricanes? Earthquakes? Mudslides? While these aren’t fun things to consider when hosting, you need to consider the “what ifs''. Not only “what if my property is damaged?” but also “what if a natural disaster pauses tourism in my area?” Consider the risks of your area and what your backup income plan is.
Ultimately, you are responsible for the property. While Airbnb offers some protection for guest damages, it is your responsibility to fix any damage to the apartment and not your landlords.
Do you live in Chicago where tourists avoid the winter at all costs? Are summer festivals when your Milwaukee rental is booked back to back? When planning your likely income, keep in mind when and why your Airbnb is more or less likely to be booked. Some months may be fantastic and some may be crickets. A way to counteract the offseason is to provide discounts or special offers on weekly stays to entice guests to choose your short-term rental.
Below are charts depicting the best and worst cities in the United States for Airbnb rental arbitrage based on how much profit you make and the law friendliness for Airbnb arbitrage.
Best Cities for Airbnb Arbitrage in 2023:
Worst Cities for Airbnb Arbitrage in 2023:
You have weighed the pros and cons and have decided Airbnb rental arbitrage is right for you. So where do you begin? Take a look at your local laws, talk to some landlords, and write up a rental arbitrage contract.
Talking to your landlord: First and foremost: tell your landlord. When hosts attempt to rent out their rental property as an Airbnb and their landlord is not aware it can end very badly. It can be nerve-racking to bring the conversation up to your landlord, but it is a step that should not be skipped.
If your landlord has any objections they are likely to be one (or all) of these three: local laws, unvetted guests, and insurance.
Local laws: Before initiating any contract or conversation with your landlord, research what your city’s laws are in regards to rental arbitrage. This way you have all the answers going into the conversation with your landlord, and already know if your area is profitable for Airbnb rental arbitrage.
Unvetted guests: Your landlord likely has run a credit check on you, gotten references, or at least has an idea of what sort of tenant you are. The resistance to a rotating door of guests in their property is a natural hesitancy. A potential host can discuss Airbnb’s guest screening process (ID verification, guest reviews, etc.) with the concerned landlord. Additionally, you can consider collecting a security deposit from guests through Airbnb. Adding a line to your house rules is a great spot for this because guests must manually accept them before booking.
If that doesn’t relieve your landlord’s hesitancy, you can suggest only allowing guests that fall under certain travel categories such as business travel. Be sure to provide guests with the Airbnb house rules and an Airbnb house manual upon booking so all parties are on the same page.
Insurance: If a guest damages an Airbnb and does not reimburse the host, AirCover guarantees that they will provide up to $3,000,000 in property damage protection. You can also offer to purchase short-term rental insurance, as the landlord’s basic homeowner insurance will not cover the property if rented as a business such as Airbnb.
Amending your lease: After you and your landlord have come to an agreement on using the space as an Airbnb, it’s time to make it legal.
Some landlords will understandably agree to the Airbnb arbitrage only if they are profiting from it. If that is the case, below are some examples of topics for an amendment to the lease you can choose to agree upon and include:
You’ve talked to your landlord, signed a contract, and are ready to start your short-term rental. Before you start marketing your rental on Airbnb you need to make sure it's up and running smoothly.
If you go this route, remember these important tips:
If you choose to go down the path of Airbnb rental arbitrage, following this guide will ensure that you know how to become a superhost on Airbnb for both your guests – and your landlord!
Airbnb rental arbitrage can appear complicated at first. Once you’ve studied the local laws, come to an agreement with your landlord, make amendments to your lease, set up the property, and automate your Airbnb you will be well on your way to creating the short-term rental business of your dreams!
Host Tools provides an automated, unified calendar for short-term rental hosts, allowing you to seamlessly list on all major channels. Start your free trial today!
