Airbnb is a great way to rent out your space and make extra money. However, many apartment owners don’t allow their tenants to use Airbnb due to the potential liability issues that can arise. So how do you find the right type of apartments that allow Airbnb so you can bring in the big bucks?
If you’re planning on renting an apartment for your Airbnb arbitrage business, then this article is for you!
What is Airbnb Arbitrage?
Airbnb arbitrage (often referred to as rental arbitrage) is a type of real estate arbitrage and is the simple concept of renting out an apartment or house, and then subleasing that rental on Airbnb or VRBO. The profit is made from renting the apartment at a long-term rental rate and subleasing it at a short-term rental rate.
Is It Legal?
The short answer is yes, it’s legal. The long answer is that the legality of Airbnb arbitrage depends on where your property is located. For example, some cities have laws in place that prohibit Airbnb or short-term rentals in certain districts. Other cities allow short-term rentals, but every city/state requires landlord permission for Airbnb arbitrage.
Benefits of Apartment Airbnb Arbitrage
You’ve decided that Airbnb arbitrage is your next big move. When done correctly, here are some of the benefits that apartment arbitrage can specifically give you:
- Location: Apartments are usually located in central areas near public transport, restaurants, bars, and shopping centers. This optimal location allows you to get higher nightly rent rates from tourists and travelers.
- Amenities: Pools, clubhouses, hot tubs, grills—you name it, upscale apartment buildings probably have it. Vacationers will also be willing to pay more to stay in a place that has upgraded amenities.
- Scalability: Finding a suitable apartment rental for Airbnb arbitrage is tough. But, if you’re able to find the right one, you could be able to scale your apartment arbitrage empire quickly by renting out more units within the same complex.
Drawbacks of Apartment Airbnb Arbitrage
Once you’ve found apartments that allow Airbnb, and as a new investor, you’ll need to decide whether or not these will deter you from focusing on apartment arbitrage vs regular rental arbitrage.
- Maintenance Risks: If you’re renting out multiple units in the same building and the entire apartment’s heating, electricity, air conditioning, or (god forbid) sewer pump goes out, you’re now stuck with multiple unhappy guests, not just one problem to fix.
- Lower Cash Flow Potential: Bigger properties unsurprisingly mean bigger nightly rental rates. A five-bedroom house will almost always rent for many multiples more than a standard one or two-bedroom apartment complex.
- Difficult Corporate Landlords: Corporate landlords, like the ones that own 50+ unit apartment complexes, may be difficult (to say the least) to convince on letting you sublease their apartments (via a master lease) to vacationers. Oftentimes, large apartment complexes have a standard “no subleasing” clause baked into all of their leases.
How to Find Apartments That Allow Airbnb
You’ve decided—apartment Airbnb arbitrage is for you. Great! Now let’s get you moving on your first income-producing arbitrage property!
1. Pick Your Niche
As with anything in life, you want to be niche. A generalist is a master of none. Pick your niche—and then go deep into it. Know who you’ll cater your rental to. Are you looking for mid-term renters like traveling nurses, corporate professionals, snowbirds, etc.? Or, are you looking to rent out by the night or week to local visitors, nationwide visitors, or something in between?
2. Find a Market
The biggest mistake most people make is that they get excited about their first Airbnb and jump into a market without doing any research. This is a recipe for disaster—especially in the beginning. Make sure you’ve got plenty of time to do your due diligence before committing to any specific property.
Now that you know your niche, ask “where would my target tenant go?” If you’re targeting traveling nurses, a healthcare hub like Tampa, Houston, or San Diego may be fitting. If you’re targeting tourists, where do people want to visit? Miami, Charleston, or Santa Barbara may work better for those types of visitors.
Then, get hyper-niche on your market. Where do the tourists want to be? Where do the traveling nurses want to be? Where is central? Use tools like AirDNA to help with research like this.
3. Check Zoning Laws
Zoning laws can be tricky, so do your homework before you sign a lease. Find out the zoning in place for your target area, and make sure it matches what you’re looking for. For example, if you’re planning on operating a short-term rental but live in an area with strict zoning laws against them, you may have to look elsewhere.
4. Find Apartments
Use tools like ApartmentGuide, ApartmentList, HotPads, PadMapper, and Sublet to find apartment complexes in your area (specifically those that don’t mind subleasing). Look into their amenities and make sure they match your niche. A working professional may not want to be close to a busy freeway, but as a weekend stay for a family on a budget, it may not be a big deal!
5. Review The Lease
Go over the lease with a fine-toothed comb. Make sure you understand all the fees, restrictions, and rules (especially if you’re planning on subleasing). If there are any clauses that don’t make sense or seem unfair, it’s best not to sign them.
If the landlord requires written permission for subleasing, make sure you ask (and receive) a signed document from your landlord allowing you to sublease.
6. Pitch the Landlord
If you’re planning on subleasing, make sure you pitch your landlord on why they should allow it. You’ll want to emphasize the benefits that impact them (and their bottom line) to show that this is a mutually beneficial, and professional, type of deal. Here are some selling points that may help:
- Offer to sign a longer-term lease, which gives the landlord more income assurance.
- Personally guarantee rent is paid, regardless of the occupancy once you rent out the apartment.
- Explain the benefits of having consistent, professional cleaning after every guest turnover, and how you’ll be the one fronting the bill.
- If the landlord is struggling to rent out other units, offer to take some more off their hands. This may require a master lease!
- Sign the lease as an LLC, as it’s far easier for the landlord to evict a business as compared to a regular tenant.
7. Close and Collect
Once you’ve signed the lease and paid the first month’s rent, it’s time to close on the apartment. You’ll need to get a copy of your lease and any other paperwork in writing before handing over any money. Then it’s time to start making money from your arbitrage property. If you want to know what to do after you’ve signed on the dotted line, read our Rental Arbitrage Guide, as it’ll give you step-by-step details on what to do next.
You Can Find Apartments that Allow Airbnb
By now, you’ve got a solid understanding of how to find apartments that will allow Airbnb arbitrage. Remember, things like picking your niche, pitching with the right angle, and knowing your market are crucial when getting into this game. If you’re stuck on any of the steps, try tools like Airbtics and AirDNA to get a more comprehensive understanding of which markets, property types, and amenities offer the best return on investment.
Happy subleasing!
