Tons of get-rich gurus talk about owning property and getting into the real estate market, but only very few people mention the risks involved.
Those who truly know how to invest prefer passive income and rental arbitrage over being a property owner.
Rental arbitrage, or the short-term rental business, is a great side hustle that brings in extra income without too many unnecessary risks.
You use a long-term lease to make some quick cash and if done correctly, it can be a sustainable business model.
As easy as it seems, rental arbitrage is only successful if you have the right strategy, tools, and know-how. And that’s what we’re going to cover in this article.
- What Is a Rental Arbitrage Business?
- How Profitable Is a Rental Arbitrage Business?
- What You’ll Need to Start a Rental Arbitrage Business
- Why You Should Consider Starting a Rental Arbitrage Business As a Side Hustle
- How to Start a Rental Arbitrage Business in 6 Simple Steps
- Things to Consider When Starting a Rental Arbitrage Business
- Similar Businesses to Consider
- Frequently Asked Questions
- Wrapping Up
What Is a Rental Arbitrage Business?
Rental arbitrage is when you rent a piece of property from a landlord, like an apartment, and then rent it out to another person for a short amount of time.
This is usually done through the Airbnb rental arbitrage, but can also work with other channels.
In other words, you can generate money from long-term rentals by renting them out as short-term rentals.
How Profitable Is a Rental Arbitrage Business?
The rental arbitrage business model is highly lucrative but how much profit you make depends on the city you’re in.
It’s tied to the average monthly rent and nightly rates in the area.
For example, let’s say you get a piece of real estate property that costs $2000 monthly rent.
If the average price of one vacation rental night is $400, you can cover the cost of a whole month in just five days.
Any income after that is pure profit. With enough bookings, this rental arbitrage model can be highly profitable.
What You’ll Need to Start a Rental Arbitrage Business
It doesn’t take much to start a short-term rental business. The most important things to start with are:
- An investment property that you can lease for long term
- Upfront costs as a tenant renting for a long period
- A mobile device with an internet connection to create Airbnb platform listings
- A method of accepting tenant payments, such as Paypal or Stripe
Do I Need a License or Certificate to Start a Rental Arbitrage Business?
It depends on the laws of the city or state you’re in but most locations don’t require a license or certificate.
Why You Should Consider Starting a Rental Arbitrage Business As a Side Hustle
The rental arbitrage business is a great side hustle for making extra cash or even as a main source of income. Here’s why:
- Minimal Risk: Since you don’t own the investment property, you’re not affected by home prices and housing market fluctuations.
- Little Upfront Costs: It costs very little to get started, especially since you don’t need to buy the property.
- High-Profit Margins: In some cases, you can easily cover the upfront costs in just a few days because of the high-profit margins.
- Easily Scalable: You can easily rent more properties and expand your business in different cities and states.
How to Start a Rental Arbitrage Business in 6 Simple Steps
The first thing you need to do is consider what channels you’re going to use to promote your vacation rental property.
Airbnb is the easiest and most used platform, plus it has a large Airbnb community so you’ll reach more people.
Let’s say you’ve decided on Airbnb. Now, here are the 6 steps you need to start a rental arbitrage business.
1. Check Local Laws
Check short-term rental laws in your city or state. Some areas don’t allow Airbnb rental arbitrage or short-term rental vacation rentals so this first step can save you lots of time and money.
2. Conduct Research on Real Estate Property in the Area
Take your time with real estate market research. It’ll determine how much money you can make and how feasible your short-term rental business will be.
You might already have a rental arbitrage property you want to rent out or you might be new to Airbnb arbitrage and considering rental properties in different cities.
Either way, you’ll need to determine the average cost of long-term rentals vs short-term rentals in those areas.
Don’t forget seasonality and market conditions which are crucial factors for Airbnb arbitrage. All these will ultimately determine your return on investment (ROI).
Local real estate agents can help you make more accurate estimates.
3. Your Landlord’s Approval
Not all landlords agree to Airbnb arbitrage. It’s important to check with them before starting a short-term rental business.
Most landlords will revise leasehold agreements to include short-term rentals before allowing rental arbitrage.
Your landlord might not be too keen to have random people walking in and out of their rental property regularly so have a good proposal ready.
4. Rental Arbitrage Contract
A rental arbitrage contract will highlight things between you and your landlord like profit-sharing, advanced notice of guests, and extra security deposit or down payment.
Remember, to your landlord, you’re responsible for everything that happens to the property during short-term rentals. Not the guests.
You might want to get short-term rental business insurance to cover things from property damage to thefts and natural disasters.
For Airbnb rental arbitrage, the platform will reimburse you if guests cause any property damage during short-term vacation rentals. It’s part of their Host Liability Insurance agreement.
5. Calculate Your Start-Up Costs
To run a successful vacation rental business, you need to calculate your start-up costs before you dive in. Starting costs can include things like:
- First month’s rent
- Security deposit and down payment
- WiFi and utilities
- Repairs, cleaning services, and maintenance if required
- Legal fees
- Decor adjustments to make the property more guest-friendly
6. Take Pictures and Create Airbnb Listings
Now that your investment property’s ready for short-term rental, you’ll need to take high-quality photographs of the property.
Use these to create listings on Airbnb or other short-term rental platforms highlighting the best features.
The better your rental property looks, the more bookings you’ll get and the more money you can make.
Things to Consider When Starting a Rental Arbitrage Business
Before you start an Airbnb rental arbitrage business, there are a few factors you need to consider:
- Landlord Alignment: You’ll need to make sure your landlord is on-board and will be profiting from the short-term rentals. Otherwise, they might consider cutting you out of the equation and pursuing it themselves.
- Seasonality: Some properties are more popular during summer vacation while others are popular year-round. Determine which one your target property will be before you invest.
- Rent Payments: Whether your short-term tenants pay or not, you’re obligated to pay your monthly rent to your landlord.
- Upgrades and Repairs: You might need to make a few adjustments or upgrades to set a theme for guests and generate more bookings.
Similar Businesses to Consider
While short-term vacation rentals are a great side hustle, there are other businesses you can start to make some extra cash.
Here are a few options:
- How to Start a Rental Property Business: If you already own a property, you can turn it into a rental property business. Landlords make serious money from short and long-term rentals!
- How to Start a Real Estate Business: You can make money flipping properties or you can become a wholesaler or real estate agent.
- How to Start a Car Wrapping Business: A high-profit business with an annual income well above that of the average person. Your revenue can multiply exponentially as you hire more employees and take on more car jobs.
Frequently Asked Questions
Is Airbnb Rental Arbitrage Legal?
In most cities and states, yes. It depends on the HOA rules and laws for short-term rental in the area you live in.
Some towns might require you to get a hospitality license for Airbnb arbitrage.
Also, make sure the lease agreement between you and your landlord allows short-term vacation rentals or discuss amending it.
How Do I Convince My Landlord to Allow Short-Term Vacation Rentals?
One of the best ways to convince your landlord is to share some of the income from renting the property.
As a long-term tenant, you can gain your landlord’s trust by sticking to payment schedules and keeping the place clean.
What Are the Best Cities for Rental Arbitrage?
It depends on market conditions but generally speaking, some of the best cities are Savannah, GA, Charleston, SC, New Orleans, LA, Nashville, TN, and Jacksonville, FL.
Rental arbitrage is a great way to make money from properties you don’t own.
It requires meager start-up costs, is easily scalable, and has lucrative profit margins. All you have to do is pick a property and follow six easy steps.
Let us know what you think in the comments. If you liked this article, share it so others can start their own arbitrage business, as well!