Airbnb Arbitrage Explained + [How to Pitch Landlords]

You need to own your own home to make money with Airbnb, right? Wrong! 

Welcome to our guide on Airbnb arbitrage where we show you exactly how to make passive income, without ever owning a single property. This is one of the easiest no money to low money down options in real estate investing and can be a phenomenal way to make extra cash or build a full-blown business, even if you don’t have enough money to buy your own home yet.

What is Airbnb Arbitrage?

Airbnb arbitrage is a method of making money by renting out properties that you don’t own. It’s similar in concept to traditional arbitrage, but instead of buying an asset at one price and selling it at a higher price, you simply rent the property for more than your cost. In other words, if you can find someone willing to pay $100/night for a property that costs $75/night, you’ll make a $25 per night profit.

Is It Legal?

Yes, Airbnb arbitrage is still a gray area in some metros. However, it is legal in most places and it’s likely to stay that way as long as you follow the rules. The main way Airbnb arbitrage becomes illegal is when a renter/arbitrageur fails to tell their landlord what they’re doing. This could prompt the landlord to take legal action against the arbitrageur.

Rental vs. Airbnb Arbitrage

For the most part, Airbnb arbitrage and rental arbitrage are used synonymously. The only difference is that Airbnb arbitrage is specifically used when talking about short-term rentals. Regular real estate arbitrage does still exist, but it’s done differently. If you were to rent an apartment for $1,000/month and then rent it to someone else for $1,250/month, that would be considered more rental arbitrage than Airbnb arbitrage (since it’s on a long/medium-term rental schedule).

The Pros and Cons of Airbnb Arbitrage

Even though this is a low-money down, low-risk way to invest in real estate, there still are some risks to trying Airbnb arbitrage. But, thankfully for all us real estate investors, the benefits tend to quite heavily outweigh the cons in this case.

Pros

• Cash Flow: Airbnb arbitrage is well-known for having high cash flow and almost unbelievably high cash-on-cash return percentages.
• Scalability: When you’re busy saving for a new down payment every year or two, you scale far slower than finding a new apartment to rent every other week.
• Low Risk: Without much maintenance, insurance, or tax liabilities, the Airbnb arbitrage method of investing is very low risk, with a high reward.

Cons

• No Equity Upside: While you will have high cash flow, you won’t be accumulating any equity upside or principal paydown (as you would with a regular rental property purchase).
• Additional Expenses: You’ll need to provide higher-end furniture, higher-cost tenant insurance, and pay more for cleaners than you would in a regular rental property.
• Challenges in Finding an Approving Landlord: Most landlords won’t allow you to do Airbnb arbitrage within their units. This is either because they 1. don’t want short-term stays at their property or 2. don’t want tenants who they haven’t run background/security checks on. While this is a challenge, by no means is it impossible to find an arbitrage-friendly landlord.

How Much Money Can You Make Doing Airbnb Arbitrage

Airbnb arbitrageurs can make anywhere from a few hundred dollars per unit to a few thousand dollars per unit, per month. This is highly variable as your occupancy and booking price will depend on which city/metro area you’re in, how close you are to tourist areas, the quality of your listing, and more.

ROI Calculation on Airbnb Arbitrage Properties

ROI for this type of investment is calculated by taking your revenue minus expenses divided by startup costs. In other words, ROI = (Revenue – Expenses)/Startup Costs. Let’s try a quick example.

Let’s say you found an apartment that allows Airbnb and rent it for $1,200 per month. You can list it on Airbnb for $75 per night and you estimate you’ll be occupied for twenty-five nights per month. You spend $1,200 on rent and $150 in insurance every month. Your startup costs were $2,400 for the first month’s rent and your despot and another $3,000 on furnishings. 

Here’s what the math would look like:

Revenue = $75 per night x 25 nights = $1,875

Expenses = $1,200 + $150 = $1,350

Startup Costs = $2,400 + $3,000 = $5,400

ROI = ($1,875 – $1,350) / $5,400 = 9.7% Return on Investment PER MONTH.

6 Steps to Land Your First Airbnb Arbitrage Deal

Airbnb Arbitrage is all about finding deals, and then closing them. Here are the steps you’ll need to take to land a deal:

1. Pick a Market

It’s safe to say that the best place to try Airbnb arbitrage may be in your own backyard. But, if you live in a town or city with a small population and not a lot of tourist attractions, it may be worthwhile looking up which markets do work best for Airbnb investing. Use sites like AirDNA to get data on markets that fit your short-term rental requirements.

2. Set Up an LLC

If you’re going to be doing any Airbnb arbitrage deals, it’s important to have an LLC set up. Not only will this help protect you by separating your personal assets from your business, but it can also make things easier when it comes time to pay taxes on your profits.

3. Find a Home

Finding a home to use for Airbnb arbitrage can be tough, especially if you’re looking for something in prime locations. However, there are plenty of other options out there that aren’t as high-end and still offer good returns on investment. You DON’T need to be downtown or across the street from the beach to make money with Airbnb arbitrage. Being within walking distance of public transportation or a short drive away from top destinations may be good enough for your first rental. But, steer clear of HOA-enforced communities, as they very rarely allow for short-term subletting.

4. Run the Numbers

Before you start an Airbnb arbitrage business, make sure that it’s actually profitable. While the idea of earning money off someone else’s property might seem like a dream come true, it can be a nightmare if your profits don’t cover the costs associated with owning and managing a short-term rental property.

5. Get Sign-Off From The Landlord

If you’re going to sublet your rental property, you need to get permission from the landlord. Some landlords will be willing to sign off on a short-term Airbnb arbitrage arrangement, but it’s always best to have legal documentation in place before listing your property on Airbnb. Make sure you have a written sublease agreement (or master lease) signed by you and the landlord stating that short-term or nightly rentals are allowed.

6. List your Property on Airbnb

Once you’ve got your landlord’s approval and signed a sublease agreement, it’s time to list your property on Airbnb and VRBO. This will take some time and effort, but once you have everything ready, the process is pretty straightforward. You can use one of the many plug-and-play applications available (like Guesty or Hostaway) or create an account with each site individually.

How to Pitch Landlords for Airbnb Rental Arbitrage

Airbnb arbitrage is almost entirely reliant on finding a landlord who will allow their property to be sublet. This isn’t impossible, but it can be difficult to find landlords willing to let someone else run their units as short-term rentals. You’ll come up against landlords who will outright refuse, be intrigued, or see your arbitrage opportunity as a way for them to get consistent rent checks. Be prepared to talk to multiple landlords, and when you do, use these tips to help persuade them into letting you use their property to make some passive profits.

1. Rely On Your Experience: Have you had success with Airbnb arbitrage before? Do you own rental properties? Do you have a business/website you can share with the landlord? You want as much proof that you’re a professional as possible. Explain how the process works for the landlord and that you are knowledgeable and experienced within this realm of real estate.
2. Emphasize the Landlord Benefits: Let the landlord know that this isn’t a risky rental. Lay down the clear benefits such as free professional cleaning which will keep the unit in good shape, additional insurance provided by Airbnb for damaged units, and guaranteed rent since this business pays for itself. Be open to signing a longer-term lease with the landlord and assure them that you’ll be personally responsible for paying rent on time, every month.
3. Practice Your Pitch: Confidence is your greatest weapon when speaking to a landlord. Know what you’re going to say and practice responding to objections from the property owner. Come in as a business, and less as a random person trying to arbitrage!

Our Final Thoughts on Airbnb Arbitrage

So there you have it! Airbnb arbitrage is real, and it can be a great way to make some extra cash. However, before you get too excited about this opportunity, remember that there are some risks involved. For one thing, you need to make sure that you’re getting a good deal on the property to make it worth your while. You also need to be aware of any laws or regulations that could affect your business; if they do and you don’t comply with them, then you could lose everything. Finally, there are some questions about Airbnb arbitrage that we didn’t get around to answering above—but you can find them below!

Airbnb Rental Arbitrage FAQs

You’re ready to get your first Airbnb arbitrage unit up and running. But, there are still a few more questions you may have. The below FAQs should help answer any lingering worry over this high-cash flow strategy.