Airbnb arbitrage allows anyone to earn money from a short-term rental property even without owning it. This is made possible when a person rents a condo, an apartment, or any rental unit and then lists it on Airbnb, effectively subletting it to a guest on a short-term basis[1] and earning income from it.

A tenant’s rent is typically paid to their landlord on a monthly basis, but if they are participating in Airbnb arbitrage, they may choose to sublet their unit to an Airbnb guest anywhere from a few days up to a month at a time.

Is Airbnb Arbitrage Legal?

Airbnb arbitrage is legal in many jurisdictions, but short-term rental laws vary by location. Some factors include the time frame for the rental, licenses, and the number of Airbnb properties on the building[2].

Most importantly, the tenant planning to list the property on Airbnb needs to secure the landlord’s permission before doing so. The lease agreement between the tenant and landlord should stipulate that the unit may be subleased in the manner required to participate in Airbnb arbitrage[3].

BY THE NUMBERS: More than 600,000 multifamily short-term rentals are listed on Airbnb or Vrbo, with the vast majority in U.S. cities.

Source: AirDNA

Like any investment avenue, an Airbnb arbitrage presents several pros and cons. Here are some of them[4]:

Pros:

• Rental business with minimal capital. An Airbnb partner only needs to have sufficient capital to rent a property and furnish it.
• Scalable, passive income. By listing the rental property on Airbnb, the tenant may recover the costs of renting and furnishing the property relatively quickly. Some locations allow the tenant to earn up to three times more than the original rental price of the unit. They may use these funds to scale further by renting more units then listing them on Airbnb.
• More control over the process. An Airbnb partner has total control over how they run the business. They only need to pay the rent to the landlord, keep track of guests, and manage the utilities. If they so choose, they may also take the property off the rental market at any time.

Cons:

• Risk of property damage. If an Airbnb guest damages the property, the tenant who sublets it will be held accountable. The tenant is responsible for taking care of the rental property and keeping it in top shape. Failure to do so may lead to a breach of contract and even the possibility of an eviction.
• Legal issues and breaches of contract. If a tenant lists a property on Airbnb and rents it out without the landlord’s express permission, they may face lawsuits, fines, and eviction. A comprehensive and detailed lease agreement is needed to define the roles and responsibilities of the parties involved. The tenant must also observe the local short-term rental laws and regulations in their area.
• Unstable market conditions. Airbnb arbitrage may not be able to provide a consistent, stable income. Market conditions change based on certain seasons and trends, which means some days may see an overflow of bookings, while others have little to none. Even without income from the property, the tenant must continue to pay rent to the landlord on time.

An Airbnb arbitrage is a cost-effective option to start learning the ropes of a short-term rental business, but it comes with its own unique set of considerations. Anyone who wishes to start an Airbnb arbitrage business should note the following:

• Location is paramount. The rental property should be located in an area where Airbnb demand is high and consistent[5]. Performing extensive market research and due diligence is extremely important, just like any other rental business.
• The startup capital will have to cover legal fees, application fees, deposits, insurance, and furnishing[6].
• To start leasing, the investor will have to list the home on Airbnb, showcase the rental property’s best features, and determine the Airbnb rental price[9]. Like any real estate investment, the investor needs to do a comparative market analysis, or “run comps,” on the average Airbnb rates in the area and how these rates change on certain factors, dates, or occasions[7].

• An Airbnb arbitrage is an agreement where a tenant rents a property long-term and sublets it to guests through the Airbnb platform.
• It can be a lucrative way to start a rental business and the vacation market, but there is a significant risk in location much more so than regular rental businesses.
• Rental arbitrages, including Airbnb arbitrage, is legal in many areas, but it is subject to that area’s short-term rental laws and regulations.

1. Yale, A. (2020.) What is Rental Arbitrage and How Can Real Estate Investors Benefit From It? Millionacres. Retrieved from: https://www.millionacres.com/real-estate-investing/rental-properties/what-is-rental-arbitrage-and-how-can-real-estate-investors-benefit-from-it/
2. Karani, A. (2020.) HOW TO START A RENTAL ARBITRAGE BUSINESS. Mashvisor. Retrieved from: https://www.mashvisor.com/blog/rental-arbitrage-business/
3. Fishman, S. (n.d.) Tenants: How to Make Airbnb Work for You and Your Landlord. Nolo. Retrieved from: https://www.nolo.com/legal-encyclopedia/tenants-how-make-airbnb-work-you-your-landlord.html
4. Ribbers, J. (2019.) What is Rental Arbitrage: How to Best Benefit. Linkedin. Retrieved from: https://www.linkedin.com/pulse/what-rental-arbitrage-how-best-benefit-jasper-ribbers
5. Conroy, B. (n.d.) Rental Arbitrage: $200k in Profit Without Owning Any Property. Side Hustle Nation. Retrieved from: https://www.sidehustlenation.com/rental-arbitrage/
6. Hospitable. (n.d.) Rental Arbitrage: How to Make Money on Airbnb without Buying a Property. Retrieved from: https://hospitable.com/rental-arbitrage/
7. iGMS. (2020.) Airbnb Rental Arbitrage: FAQ and Money-making Guide. Retrieved from: https://www.igms.com/airbnb-rental-arbitrage/