A lot of people don't know this, but it's actually possible to make money on Airbnb even if you don't own property. Through rent arbitrage, you can sublet a flat or a room in a flat and make money from Airbnb rentals. Lease arbitrage is becoming increasingly popular and can be a great way to make a residual or even full-time income.
But, before you get too excited about this model, you have to know how it works, some of its limitations, and some of the risks associated with it as well. Let's take a closer look at what is arbitrage exactly and how you can make it work for you.
What is Airbnb Rent Arbitrage Exactly?
What is rental arbitrage? Whenever you hear the term "arbitrage", it refers to any technique that allows you to act as a middle person. In this case, instead of dealing directly with a landlord, the person renting the Airbnb will be subletting from you. You act as the middle person between the landlord and the short-term renter.
While it might seem strange at first glance, it really isn't once you get past the surface. When you think about it, it is not that different from getting a roommate. The only difference is that you'll be constantly changing "roommates".
Now, why would a person rent an Airbnb through arbitrage? It's simple: they don't have to know. Nothing is forcing you to say that you're not the owner of the property. When people look at Airbnbs online, all they care about are things like location, price, the look of the place, and how much you're charging. So, if you can offer competitive prices and you're in a good area and the place looks nice, then you have a real chance of getting people.
Why Rental Arbitrage is Great for Tenants
Rental arbitrage is a great option for tenants on a budget who want to make some revenue. For instance, if you’re leasing a flat at £1500 per month and you can command about £100 per night for a room, then you could have your rent covered in 15 days. Everything else on top of that would be pure profit.
Your possible revenue will depend on how many rooms you can rent too. If you're renting a multi-story house with multiple rooms, then you could have all the ones you're not using on Airbnb and make a lot of money without making a big investment.
So, Rental Arbitrage is Easy Money, Right?
Not quite. There are some risks associated with this method and while our example may make it seem easy, it is a simplification. First of all, there is no guarantee that you'll be able to find tenants who will be willing to rent at the prices you want. It will all depend on where you live and other factors.
If you live in a city that is not known for tourism and you're in a less than desirable area on top of that, then you might struggle a bit with rental arbitrage. You also have to have a place that would be suitable for an Airbnb. One bad review could be enough to ruin your chances of getting more tenants, so you may not even have a chance at making money if the place is not up to par.
This will only work if you have a nice place that is well-maintained and that is up to standard with other ones around the same price point. So, before you even think of trying rental arbitrage, you will need to look at the other units where you are and see if you’ll be able to compete.
Is Rental Arbitrage Legal?
Is rental arbitrage legal? The short answer is, yes, it is. Airbnb arbitrage rental is 100% legal in the UK, but you first must make sure that your agreement with your landlord allows for it. You cannot use something like an Assured Shorthold Tenancy agreement to offer an arbitrage rental. You need to have a custom agreement with your landlord and let them know exactly how you're going to use the unit.
Remember this is still their place, not yours, so it's only right that they know what you're going to do with it. You also have to speak with them if you want to make modifications to the apartment to make it look more suitable for Airbnb rentals.
How Do I Get Started Doing Rental Arbitrage?
The first thing you have to ask yourself is whether you want to just rent out rooms from time to time and make some residual income or be in the arbitrage business. If all you want is to rent out rooms, then you can make the rooms you want to rent out as nice as possible and post them on Airbnb. There's not much else you'll need to do but this.
But if you want to start renting out multiple Airbnbs, things will get a bit more complicated. You must think about things like starting an actual company and looking at property management services. Services like UpperKey can help you stay on top of bookings, coordinate things like cleaning, and handle customer service as well. Working with a management team is the best way to ensure that you get good reviews from visitors, which is essential.
What Are the Risks Associated with Rent Arbitrage?
Many of the risks associated with rental arbitrage are the same as with Airbnb rentals in general, but some of them are specific to arbitrage.
For instance, any damage that is caused to the property will have to be covered by you and could end up ruining your relationship with your landlord. This will be a strike against you if you decide to sign another lease. They may decide to increase your rent significantly or flat out ask you to leave. So, you must know that you could end up without a lease and with a damaged flat, and you’ll have to compensate your landlord on top of it.
You then must know that revenue is far from guaranteed when it comes to rental arbitrage. Revenue will fluctuate depending on the season. There could also be disruption as we’ve seen which can further add to the uncertainty.
You also must sit down and see if you're ready for this. If you don't feel comfortable with roommates, what makes you think that you'll enjoy or be able to handle a constantly revolving door of strangers coming in and out? These are people you'll have to live around, and this could cause friction and discomfort. So, you have to make sure that you are the kind of person for this and also decide whether your space will allow for enough privacy for you to still feel at home.
How to Find a Landlord Who Will Accept Rental Arbitrage
You can’t start with rental arbitrage before you have an agreement, and not all landlords are crazy about tenants subletting their units as Airbnbs. So, you might have to work a lot harder to find actual units to rent. However, there are a few things that will help. First of all, you need to know where to look. Forget places like Zoopla and Rightmove if you want to find a landlord. These places often won’t let you speak to a landlord if it isn’t through a letting agent, and they are not too fond of people who do arbitrage.
Instead, you should check notice boards like openRent and Gumtree since they let you interact with landlords directly. Though there’s nothing that guarantees that you’ll get a deal, you’ll at least get a chance to put your case across.
One of the things that will help you find a landlord is your track record. If you can show that you are a responsible tenant and you have good credit, there’s a better chance that someone will accept your offer. From then on, you have to make sure that you manage your property properly, so you’ll have something to show to the next landlord you speak with.
This is again why it would be a good idea to work with a service like UpperKey if you feel like the business aspect is a bit too complex for you or you don’t fully understand Airbnb as a platform. It’s very easy to make small mistakes that don’t look like much to you but could have a huge repercussion on your income and your guests’ perception.
Working with a management company that is used to these kinds of units will allow you to benefit from all their expertise and offer the best experience possible in exchange for a small portion of your profit.
There is a lot that goes into running an Airbnb business of any kind, so we suggest that you do as much research as you can on the subject before you even think about starting with arbitrage. Know what kind of initial investment you’ll need to make, the risk to you and the property, and some of the things that will help you manage your units and finances better.
UpperKey: Rental Arbitrage Experts Offering Guaranteed Income for Property Owners
If you are tempted by the benefits of rental arbitrage but do not have time to manage your Airbnb listings, you could mobilize the services of UpperKey. We offer comprehensive Airbnb concierge services in Paris, meaning your Parisian rental property will be in good hands.
Property owners do not have to lift a finger while enjoying all the benefits of rental arbitrage like increased vacation rental income and full occupancy of their short term lets. UpperKey offers property owners a guaranteed rent year-round, whether the property is occupied or not. To find out more on how to make the most of your investment property, contact UpperKey for an estimate on how much you can earn through rental arbitrage.