Is Airbnb Arbitrage Legal?
Yes, Airbnb arbitrage is legal. However, you must abide by the local laws regarding short-term rentals and the conditions of the lease agreement. Many large cities with a high volume of tourists per year have regulations on short-term rentals to prevent property values from getting out of control. So, research the local laws when determining your Airbnb arbitrage strategy.
Also, not every landlord allows you to sublease the apartment or may have conditions that must be met before you can do so. So read the lease carefully first and let them know what you’re planning so they aren’t surprised by all the sporadic guests.
How Much Money Can You Earn Doing Airbnb Arbitrage?
Airbnb arbitrage can be extremely profitable if you do your research and find the right strategy. You can earn thousands of dollars in monthly profit depending on your market and how many expenses you have.
The average Airbnb listing rents for about $150 per night, which equals $4,500 per month. The average rent in America is around $1,800, which means you could make $2,700 in profit in a popular area just by listing the apartment as it is.
Even if you budget $1000 per month for cleaning, staging, and maintenance and account for vacancies, you will only need to rent the apartment for 24 days out of the month to turn a profit. Plus, that’s just a modest example, and there are markets where short-term rentals command even higher rates, especially in peak seasons. So, with a little research, you can easily make an extra $1,000 to $3,000 per month with Airbnb arbitrage after expenses.
How Do You Start in Airbnb Arbitrage?
- Do Your Research
- Find and Lease an Apartment
- Stage the Apartment
- Take Photos
- List It on Airbnb and Other Short-Term Housing Apps
- Prepare For Your Bookings
1. Do Your Research
Before you get started, you should do some preliminary research to make sure you find the right property. Airbnb arbitrage tends to work best in major cities and areas with heavy tourist traffic, such as NYC, San Francisco, Miami, New Orleans, Honolulu, Orlando, etc. Ultimately if you don’t find enough tenants, you’ll have to cover the rent and expenses out of pocket, so be sure to do the math and find the perfect location.
2. Find and Lease an Apartment
Once you’ve chosen your ideal destination, you’ll need to find a rental unit you can lease. When you’ve found the perfect unit, you will submit an application and sign a lease agreement with the landlord or management company. But pay close attention to what it says about subleasing and short-term rentals in the contract.
3. Stage the Apartment
Short-term tenants expect the unit to be furnished, so you’ll need to stage the apartment once you sign the lease. You can either go out and purchase your own furniture or find a staging company that will rent you furniture on a monthly basis.
4. Take Photos
Next, you’ll want to take some eye-catching photos to help market the property. You can take them with a cellphone or even hire a professional real estate photographer. Just make sure the lighting is decent and you get the best angles. Good pictures can make or break the success of an Airbnb listing, so do your best to get quality shots.
5. List It on Airbnb and Other Short-Term Housing Apps
When everything is staged and photo ready, you can start marketing your listing on short-term rental apps. Airbnb is the obvious place to start, but you should also consider VRBO, Vacasa, and even Craigslist. The more sites you’re on, the larger the pool of potential renters you can access. Just make sure you have a reliable system for tracking bookings so you don’t accidentally rent it to two different groups at once.
6. Prepare For Your Bookings
From there, all you have to do is wait until the bookings start rolling in and respond to requests and inquiries from tenants. You may also want to hire cleaners and a handyman to check in on the unit between guests. Plus, it’s also smart to develop systems to run your business, track expenses, and collect payments.
Airbnb Arbitrage Pros and Cons
Airbnb Arbitrage Pros
- Low Upfront Investment
- Minimal Risk
- Easy Accounting
1. Low Upfront Investment
Airbnb arbitrage requires a much lower upfront investment than buying a rental property. Typically, all you’ll need is the first month’s rent, a security deposit, and the cost of staging and marketing the property. Considering the income you can make, that’s much cheaper than the down payment and closing costs needed to buy a traditional rental.
2. Minimal Risk
Airbnb arbitrage is also less risky than other real estate investing methods because you don’t actually own the property. You are on the hook to pay the rent every month, but in many areas, you can cover that with just a few guests per month. So as long as you plan for vacancies and have a cash reserve to get you through slower seasons, the risk is very minimal.
3. Easy Accounting
Unless you develop a portfolio of Airbnb arbitrage properties all over the country, the accounting is relatively simple, especially compared to standard rental property. Your only expenses will be rent, furniture, and upkeep; the rest is pure profit, which simplifies things when it comes time to do your taxes.
Airbnb Arbitrage Cons
- Risk of Vacancies
- More Wear and Tear
- Dealing With the Landlord or HOA
1. Risk of Vacancies
One of the major disadvantages of short-term rentals is not having long-term commitments from a tenant. So, you will naturally have some vacancies as guests transition in and out. As long as you factor their periodic vacancies into your budget, you should be fine, although it may be difficult to predict in some areas.
2. More Wear and Tear
With new people constantly coming in and out, you will likely deal with more wear and tear, which means additional upkeep. The good thing is that with AirBnB, you can charge a cleaning fee to help offset some of the costs, but you may need to perform maintenance and upgrades routinely.
3. Dealing With the Landlord or HOA
Not all landlords or homeowners associations will be happy about the idea of you using the unit as an investment property rather than a residence. So, you may face pushback from management, especially if you have rowdy guests who are loud or disturbing neighbors. That’s why it’s often best to be upfront about your business and move on to another building if the owners aren’t thrilled about the idea.
Airbnb Arbitrage Bottom Line
Airbnb Arbitrage is a relatively low-risk investment strategy that allows you to earn passive income without purchasing a property. However, it does take careful planning and consistency to be successful. So, make sure to do the proper research and understand the risks and obligations before investing in Airbnb arbitrage.