Airbnb Arbitrage: Guide, Tools and Top Markets

Airbnb arbitrage is the easiest way to make money from real estate without buying and owning a property. That’s why it’s become a popular strategy among those with limited budgets or those not ready to commit to managing and renting out a property in the long run.

In this article, we will look at what the Airbnb rental arbitrage entails, how it works, how it is done, what the pros and cons are, and what real estate tools it requires. We’ll also provide you with tips on how to get started and succeed as well as the top US markets for short-term rental arbitrage.

What Airbnb Arbitrage Is

Airbnb arbitrage refers to renting a property from a landlord and subleasing it on a short-term basis, on a platform like Airbnb, Vrbo, or Booking.com. In this way, you are both a tenant and an Airbnb host who acts like a middleman between the landlord (the property owner) and the Airbnb guests.

What is great about Airbnb rental arbitrage is that it allows beginners to get a taste of real estate investing without the necessity to buy a property and commit to investment property ownership. As a result, it is a way to get into real estate with (almost) no money down. All the money that you need is to fix up the property (if necessary), furnish the vacation rental (if not already furnished), and provide the first round of supplies for guests.

How Airbnb Arbitrage Works

One of the key questions on the minds of those considering giving short-term rental arbitrage a go is how you make money with this strategy. The money that you pocket is the difference between the Airbnb income that you make from your guests and the rent that you pay to the original property owner besides all rental operating expenses.

To maximize your earnings from Airbnb rental arbitrage, you need to find a market and a property where the monthly short-term rental income significantly exceeds the monthly long-term rental income. You should also keep your operational costs low, without compromising the quality of the services and the experience that you provide to guests.

The monthly Airbnb income is determined by the average daily rate you charge and the occupancy rate that you can generate. To strike the right balance between the nightly rate and occupancy and to maximize your revenue, it’s important to apply dynamic Airbnb pricing. This means constantly adjusting the daily rate you ask for based on local seasonal supply and demand conditions.

Regarding the rent that you pay to the landlord, you can try to negotiate the rate before you sign a rental agreement. How much you’ll be able to bring down the rate depends on the state of the local rental market. If you’re operating in a hot rental market with a lot of demand from tenants and little supply from landlords, you’ll need to pay the originally advertised rental rate. If demand is weak, you might negotiate a few hundred dollars down.

Is Airbnb Arbitrage Legal?

Airbnb rental arbitrage is legal in the US housing market. However, you need to consider certain regulatory considerations when choosing a location and a property for this strategy.

First, when you look for a market where to start an Airbnb arbitrage business, check the local short-term rental laws and regulations. You need a city where non-owner occupied short-term rentals are allowed and do not meet limitations on the number of nights per year that you can rent out. You need a place that doesn’t require the Airbnb host to be the property owner or a property manager.

Second, you need to review the long-term rental contract and confirm that subleasing is not prohibited. Many landlords opt for preventing re-renting in order to preserve the wellbeing of their property. Even if the rental agreement does not explicitly state anything on the matter of arbitrage, it’s advisable to talk to the landlord and confirm that this is fine with them.

Last but not least, in case you rent a condo or another property governed by an HOA, you need to ensure that the HOA rules do not prohibit such activities. Many homeowners associations prohibit subletting and/or renting out on a short-term basis to maintain the safety and comfort of their residents and the good state of properties under their governance.

Once you check all these factors and confirm compliance, you should be ready with your Airbnb arbitrage project.

How to Do Airbnb Arbitrage

To get started with Airbnb arbitrage, follow this step-by-step process:

1. Determine Your Budget

The first step in any successful real estate investment is to set up a budget. You need to know exactly how much money you have available to invest in your Airbnb business. This is based on your savings and your income and expenses.

If your initial capital is rather limited, you can consider available Airbnb loans options. There are certain lenders who work only with short-term rental properties, covering things like furniture and other business expenses, not only buying a property.

2. Choose a Market

In Airbnb rental arbitrage, the location is as important as in any other real estate strategy. If you’re considering being a DIY Airbnb host, then you should check the macro-level real estate data in your local market. Make sure that short-term rental rates exceed long-term rental rates so that you end up with positive cash flow and good ROI.

In case you live in an area that’s not a popular tourist destination and is highly demanded by tenants, then you’d need to look elsewhere. Focus on markets that attract visitors year-round, whether leisure travelers or business travelers. Look for locations with affordable rents and high Airbnb average daily rate (ADR).

For the Airbnb part of the analysis, you can use the Awning Airbnb Market Data. You can access the average daily rate, the occupancy rate, and the annual revenue for any US market. Moreover, you can see the distribution of short-term rentals by the number of bedrooms to identify the most popular property size for vacation rentals.

3. Check the Short-Term Rental Regulations

After you’ve identified a potentially profitable location for Airbnb arbitrage, the next step is to review the Airbnb laws and regulations. You need to ensure that non-owner occupied short-term rentals are legal and can be operated by someone different from the property owner. Additionally, you need to know that you can rent out the property throughout the year, for as many days as you can get it booked. You should also familiarize yourself with the required short-term rental licenses and permits.

4. Look for Long-Term Rentals with the Potential to Convert Into Airbnb Rentals

The next step is the property search. Check out websites like Redfin, Realtor.com, and Rent.com to find rental listings in your selected market. Look for properties that have relatively low rental rates and that have the potential to convert into demanded vacation rentals. Focus on rental properties in central parts of the city, with amenities Airbnb guests like. Select a property that is as ready to be rented out to guests as possible; you don’t want to waste your time and budget on fixing up your landlord’s investment property.

Before you decide on a property to rent to sublet, figure out the Airbnb daily rate, occupancy rate, and revenue that you can expect to generate from this rental. You can use the Awning Airbnb Estimator. Simply enter the market, the number of bedrooms and bathrooms, the number of guests, and whether the property has a swimming pool and a hot tub. Immediately, you’ll get estimates of the short-term rental nightly rates, occupancy, and performance of comparable active listings in the market. Ensure that the difference between the vacation rental income and the rental rate you’ll have to pay to the landlord will be positive.

5. Review the Rental Contract and the HOA Rules

Once you’re ready with your choice of a property to start Airbnb arbitrage with, it’s time to contact the property owner and ask to see the rental agreement. If the property is within an HOA, ask for a copy of the HOA rules as well.

Review both carefully and make sure that renting out the property on a short-term basis is not prohibited. It’s recommended to talk to the landlord directly about your plans to sublease the property in order to avoid issues in the future.

6. Sign the Lease

If everything looks good on the legal side, you are ready to sign the rental contract. In case the local rental market is not too hot, it’s worth trying to negotiate the rental rate down with the property owner. This will help boost your Airbnb rental arbitrage income and profit.

7. Prepare the Property for a Vacation Rental

Unless you get a furnished rental, you’ll need to take care of this. Airbnb furnishing costs can run between $1,000 on a small budget and $50,000+, depending on your budget, property size, and expected quality. Since you don’t own the property, it’s not a good idea to go for a luxury experience. Look for furniture that covers the basic needs of guests for a comfortable stay without going overboard. You can consider hiring one of the best Airbnb furnishing companies. They’ll be able to get you a good deal on the furniture prices, and they usually include their fees in the comprehensive furnishing budget.

In parallel, you need to work on obtaining any necessary short-term rental permits and regulations. Most US cities require some sort of permit to operate an Airbnb business, and getting it might take anything from a few hours to a couple of months. It depends on the local requirements and procedures.

8. List on Airbnb

Listing your property on Airbnb is probably the most exciting part of starting Airbnb arbitrage. Now is the time to create an outstanding listing that shows all the positives of the space you’re offering. Focus on high-quality photos, Airbnb SEO-optimized listing title, detailed listing description, and all amenities. It’s advisable to include search suggestions in the description and to provide a guestbook.

Airbnb recommends turning on Smart Pricing and Instant Book for maximum ranking results. The former means that the Airbnb pricing mechanism will automatically adjust the nightly rates of your property based on seasonality, and the latter means that bookings by certain types of guests will be automatically approved, without your interference.

9. Choose How to Manage Your Airbnb Property

Finally, you need to decide if you want to manage the short-term rental yourself or find a trustworthy Airbnb manager. This depends on your proximity to the property, your availability, and your hospitality experience. If you don’t think you can devote enough time and energy to this, it’s worth considering hiring a vacation rental property management company. Unless everything runs smoothly with your Airbnb arbitrage business, you won’t be able to optimize occupancy and revenue.

Airbnb Arbitrage Pros and Cons

Like any other real estate strategy, short-term rental arbitrage comes with positives and negatives. Let’s look at them:

The main advantages of Airbnb rental arbitrage include:

• No property purchase: There is no need to buy an investment property, which can be a lengthy, tedious, and expensive process.
• No property ownership: As you don’t buy a property to rent out, you don’t need to commit to real estate investments in the long term.
• Flexibility: If you don’t enjoy being an Airbnb host or if your Airbnb business is not profitable enough, you can simply complete the lease and stop. All you have to do is to make sure that you inform the landlord early on. There is no need to resell a property.
• No long-term risk: Airbnb arbitrage is arguably the safest investment strategy. The startup costs are minimal, and there is an easy exit should you decide to discontinue.
• No long-term debt repayment: Because you are not buying a house, you don’t need to worry about monthly mortgage payments.
• Quick entry into real estate investing: You can get started with Airbnb rental arbitrage in a couple of weeks. As soon as you find a profitable market and a good property and get it ready for renting out, you can start making money.
• Easy way to make money from real estate: With this strategy, you eliminate the need to worry about mortgage research, hiring an agent, getting pre-approved, or paying closing fees.
• Learning process: If you’re a beginner, that’s a great way to get first-hand experience in real estate without committing in the long run. You’ll learn all you need to know about being an Airbnb host and can decide if this is the right thing for you.

The most important disadvantages of this strategy to take into consideration are:

• Limited furnishing and upgrading options: As you don’t own the property, you might face some limitations in how you can upgrade it to turn it into a vacation rental. You’ll need the owner’s permission for anything beyond basic furnishing.
• No appreciation: Since this is not your house, you will not make money in the long term from real estate appreciation. All the money you make is from Airbnb income.
• Issues with the landlord: Short-term rental guests bring significant wear and tear, which might cause problems with the property owner. Make sure that you have their agreement on running an Airbnb business out of their rental in advance and that they know that you’ll take care of any property damage.

Airbnb Arbitrage Contract

To run an Airbnb arbitrage business, you need to sign two types of contracts: 1) A rental agreement with the owner of the property allowing Airbnb arbitrage and 2) A short-term rental agreement with each guest.

Lease Agreement

When you rent the property from the owner, you need to sign a rental contract. This should have all the standard information like the rights and responsibilities of both the landlord and the tenant, according to local laws and regulations. The monthly rental rate should be clearly stated, and the process for raising rent should be specified. Again, it is important to check the local short-term rental laws and regulations before going down this path.

Also, make sure to triple check with the HOA, if the property is part of one, that short term rentals are ok.

However, in addition, you need to include a clause which explicitly allows you to sublet the property on a short-term basis. In this way, the landlord acknowledges their permission.

Airbnb Rental Agreement

You should prepare a short-term rental agreement template that you ask all your guests to sign prior to check-in. This agreement should clearly state all their rights and responsibilities during the stay and your rights and responsibilities as a host.

Airbnb Arbitrage Tools

Doing all the work associated with starting and running an Airbnb rental arbitrage business is a very labor-intensive process. That’s why you should get access to the best real estate tools to help you optimize the process and the performance of your rental.

Here are the most important tools that will make your work not only easier but also more profitable:

• Awning Airbnb Market Data: You can use the short-term rental market data available on the Awning website to evaluate the expected performance of an Airbnb property in your location of choice. This will save you months of Airbnb market research and data analysis.
• Awning Airbnb Estimator: The Airbnb calculator available on Awning helps you forecast the daily rate, the occupancy rate, and the annual revenue you’ll be able to generate from any type of property in any US market. This removes the guesswork from Airbnb arbitrage.
• Awning Vacation Rental Furnishing Services: If you don’t have the time or the knowledge to furnish the property, Awning can help with this. Awning furnishing budget starts at about $15,000.
• Awning Vacation Rental Insurance: Awning can provide you with short-term rental insurance to cover both damage and liability.
• Smart Pricing: To optimize the results of your Airbnb arbitrage business, you should dynamically adjust the daily rates when renting out. The Airbnb platform provides an in-built tool called Smart Pricing which can do that for you. Nightly rates will be constantly adjusted to reflect supply and demand trends in the local vacation rental market.
• Airbnb Automation Tools: If you want to be an Airbnb host and manage the property yourself, get access to automation tools. They will help you optimize listing, marketing, pricing, revenue management, and tax collection.
• Awning Vacation Rental Property Management: If you live out of state or don’t have the time to manage a short-term rental, you can hire Awning to do all the work for you. As a full-service Airbnb management company, Awning charges an industry-low fee of 15% of revenue, while providing the best services in the US market.

Airbnb Arbitrage Tips

In order to start your short-term rental arbitrage business on the right foot and maximize its performance throughout, follow these tips:

• Make a budget and stick to it
• Conduct diligent rental market research and analysis
• Get to know all applicable laws and regulations and comply with them at all times
• Use different sources to search for rental properties
• Run all the numbers before signing any agreements
• Negotiate the monthly rental rate with the landlord
• Sign a written rental contract with the property owner
• Ask guests to sign a written agreement before their stay
• Get additional vacation rental insurance
• Furnish the property in a welcoming matter without going overboard
• Apply dynamic Airbnb pricing
• Continue optimizing the Airbnb listing for SEO
• Work actively on getting positive reviews from guests
• List on additional platforms like Vrbo and Booking.com
• Automate short-term rental property management with the best tools
• Look for ways to minimize Airbnb rental arbitrage business expenses
• Consider hiring a professional Airbnb manager

10 Best Airbnb Arbitrage Markets

To help you get started with your short-term rental arbitrage endeavor, we’ve put together a list of the best Airbnb markets for this strategy. The ADR, occupancy, and revenue data are provided by Awning.

Chattanooga, TN: Best Airbnb Arbitrage Market for Beginner Hosts

• Average Daily Rate: $122
• Occupancy Rate: 68%
• Annual Revenue: $21,000

Chattanooga, Tennessee is one of the best possible locations in the US to start a short-term rental business. The city benefits from its geographical location along the Tennessee River and by the Appalachian Mountains, which guarantees year-round demand for various types of Airbnb rentals. Rental rates and other operating expenses are affordable, while Airbnb nightly rates and occupancy are excellent. Chattanooga, Tennessee short-term rental laws are restrictive, but operating a short-term rental business is still possible and highly profitable.

Gatlinburg, TN: Best Airbnb Arbitrage Market Near the Smoky Mountains

• Average Daily Rate: $227
• Occupancy Rate: 73%
• Annual Revenue: $42,000

Gatlinburg, Tennessee is a top tourist destination because of its location within the Great Smoky Mountains National Park. This is by far the most popular national park in the US, bringing millions of visitors every year. Hiking, walking, biking, swimming, and skiing are just some of the outdoor activities that attract tourists. Importantly, the Gatlinburg Airbnb laws are very conducive.

Naples, FL: Best Airbnb Arbitrage Market on the Gulf of Mexico

• Average Daily Rate: $212
• Occupancy Rate: 67%
• Annual Revenue: $31,000

Naples, Florida is an excellent location for Airbnb arbitrage. Its strategic location on the Gulf of Mexico provides access to white sand beaches, dolphin-spotting, fishing opportunities, and various water sports. The outstanding golf courses and the ample shopping options also contribute to making Naples one of the hottest tourist destinations not only in the Sunshine State but also across the US. Naples has some of the most Airbnb friendly local regulations in the State of Florida.

Kissimmee, FL: Best Airbnb Arbitrage Market Near Walt Disney World

• Average Daily Rate: $170
• Occupancy Rate: 77%
• Annual Revenue: $32,000

Kissimmee, Florida is one of the best places to run a vacation rental business because of the year-round demand for hospitality and accommodation by those visiting Walt Disney World and Universal Studios. Florida short-term rental laws require a state-level permit, and Kissimmisee allows vacation rentals only in certain zoning districts. However, the above-average Airbnb daily rates and occupancy rate bring high profitability to Airbnb hosts.

Blue Ridge, GA: Best Airbnb Arbitrage Market for Nature Experiences

• Average Daily Rate: $170
• Occupancy Rate: 77%
• Annual Revenue: $32,000

Blue Ridge, Georgia is a mountain town that offers beautiful scenery, outstanding nature, and multiple options for outdoor sports. The town has a vibrant arts and crafts scene which makes it even more attractive for short-term visitors. Blue Ridge, Georgia short-term rental laws are positive, with some zoning restrictions.

Atlanta, GA: Best Airbnb Market in a Historical City

• Average Daily Rate: $125
• Occupancy Rate: 55%
• Annual Revenue: $12,000

Atlanta, Georgia benefits from rich history with many remaining historic sites and monuments, attracting tourists from near and far. Among major US cities, Atlanta has some of the best Airbnb laws which allow long-term tenants to engage in short-term rental arbitrage. The Airbnb data is good.

Galveston, TX: Best Airbnb Arbitrage Market for Waterfront Destination Experiences

• Average Daily Rate: $180
• Occupancy Rate: 48%
• Annual Revenue: $24,000

As a coastal resort, Galveston, Texas is another popular tourist destination that makes for an excellent location to start an Airbnb arbitrage business. Demand for vacation rentals is never an issue, while the Galveston, Texas short-term rental laws are friendly for hosts. Trails, kayaking, fishing, bird-watching, seeing sharks, and amusement rides are just some attractions that bring visitors.

Asheville, NC: Best Airbnb Arbitrage Market in a Vibrant Art Community

• Average Daily Rate: $142
• Occupancy Rate: 69%
• Annual Revenue: $26,000

Asheville, North Carolina offers both outstanding nature and an excellent art and culture atmosphere. The city is known for its vibrant arts scene and historic architecture. It’s within the Blue Ridge Mountains, which makes it a top mountain city destination. Asheville, North Carolina short-term rental laws restrict this strategy to the resort zoning district, so you need to look for a property within this area to sublease on Airbnb.

Gulf Shores, AL: Best Airbnb Arbitrage Market for Beaches

• Average Daily Rate: $196
• Occupancy Rate: 68%
• Annual Revenue: $34,000

On the Gulf Coast, Gulf Shores, Alabama is one of the most popular beach destinations across the US. The trails, the pier, the golf course, and the Alabama Gulf Coast Zoo provide everything that year-round visitors need. Meanwhile, Gulf Shores, Alabama short-term rental laws are significantly less limiting that those in other top Airbnb markets.

Sedona, AZ: Best Airbnb Arbitrage Market Near the Grand Canyon

• Average Daily Rate: $228
• Occupancy Rate: 78%
• Annual Revenue: $44,000

Its strategic location close to the Grand Canyon has turned Sedona, Arizona into one of the most popular cities for travelers across the US market. Importantly, the Sedona, Arizona short-term rental laws are friendly for Airbnb hosts. The vacation rental data is excellent, reflecting strong occupancy, high ADR, and amazing income.

Takeaway

Airbnb arbitrage is an increasingly popular strategy which allows just about everyone to make money from short-term rentals. What is required is to find a market and a property for which vacation rental income exceeds long-term rentals rates and where Airbnb is legal. For optimal results, hosts are advised to use the best tools for rental property analysis and management.