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Airbnb Rental Arbitrage: How to Make Money Without Owning Property

Jason Allen
Updated: February 17, 2023 13 min read
Airbnb Rental Arbitrage: How to Make Money Without Owning Property

Airbnb arbitrage is a real estate business model that allows an Airbnb host to sublease a long-term rental property for the purpose of short-term letting on the Airbnb platform. To put it even more simply, Airbnb rental arbitrage is the practice of renting a property with the express purpose of subletting it on Airbnb.

When most people think of real estate investing, they usually assume a few things. One, they think they need a lot of money to get started. Two, they think they need to own a lot of property to make money. That’s not true, thanks to Airbnb arbitrage.

Home prices have reached all-time highs, and acquiring them at lower prices has become more and more difficult. If you’re trying to invest in real estate, that’s a tough proposition.

However, through the Airbnb arbitrage method, you can work with a landlord to rent out their property on Airbnb and make a lot of rental income doing so. It’s a short-term rental investment strategy that takes advantage of the booming short-term rental markets. By leveraging a long-term lease on a property, you can operate it on a short-term basis and tap into the success of Airbnb.

Is it risk-free?

No. But it can be extremely rewarding, especially when you navigate the short-term rental markets successfully and generate substantial rental income.

Let’s talk about it in our guide to Airbnb rental arbitrage.

What is Airbnb Rental Arbitrage?

Airbnb arbitrage is the practice of renting out a property and then subleasing it on a short-term rental platform such as Airbnb, VRBO, or Homeaway.

In reference to Airbnb, it means an investor rents a property from a landlord, then lists it on Airbnb for them, and collects the difference. For example, let’s say you rent a condo for $1,500 per month and list it on Airbnb for $4,500 per month. Before expenses, you collect $3,000 per month in rental income. (Keep in mind that expenses can range from $250 to $1,000-plus per month, depending on your strategy.)

The Airbnb arbitrage strategy has been used for a short term basis; it’s just not discussed as often as other popular strategies like the BRRRR method or the buy-and-hold strategy. In fact, short term rental markets find its roots, just like many creative investment strategies, in the realm of commercial real estate.

With that being said, most short term rental investment investors aim to make around $1,000 net profit per property—although you can make much more.

If you currently rent your home from a landlord and want to dip your feet into real estate investing, you could attempt to convince your landlord to let you list the property on Airbnb as a sublet property, pay off your rent, hand over the landlord’s share, and pocket the rest.

Is Rental Arbitrage Legal?

You may have several questions about Airbnb rental arbitrage. Namely, is this legal?

Fortunately, yes! Rental arbitrage is a legal practice, depending on where you live.

Vacation rental property laws have been evolving rapidly in many cities around the United States. It’s essential to research your local jurisdictions to ensure compliance with the legal requirements of short-term rental markets, such as those on Airbnb. Additionally, it’s important to check whether you’ll need any necessary permits or licenses.

Once you determine the legality based on your area, you can explore the opportunities available. Short-term rentals can create a successful Airbnb venture by providing a lucrative source of rental income. By optimizing your listing and delivering an exceptional guest experience, you can attract more bookings and enhance your chances of success.

By leveraging the short-term rental markets, you can tap into a thriving industry and unlock the benefits of a successful rental investment.

Pros of rental arbitrage

  • You don’t need much starting capital: a short-term rental investment could be for you if you don’t have much money to invest. You won’t need a down payment, only enough money to cover rent for the duration of the long-term lease.
  • You have fewer responsibilities: under the Airbnb arbitrage model, the landlord is responsible for all major repairs to the property, just as if you were the tenant. For example, the landlord will handle external repairs such as roofing or plumbing.
  • Fewer expenses: As an Aribnb arbitrage host, you only need to pay the rent. The landlord handles all property taxes. 
  • Less risk: If you find that Airbnb hosting gives you poor occupancy rates, you can always stop hosting and renting the place, provided the lease has a break.

Cons of rental arbitrage

  • You will need legal help: Airbnb and subletting laws vary significantly from state to state and even city by city. You will need to be very certain of local rules and regulations, as some communities are very strict on allowing Airbnb hosting; in some places, you may even need to seek permission from your neighbors. For these reasons, you very likely need legal advice or representation.
  • There is a lot of paperwork: For the above reasons, but also because there are multiple parties involved, you will need to be very careful when drawing up contracts between you and your landlord and between your and your Airbnb tenants. This can be timeconsuimg and confusing to do.
  • You have to commit to rental payments for the duration of your long-term lease. If you cannot pay the rent, you can face eviction or even a lawsuit, depending on how behind you are.
  • You are responsible for any damage to the inside of the property, so you will need to come up with appropriate insurance Airbnb will cover some types of damage. Still, not all, so you’ll need to research how much coverage you’ll need.

How Do I Convince My Landlord?

Learning how to work with landlords is essential to successful rental arbitrage. After all, we’re not trying to be sneaky! Let’s go through all of the ways you can convince the landlord to let you execute your Airbnb arbitrage strategy.

Remind them of the benefits for them

When a landlord rents their property to someone doing rental arbitrage, they can rest assured knowing that they are getting a long-term, business-to-business tenant with a financial incentive to keep their property in tip-top shape year-round. During rental arbitrage, you rent the property at full market rate—or maybe even a little higher to sweeten the deal, as long as it works with your business plan. The property owner’s equity is increasing, and they’re getting a little cash flow every month.

Some investors worry that Airbnb guests will destroy the house. Every now and then, someone may do something destructive—that’s just part of the rental business, and it’s usually a very small percentage of guests.

It’s a risk with traditional renters, too. Plus, with Airbnb, you can take courses of action to get reimbursed—not to mention a free $1 million liability policy for listed properties.

When someone using the Airbnb arbitrage model rents a property from a landlord, keeping the property pristine is in their best interest. For the landlord, this means the property will be in top-selling condition all year.

How Airbnb hosts can sweeten the deal for landlords

If that’s not enough to convince the landlord, try these tactics to make the deal more desirable.

  1. Offer an additional layer of third-party insurance. For security-conscious landlords who are security-conscious, this appeals to their need for more certainty. You can shop various companies for a third-party insurance policy that you can layer on top of the $1 million policy that you already have. This offers plenty of protection against just about any possible scenario. And remember: As long as the numbers make sense financially, this is a good strategy if it helps to get the deal done.
  2. Offer profit-sharing. This is where you offer a percentage of the net profit of each deal that you’re doing with the landlord. This comes from a concept in private equity known as economic alignment. The basic premise is that when a party has a financial incentive for a business’s success, they’re more willing to help it succeed. You may need to give away a large portion of the profit of your first few deals in order to build up your portfolio and develop a track record. You might think this isn’t fair, but this may be exactly what you need to do to convince the landlord. Once you have several deals under your belt, you have more bargaining leverage, and you can take a larger share of the profits.
  3. Offer to rent multiple properties from them at once. Expand with them as they build out their portfolio. Many single-family-home investors are looking for equity build-up in each of their properties over long periods. If you can prove to them that your model works, then you can offer to expand alongside them to accomplish their goals. With this strategy, you and the landlord become joint venture partners, each helping the other accomplish their investment goals.

Estimating Your ROI & Start-Up Costs

The next step is calculating the potential profitability of your listing and testing for demand. So find yourself a reliable AirBnB calculator. Ideally, you want to be profitable at 50 percent monthly occupancy—that’s a good barometer of success.

For example, let’s say the going nightly rate in your target location is $200. Fifteen days booked—or approximately 50 percent occupancy—will make you $3,000 for the month. If your rent and expenses are $2,000, then you’ll net $1,000. That’s pretty good for 50 percent occupancy and doesn’t even account for additional costs that you will charge the guest, like a cleaning fee.

How to Make Money on Airbnb Without Owning Property

You don’t need to be a homeowner or have a lot of capital to make money on Airbnb without owning property using rental arbitrage. In fact, the costs associated with listing your first property are pretty low—even more so because we’re using other people’s properties.

1. Set up your business

If you plan on scaling your portfolio beyond three properties, begin by starting your business properly. Set up a solid foundation and infrastructure to conduct business in good standing and grow effectively.

Start with a legal entity. For most people, an LLC works best. It’s easy to set up and manage, offering favorable tax options.

Doing this now will help you find more deals later on when you start searching for properties. Plus, some property management companies won’t allow you to perform rental arbitrage without a corporate lease.

Take inventory of your assets, resources, and network. What can you leverage for immediate success? No, you don’t need tens of thousands of dollars. But if you do have investment capital, I’d still encourage you to start small. It’s tempting to jump into the business head-first, but you must learn the systems first before you scale. Capital-wise, you only need between $1,000 to $2,000.

2. Build your team

You need a good team for your Aurbnb arbitrage initiatives, like any business owner or real estate investor. It’s easy to handle everything yourself at first—but you’ll want additional support once you start to scale.

Your core Airbnb business team should consist of your accountant and your attorney. These two team members will guide you around common newbie pitfalls. Here’s what to look for:

  • Attorney: You want someone who specializes in corporate law and/or real estate. Even better if they have personal experience with real estate investors and other rental property owners.
  • Accountants: They should understand tax strategy and have experience with real estate investors.

Once you scale out to three or more properties, it’s time to start expanding your team, too. Here are some of the key members that you’re going to need:

  • Co-host: This person is a member of the Airbnb community who doesn’t control any property themselves but helps full-time hosts manage existing properties. Think of them like your personal property manager who oversees day-to-day operations. Airbnb allows you to give the co-host a percentage of the profit of each deal that they help you with.
  • Cleaning crew: In the beginning, you can clean your own properties. However, this is very time-consuming. Your options are a professional company, an individual, or a small business. Generally, mom-and-pop cleaning crews are more adaptable and cheaper, while professional companies cost more but are more effective and have more accountability.

In addition to these key members, you’ll eventually need a real estate agent, bookkeeper, interior designer, photographer, and general contractor.

3. Do market research

Most people who get into Airbnb arbitrage don’t conduct any market research beyond a Google search—if that. Just because you have a nice property and think it’s in a popular part of town doesn’t mean it will be successful.

You want to use hard facts to find properties in the most profitable parts of town. Which submarkets, zip codes, and streets will give you the biggest bang for your buck? The Airbnb website can tell you much about your market—if you know what to look for.

  • Entire home properties. We’re not starting a room-sharing business. Whole-home properties make you more money.
  • The minimum nightly rate of at least $100. This rate tells you where the most in-demand properties are located.

Next, examine the map for clusters of listings. Go through them one by one to identify patterns. What is in demand in this unique market? Look for:

  • Number of bedrooms
  • Amenities, like washer/dryer or air conditioning
  • Proximity to downtown or other touristy spots
  • Decorating style

Your job is to discover these market-specific details and repeat them in your business strategy.

What attractions are visitors talking about in your city? It could be beaches, parks, shopping, or bars. Look for this information in the descriptions of the top Airbnb listings, the reviews, and with Google searches on various travel sites. This will give you a better idea of where to look for properties.

As you expand your Airbnb offerings, you might be interested in paid tools to test for occupancy and demand. Now, though, you can run these analyses for free on the Airbnb website. Look at several listings in your market and then look at their bookings one to two months into the future. This gives you a decent idea of how they are actually doing.

To do this, just click the “Check-in” button on the right side near the calendar. Then cycle through the months with the navigation arrow. The days that are booked will be filled in, and the open days will be in bold text.

Obviously, much more goes into market research, but this is enough to get started.

4. Find properties

Now that your real market data shows you exactly what areas are most profitable, what home types people like, and what attractions guests want to visit, it’s time to find your first short term rental investment property.

There are many rental property search tools online, and you can use whichever one you feel comfortable with. I recommend Zillow. Search for your market, selecting the filters that apply to your metrics.

Once you narrow your search down to the exact submarket or zip code you are considering, it’s just a matter of analysis. You may have to sort through 50 to 100 rental properties before you find your needle in the haystack and make profitable rental income — but this effort will be rewarded in the end.

If you want to narrow the process even further and cut down on your upfront costs, you can search specifically for furnished properties suitable for short term rentals.

Of course, you have to be upfront with the landlord. If they’re not on board with you listing their property on Airbnb, look for another option.

Build long-term wealth with short-term rentals

Vacation rentals can be an extremely lucrative way to boost your monthly income—but only if you acquire and manage your properties correctly. This ultimate guide to analyzing, buying, and managing vacation rental properties will set you up for immediate success and long-term wealth.

5. List your property

Listing your property is straightforward. Follow the Airbnb page instructions by selecting “Become a Host.” You can create a dummy profile to get started and then create your real listing later on.

After you are set up, you can create your schedule, set requirements for guests, and establish your daily rates. From there, everything is taken care of on the Airbnb website and app, making this model so easy to get into.

6. Optimize your listing

Now that you have your property set up on the Airbnb platform, you can begin optimizing your profile to attract more guests. Every profile has a rank, which is determined by an internal algorithm only known to Airbnb—just like Google search results. Many known white-hat methods increase your rank and attract more guests.

Great pictures are essential. We recommend hiring a professional photographer—it will cost a couple of hundred bucks. If not, then at least learn a little about lighting and photo editing. Your pictures are one of the first things people notice. Often, tourists make immediate yes-no decisions based on the quality and appeal of the photos. If you want good examples of great photos and top-of-the-line listings, then click the “Airbnb Plus” homes to view your market’s top-rated properties.

You can glean more tips from those Airbnb Plus listings, too. Do they use certain keywords in their titles? What rooms do they showcase? Is there an interior design pattern that stands out?

Do your best to model your profile after the top performers. Many people who get into Airbnb arbitrage short-terms rental investing just wing it and try to come up with everything by themselves. This is why most people get mediocre results, both in terms of rental income and overall success.

7. Automate your business

Successfully building a lucrative Airbnb arbitrage portfolio that generates substantial rental income is undeniably impressive, but being stuck working 100 hours per week to maintain it certainly isn’t. We didn’t get into business and investing, so we could work two or three times as much as everyone else. We invest because we want freedom, control, and options.

Establishing appropriate systems to run your Airbnb arbitrage business with minimal effort and maximum rental income.

Once you have your property set up, you’re responsible for basic property management tasks and cleaning. If your landlord has a property manager or you are using a condo in a complex, then your basic property management needs are taken care of. If not, you must find a good property manager who can handle these things.

Your cleaning crew needs to understand exactly what to do each time they clean. They also need to know when to come. The best way to do this is to sync your Google calendar with your Airbnb schedule and then share a “read-only” version with your cleaning crew so they can access the calendar, but they can’t change it.

A co-host is your next most powerful automation technique. Find someone you can trust with experience in the hospitality and real estate industries. This person will be your short term rental investment business’s face on the properties they represent and manage. They will be responsible for handling guest questions and providing additional services. Think of a co-host as an internal Airbnb property manager for you and your listings.

If you have numerous listings in multiple markets, then you will have more than one co-host who manages their own section of your portfolio. After a certain point, you can hire a CEO or asset manager who will take on your job of overseeing and growing your successful Airbnb company.

Next, automate the check-in process. Do you want to personally drive to each listing and greet every guest? No. Get around this burden by developing a self-check-in process for your guests.

You can put keys inside an old-school lockbox, like the kind that real estate agents use, or you can use smart locks. The downside of the lockbox is that people can lose the key or come back months later and rob you, assuming you don’t change the code. The upside: they’re cheaper.

Smart locks offer many options and more security features, like the ability to remotely access the property from your phone. A popular model is the August Smart Lock, which will run you a couple hundred dollars.

You can also give temporary codes that expire after your guest leaves, allowing you to see who is accessing the property and when. This gives you a lot more control and accountability.

You’ll also want to develop a comprehensive house manual and give guests access immediately upon booking. It should cover every possible question a guest could ask—everything from WiFi passwords, gate codes, and available amenities to local attractions, transportation options, emergency contacts, and co-host contact information.

This manual gives guests everything they need to be self-sufficient. Most people don’t want to be bothered when they are staying at your property, just as they wouldn’t in a hotel. Make it easy for them to get what they need without too much effort.

Conclusion

Starting an Airbnb arbitrage business is one of the best models for people without much real estate experience or startup capital because many of the mechanics are handled for you. However, it’s even better if you have these things because you can launch and scale your long terms and short term rental investment business much faster.

If you put your head down, follow the steps to start an Airbnb, and diligently work hard on this business, and diligently word hard on this short term rental investment, you will be making a six-figure rental income in 12-18 months—a level of success almost unheard of in most industries.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.