What is Airbnb Arbitrage and Can it Work?
If you are trying to find a way to help cover your monthly rental cost for your property, or you just want to find additional income, there is lots of growth happening with Airbnb arbitrage and subletting rental property as the primary tenant. As long as you are not breaking any legal regulations and have the blessing of your landlord, you may find that you can make a hefty side hustle getting into the arbitrage industry with Airbnb.
What is Airbnb Arbitrage?
When you arbitrage something, you are taking advantage of selling a service or product in an industry to get additional income. Incidentally, this means that you are re-renting a property that you may not own.
Airbnb arbitrage happens when you rent a property, then you, as the primary tenant, rent out part or all of the space at different times of the month to cover the cost of your monthly rent.
Folks who utilize this process are those usually who travel frequently and while they have a monthly rental lease, they are not in the property for the entire month. This practice can be used on condos, apartments, townhomes, or even single-family properties.
You can also take advantage of subletting a part of the property, such as the basement area to renters or renting the property and not staying in it at all. You may be on the lease, but you could make the property available and rent it out in weekly rentals for guests who are visiting the area and want a more private space than a hotel has to offer.
Can Airbnb Arbitrage Work?
It is important to keep this process legal, as the landlord that you are renting needs to be aware of what you are doing and approve the process. In the event that something happens to the property, you could find yourself liable if you did not properly alert them and a third party is hurt or has property damaged during their stay.
If Airbnb becomes alerted that a property was posted without permission, you may find yourself unable to host again with the company. There are some individuals who have been quite successful with Airbnb arbitrage by managing control and market demands.
Notify Your Landlord First For a Single Property
Before you can post the property online to Airbnb, speak to the landlord or owner of the home. The last thing you need is for them to browse the Airbnb site to find that their property is listed, and they are not aware. This could cause unwanted legal trouble for both you and the owner.
Explain the Airbnb Arbitrage process and what you are trying to achieve. There are benefits to this over having full-time roommates to assist with the rent, and you can explain that it isn’t for the full month that this would be happening, and you want to first start renting it out maybe one or two weeks a month.
Work Out a Schedule
If you are already traveling for work or usually spend the same amount of time away from your home each month, let your landlord know your schedule and when you are planning to rent out the rental property. By having the same time each month, the landlord will be aware of when there are new guests on the property and may want to keep a closer eye on things, especially since you will be away from the property at that time.
Establish Conditions
Because you do not own the property, the landlord may agree to Airbnb arbitrage under certain agreements and conditions. In addition to the rental money, they could want a percentage of the additional money you make, especially if you are generating a much higher profit than what the monthly rent is for the property.
There may also be conditions for renters insurance and even umbrella insurance for your policy in the event that there is an incident with renters that you booked and are responsible for under your conditions. As the host of the Airbnb arbitrage, you have access to purchasing host liability insurance that covers up to $1 Million in damages for those who rent from you as the host.
As the host, your conditions may be to work directly with the renters of the property, depending on how your landlord feels about interaction. You can pocket more money if you manage the property on Airbnb, interact as the host with guests, and manage all the front end.
Use Airbnb Arbitrage on Multiple Properties
There are instances where you can have multiple rental agreements available on properties in the same area so that you can use the Airbnb Arbitrage simultaneously each month. You can choose to do this with one landlord who has multiple properties or reach out to several landlords with your offer and establish conditions.
Once you sublet your first property and get an understanding on how the process works, you may find that you are ready to move to additional properties and expand your financial opportunities.
Act as a Property Manager
You may be renting multiple properties from one landlord, and you can present this as an opportunity to act as a contracted property manager through the Airbnb Arbitrage process. Whether it is one landlord or multiple, make sure there is an agreement established early on, and you are able to be available.
In this case, you would not rent out the property where you are staying full-time, and the property owners will probably want you to be available for the guests more so than them.
When you present this opportunity to act as a property manager for Airbnb Arbitrage, you may find that you are also responsible for cleaning in addition to the communication, your protection with host liability insurance on these properties make it a great investment to consider so that you can start generating a profit each month.
The landlords may only want the standard rent and you are able to keep the rest of what you generated through the Airbnb Arbitrage system.
Depending on what your lease says when you sign it, you could be ultimately responsible for any property damage that happens to guests to whom you rent the property through Airbnb. Make sure that even if you are collecting damage funds from these guests, you are taking the time to hire a contractor and make the appropriate repairs.
Benefits of Airbnb Arbitrage
There are several benefits to consider when your landlord agrees to Airbnb Arbitrage on your behalf, and you start listing the properties.
- No upfront investment costs
- Low risk with insurance
- You have control
- Great entry into real estate
No Upfront Investment Costs
A traditional rental property requires someone to purchase it, make any repairs and then rent it out for a certain monthly amount. While that is a way to generate significant income over time, Airbnb Arbitrage allows for multiple rentals in the same month, multiplying the amount of incoming and covering more than the standard monthly rent.
As someone taking advantage of Airbnb Arbitrage, you do not have the personal upfront investment costs because you do not own the property.
Low Risk With Insurance
The host liability insurance reduces the risk when you sublet a property through Airbnb Arbitrage. This protects both you and the landlord in the event of a tragedy. Since these rentals are temporary, the policy allows for more than enough funds to cover damages and expenses that may happen to guest property.
You can also get financial assistance with repairs that you may be responsible for through your different insurance policies, especially if you have multiple properties.
You Are in Control
Once you make that agreement with the landlord to move forward with Airbnb Arbitrage, you are in control and can determine when the property is available. You are doing all the communicating and can list the property when it is convenient for you so that you can manage it properly.
You can also set the rates to match the market so that you are getting a fair amount for a weekly rental based on similar properties in the area. Depending on the peak season in your area, you could make more money in some months than others.
Real Estate Entry
If you have been considering making a side hustle in the real estate industry, this is a great way to get experience and determine if rental properties and tenants are right for you. If you do not have any experience, you can easily start with a single property and determine how much more you can handle.
This is not an industry for everyone, and it can be demanding at times. Fortunately, Airbnb Arbitrage allows you to manage your properties and guests to your scale so that you are not overwhelmed, It is also easy enough to stop if you get started and realize that this is not for you.
Some Cons to Consider With Airbnb Arbitrage
While it seems as though it is a win-win, there are some things to keep in mind when you start this process that are not as nice as the benefits.
- Laws and Regulations of the local area
- Market Needs and Demands Change
- Responsible for Property Damage
- Rent is requirements each month
Laws and Regulations
Depending on where your rental property is located, you could have zoning stipulations that prevent you from subletting a rental property or limit how many guests you can have. If your property is located in a community with an HOA, for example, you need to familiarize yourself with the rules and regulations of the community to make sure that your Airbnb arbitrage is within the guidelines before you start posting the home.
Even if you are not in a community with an HOA, review the local ordinances for the city or county, depending on where the property is located. If there are no regulations preventing the subletting, then you are good to continue with your Airbnb arbitrage.
Market Needs and Demands Change
While the area may have been in drastic need of temporary rental properties in the area, you could see the market needs change over time. Based on the economy and the tourist industry in the area, you should be able to determine what type of rentals are needed and if Airbnb arbitrage is still feasible in the area.
Property Damage Responsibility
If you decide to take over as the host for one or more properties, your landlord may make you financially responsible for any property damage that is caused by guests that you rented to through the Airbnb arbitrage. While you don’t make an upfront investment, you have to make repairs. It’s financial cost you can’t prepare for when the damage is significant.
Most leasing agreements require the leasing party, which is you, to cover damage expenses to the property upon inspection. Your host liability insurance or other insurance policies may not cover all of these expenses, so you will have to attempt to get the funds from the guests directly responsible, or you will be ultimately paying out of your pocket.
Rent Requirements
If rentals boom and you are booking with guests, rent is is not an issue. However, during the off-season months when rentals are down, and you are not having as many guests stay in the property, you are still responsible for paying the rent and may need to cover it with the excess funds from earlier in the year, cutting into your overall profit.
If you have a full-time job, this shouldn’t be much of a concern, however, if you have started Airbnb arbitrage for multiple properties and have made this a full-time career for the moment, you should probably prepay the rent up for the months you expect the rentals to be down, so you are not stuck with a financial crisis later.
FAQs About Airbnb Arbitrage
How do I know if my market is right for Airbnb Arbitrage?
Depending on where you live you could have a demand for either temporary weekly rentals or monthly rentals. Airbnb arbitrage is great for areas where a few days or weekly rentals are in high demand. Areas that have lots of tourists, such as beach destinations, mountain destinations, or areas with large theme parks are great for sublets with Airbnb.
Areas that also house temporary nurses where there is a high medical staff shortage are also great for temporary rentals. Traveling nurses take assignments for several weeks, but will pay a weekly rate for the Airbnb, ensuring you get your desired weekly rate for a month or longer with the same tenant.
Can I Allow Pets on the Property?
If you want to allow pets with your guests, you should first consult with the landlord and determine if they are okay with that condition. Most landlords have found that offering pets on their property expands their guests’ options and guests will pay a separate pet fee in the event of an accident. Keep in mind that any damage the pet causes to the property, however, you are ultimately responsible for repairing, even if the guest pays a fine for the damage.
How Many Properties Can I Manage in Airbnb Arbitrage?
If you are just starting out in the real estate industry and want to begin with Airbnb, you should start with one or two properties in the beginning. You do not want to overwhelm yourself, and you need to make sure that the process is right for you. Once you have a handle on subletting and know your limits physically and financially, you can begin adding properties one or two at a time.
Is Airbnb Arbitrage Right For You?
If you are considering breaking into the real estate market but need to do it with small upfront capital, then Airbnb arbitrage may be right for you. This is a great way to supplement your income and make a great side hustle for a while until you can get into making purchases of your own. You can generate great income this process. However, it’s is only as good as demand in the area. If you are currently renting a property you think would be great for Airbnb arbitrage or know of another property, contact that landlord today and determine if this is a possible option and how you can get started.
You can also read:
- Brian Chesky: 10 Things You Didn’t Know about Airbnb’s CEO
- What It’s Really Like to Work at Airbnb
- Airbnb vs. a Hotel: Which One is Better?
- Five Proven Ways to Make Money on Airbnb
- 10 Companies That are Similar to Airbnb
