airbnb-arbitrage

What is Airbnb Arbitrage?

Airbnb arbitrage is a business model where the renter of a house or apartment sub-lets the property to Airbnb users. This is a model where the Airbnb arbitrageur can transform a long-term rental, with the main property owner, into a short-term rental, with higher rates and margins.

Understanding Airbnb arbitrage

One of the most common misconceptions about the Airbnb platform is that one has to own property to make money.

Airbnb arbitrage, also known as rental arbitrage, enables renters to leverage other people’s properties and sub-let them to Airbnb users.

Airbnb arbitrage is based on a centuries-old system of arbitrage where one buys low with the intention to sell for a profit.

In this context, consider an individual who rents an apartment in a popular tourist city for $3,000 per month.

The individual lives alone, so they decide to sub-let the spare bedroom on Airbnb for $150 per night.

Assuming the spare bedroom is booked out for the full month, the renter can earn $4,500 or $1,500 in profit before fees and other overheads such as utilities.

Even if the room was only booked for 20 days out of 30, the individual can easily cover their rent. 

Is Airbnb arbitrage legal?

Airbnb arbitrage is legal in most cases, but it pays to check short-term rental laws which seem to be in a constant state of flux around the world.

Those interested in the business model are not immune from laws around how often a room can be rented out on a monthly or annual basis.

More important to the success of Airbnb arbitrage is permission from the landlord.

Some explicitly prohibit the practice in the rental agreement, while others are open to the idea but may need to be convinced of its merits. 

Some tips on how to achieve this include:

  1. The individual can show the landlord that by sub-letting, they have a vested interest in the maintenance of the property. In other words, scuffed walls and cobwebs in the cornices are not good for business or 5-star reviews on Airbnb.
  2. The landlord could also be informed that since Airbnb arbitrage is a lucrative and sustainable business model, the tenant will never miss a rent payment.
  3. To appease landlord concerns over who may be staying at their property, the renter could also screen problematic guests or utilize tools such as Alexa Guard. This feature of Amazon Echo detects unauthorized parties and avoids undesirable noise.

Airbnb arbitrage best practices

The Airbnb arbitrage business model appears simple on paper, but several best practices will maximize its effectiveness:

  • Choose cities wisely – the most profitable cities for Airbnb arbitrage are popular with tourists but with relatively low hotel room availability and housing costs. Cities that are tourist hotspots tend to be saturated with Airbnb accommodation. 
  • Be aware of expenses while it is possible to make a profit with sub-letting, there will be initial and ongoing expenses. These include additional utility and cleaning costs, furniture for the guest bedroom, insurance, and other supplies such as toiletries and linen. It is also important for renters to have a financial safety net in place should the arbitrage adventure turn out to be less profitable than first thought.
  • Use automation where possible – unless the sub-let is to a long-term tenant, the renter may find dealing with multiple guests to be time intensive. To make property management more efficient, tools can help automate processes such as guest communication, check-in, bookkeeping, and the scheduling of cleaning. 

Key takeaways:

  • Airbnb arbitrage is a business model where the renter of a house or apartment sub-lets the property to Airbnb users. It is based on a centuries-old system where one buys low with the intention to sell for a profit.
  • Airbnb arbitrage is legal in most cases, but it pays to check short-term rental laws which seem to be in a constant state of flux around the world. In most instances, it is more important to get the permission of the landlord before proceeding.
  • To maximize the effectiveness of Airbnb arbitrage, it must be treated as any other business. The renter must perform market research to choose cities wisely, be aware of expenses that could eat into profit, and use automation to make property management processes more efficient.

Read Next: Airbnb Business Model

Read Also: Amazon Arbitrage

Related to Airbnb

Airbnb Business Model

airbnb-business-model
Airbnb is a platform business model making money by charging guests a service fee between 5% and 15% of the reservation, while the commission from hosts is generally 3%. For instance, on a $100 booking per night set by a host, Airbnb might make as much as $15, split between host and guest fees. 

Is Airbnb Profitable?

is-airbnb-profitable
In Q3 2022, Airbnb recorded its most profitable quarter ever. With revenues of $2.89 billion in Q3 2022, Airbnb posted a record of $1.21 in net income. The first nine months of 2022 posted revenues of $6.5 billion and a net income of $1.64 billion. Thus Airbnb will be profitable in 2022.

How Much Does Airbnb Take?

how-much-does-airbnb-take
Airbnb’s take rates, also called fees, that the platform charges to hosts range between 15-20%. In Q3 2022, Airbnb’s take rate was around 18.5%, compared to 18.8% in 2021 on almost a hundred million nights booked over the platform. Airbnb’s gross booking value per night was $156.44 in Q3 2022, and the total gross booking value was $15.6 billion.

Airbnb Business Model Economics

airbnb-business-model-economics
In 2021, Airbnb generated enabled $46.9 Billion in Gross Booking Value, and it generated $6 Billion in service fee revenues. On 2021, there were $300.6 Million Nights and Experiences Booked, ad an average service fee of 12.78%, at an Average Value per Booking, $155.94.
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