An Updated Guide On Airbnb Arbitrage (2024)

How to Get Started with Airbnb Arbitrage? Pros & Cons and How It Works

Running an Airbnb business typically involves renting out your property for short term stays. However, given the rising costs of real estate in 2024, the barrier to owning a property has become increasingly difficult due to rising prices, stricter lending criteria, and economic uncertainty. Given this, many business-savvy people who want to get into the property business are looking into Airbnb arbitrage as a lucrative alternative in 2024.

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What Is Airbnb Arbitrage

Airbnb Arbitrage is the practice of subletting a property through Airbnb. Unlike the traditional set up of renting out a property you own on Airbnb, Airbnb arbitrage is renting out property which you yourself are renting.
While you pay for long-term rent of the space, you’re renting it out for short-term stays. Though the profit margin may seem small, it is actually quite the opposite! Many have reported generating profits that exceed 50% of their monthly rent, with some even doubling their investment in high-demand areas. The key is to strategically market and price your Airbnb rental with respect to your lease.

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Pros & Cons of Airbnb Arbitrage

Though the idea of subletting properties for profit can seem like a simple and even brilliant idea, the benefits do not come without risks and drawbacks. Here is a breakdown of the pros and cons of Airbnb arbitrage to help you make an informed decision of whether this path is for you.

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Benefits of Airbnb Arbitrage

Lower Upfront Investment

When you rent another homeowner’s property and sublease it on Airbnb, you’re saving yourself from having to purchase a property yourself. This allows you to start your business with significantly lower startup costs, which is an advantage if you want to get things moving quickly or if you don’t have enough funds or liquidity to get started.

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Less Risk

Because Airbnb arbitrage does not require purchasing real estate, you are not committed to one location or property, just to a lease. This lowers the risk of starting your Airbnb business. With lower starting capital comes smaller potential losses, which can be a great gateway for new or cautious business owners.

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Scalability

Because of the low-cost and low-risk nature of Airbnb arbitrage, an Airbnb host can potentially gain more cash flow, which gives them the elbow room to sublet more properties and scale their business.

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High Income Potential

As an Airbnb host scales their business, the amount of cash flow can also increase, which can increase income and make their Airbnb business more profitable.

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Control over Guest Experience

Though you’re subletting, you’re still the Airbnb host, giving you full control over your guest experience. This means that you can manage everything from marketing your Airbnb and communicating with guests to ensuring they have a good stay and asking for reviews. Such control is beneficial in helping you maximize your Airbnb’s earning potential even if the property is not yours.

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Risks & Drawbacks of Airbnb Arbitrage

Risk of Lease Violations

When you rent a property from a landlord, you’re entering into a contractual agreement, with conditions which may or may not allow subleasing or subletting. It’s important to take note of these provisions in a rental contract before signing or deciding to sublet a property. Failing to do so may result in lease violations that can lead to eviction and legal penalties.

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Growing Competition

If you’re thinking Airbnb arbitrage has a high income potential, you’re not the only one. The business model is used by thousands of investors around the globe, especially in high-traffic or touristy areas. The profitability of Airbnb attracted many business-savvy individuals, making competition tight. Entering into such a business with a fixed cost (rent) can be risky.

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Low Rental Yield

Airbnb arbitrage can make money when your Airbnb income exceeds your monthly overhead. That means you need a certain number of bookings per season to breakeven and even more to make profit. Ensuring a high occupancy rate may sound easy, but high competition can make attracting guests almost impossible. And with lower rental yield comes lower income.

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Inconsistent Income

Airbnb is a short-term rental platform, which means that there is no fixed number of bookings your property is going to get on a regular basis. For most locations, the demand is seasonal. Fluctuating bookings lead to inconsistent income, which is a drawback for business owners looking for a steady and reliable cash flow.

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Regulation Changes

The legality of Airbnb arbitrage varies from location to location and property to property. The situation greatly depends on the local regulations, as well as the homeowners association and landlord’s contract.
Even if you initially enter into a contract with a landlord wherein subleasing is allowed, regulations can always change — and that’s not within your control. Should this happen, managing your Airbnb opens up many liabilities that should be carefully considered.

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How To Get Started

If you’ve determined that Airbnb arbitrage is the right way to go, then here’s a step-by-step guide on how you can get started.

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Step 1: Check Regulations.

Before getting into Airbnb arbitrage, you want to check all legal and regulatory requirements in your area. Some areas like New York City,  Barcelona, Paris, and more have areas where short-term rentals are illegal. Finding this out early on is key before you get any deeper in the business.

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Step 2: Align With Your Landlord.

Next, you want to discuss things with your landlord. Though the area allows short-term rental, it does not necessarily mean you’re allowed to sublease or sublet a landlord’s property that they are renting out to you long-term. As such, it’s important to make sure your landlord knows of your plan and allows this before you proceed. In that case, consider amending your rental lease to reflect changes in your rental agreement.

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Step 3: Do Your Market Research.

Before starting your Airbnb business, you need to run some research on the location, seasonality, and market rate for your type of property and area. These factors will determine your pricing and how you can best market your business to attract guests.

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Step 4: Plan Your Budget.

Airbnb arbitrage is a form of business, and will require a budget to get started. When preparing your budget, make sure to account for not only rental and utilities, but also for any renovation, furnishing, cleaning and housekeeping costs, regular maintenance, application fee, insurance, and permits and licenses needed.

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Step 5: Prepare Your Airbnb Property.

With your budget in place, it’s time to renovate your Airbnb property. This may involve getting the place repainted, buying furnishings and toiletries, or installing certain utilities like a WiFi or heating system that will elevate your guest experience. You also want to find professional housekeeping and maintenance services to tap into whenever you need them.

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Step 6: Create and Manage Your Listing.

With your property ready to accommodate guests, it’s time to list your property on Airbnb and optimize it for greater audience reach and to boost bookings. This process involves crafting a captivating yet descriptive title for your listing, writing detailed, realistic descriptions of your property that attract your target audience, and uploading high-resolution images that accurately display your property from the inside and out. It also involves accounting for marketing factors, such as dynamic pricing, free cancellations, overnight stays, and making your property cater to particular audiences like business travelers or families.

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Step 7: Manage Your Airbnb Property.

With your listing up and running and your property ready to accommodate guests, all that’s left is to manage your property by providing excellent guest communication, coordinating cleaning and housekeeping services, getting regular maintenance, and getting five-star reviews on Airbnb that will earn you that Airbnb Superhost title and get you more bookings!

Running an Airbnb arbitrage business can be challenging. With many elements to oversee, hosts can easily miss out on certain details which may negatively impact guest experience and reduce Airbnb bookings. At HostKudo, we make Airbnb hosting a stress-free experience for business owners like you. We’ll handle everything from guest communications to getting reviews from your guests, so you can focus on more important things like scaling your business while your Airbnb business makes you money!