Rental Arbitrage: How to make money on Airbnb 2021
(without buying property)
What is Airbnb Rental Arbitrage?
Rental arbitrage is the act of renting a property longer term, to re-rent it on a short let basis in order to turn a profit. So how does it all work?
Property prices have soared over the last decade particularly, and when compared with the trajectory of the average salaries, most countries are experiencing a growing gap. Looking at the ratio of house prices to salaries in the US and the UK, we can see that clear upward trend; a trend often more exaggerated in ‘popular’ rental markets with a ratio of 8.5 in New York City for example.
US house price to income ratio
UK house price to income ratio
With this ratio rising, so is the difficulty of buying property to flip or rent for profit. As a result, some people have turned to taking out longer term leases on property instead of buying, in order to let for profit on a short-term basis on platforms like Airbnb and HomeAway. As a business model, rental arbitrage requires little investment with a reduced risk, whilst providing some cash flow — and yes, it’s entirely legal.
Going back to the graphs, both show a real rental arbitrage business opportunity. And one of the best places you can implement this idea is on Airbnb. So, let’s see how to make airbnb arbitrage.
Airbnb Rental Arbitrage Methodology
So what does this look like in practice? Let’s look at Phoenix as an example of the lease arbitrage:
2 bedrooms single family units in Phoenix:
| Return on investment (gross)* | ||
|---|---|---|
| Purchase price | $332,896 | |
| Long term rent (anualized) | $20,064 | 6% |
| Short term rental revenue (based on 2019 numbers) | $34,573 | 10% |
| Delta | 72% | 72% |
*Note that for an accurate return on investment analysis you need to compute the cost of operating a long term rental vs. a short term rental.
As you can see, by doing an airbnb rental arbitrage in this example on Phoenix we can get a 72% return on gross investment.
- To get an idea of the performance of short term rentals performance on Phoenix, go to the Phoenix Dashboard.
I suggest you check out these tools/posts:
- Do an Airbnb market research → Free Dashboard
- Understand the Seasonality of the arbitrage business → Seasonality Performance
- Find Profitable Properties for Rental Arbitrage → Airbnb Calculator
- Define your operation type → Management Companies or Sole Property Manager
- List Your Property on Airbnb → What Makes a Good Vacation Rental Listing?
How much can you make doing rental arbitrage?
To see how much you can make doing Airbnb rental Arbitrage, you should check our Airbnb Calculator. In this tool, you can put the address and the type of property you want to rent and you’ll get an estimate.
Check the Airbnb Income Calculator
Now, let’s see an estimate based on the city you are interested in:
The Best Cities for Rental Arbitrage in the United States
Using Transparent’s Dashboard (try it for free) we were able to create a ranking of the top cities to do Airbnb Arbitrage. Transparent analyse 35 million Airbnb, Vrbo & booking.com vacation rental listings worldwide to deliver powerful data insights through an actionable dashboard. So you can trust the data you’ll see next.
Top 6 arbitrage potential:
Other interesting places with airbnb arbitrage potential:
Is Airbnb rental arbitrage legal?
Airbnb rental arbitrage is legal in most places, but check the short-term rental regulations where you live. Short-term rental laws that govern the rental arbitrage business model are evolving in most large cities across the world, so you’ll want to be up to date.
Some limitations to consider:
- Number of nights annually
- Number of airbnb properties on the building,
- hospitality license (required in some cities).
Also, make sure that the landlord (that you rented the property from) allows short-term and vacation rental arbitrage. This is extremely important.
Do I need an Airbnb rental arbitrage contract?
After you selected a property (use the Airbnb Calculator to select one) and before signing the lease agreement, you should inform your landlord. Although doing rental arbitrage or lease arbitrage is completely legal, is advisable to get everyone on the same page.
Having a rental arbitrage contract will also protect you in case of any misunderstanding in the future.
Check the law in your city as in some you’ll need a contract and in others you don’t.
Free Smart Rental Data Dashboard
With a free account on our Smart Rental data dashboard, you can access high level data on the revenue returned by an average property in any area worldwide. You can even learn the average occupancy and daily rate for properties in any location.
In order to review investment opportunities more granularly, you can filter further; by type of property, amenities, bedrooms etc by upgrading to a PRO account.
Request a Smart Rental PRO demo- Contact us
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