What is Airbnb arbitrage? It might sound complex but it is a lot simpler than you think. Most people assume that in order to make money on Airbnb you either have to own the property you are renting out or help manage the owner’s property for a percentage of the profits. However, there is another option which people seem to be far less aware of. The third option to which I am referring is Airbnb arbitrage.
The idea is pretty simple. You as the aspiring Airbnb host would approach an existing property owner who is looking to place a long-term tenant into their property. All you have to do is sign a lease agreement with the property owner with a clause allowing you to sublet the property out on Airbnb. The owner gets their fixed rental every month from you as the ‘head tenant’ and you have the permission you need to let out the property for shorter stays on short-term booking platforms like Airbnb. All you have to do as the host is make sure you are bringing in enough money on a monthly basis to cover your rental costs and operating costs with enough left over to make a profit.
This business model has gained popularity in recent years as it allows entrepreneurs to enter the lucrative short-term rental market without the substantial capital investment typically required to purchase property. It creates a win-win situation where property owners receive guaranteed rental income, while you can potentially earn significantly more by optimising the property for short-term stays.
How do I find the right property owners?
The hardest part of running a successful Airbnb arbitrage operation is finding willing property owners who would allow you to sublet their property on short-term booking sites like Airbnb. If you don’t know any owners personally, it might be difficult for you to get your foot in the door with total strangers.
The real challenge is even greater than this. The actual challenge lies in finding the actual owner of the property and going around a listing agent who is looking for traditional long-term tenants.
You might be tempted to start your search on property listing sites like Property24 or Private Property; however, the challenge here is that most of the listings for rent on these sites are managed by estate agents and not the owners themselves. This is a serious threat to your Airbnb arbitrage business as in most cases estate agents want nothing to do with you, as most of their lease agreements come standard with a clause prohibiting subletting arrangements, and they are often too lazy to make the simple change. They much rather stick to what they know and get their owner a reliable long-term residential tenant who does not stray from the status quo.
So the question remains: How do I get to the property owners directly?
If you are new to the property industry and have no idea where to start, sites like Property24 and Private Property are very good for getting your foot in the door. If you spend enough time on these apps, you will be sure to come across a listing that is being managed by the owner directly, giving you perfect and direct access to the person in charge. If you aren’t so lucky, it isn’t always a total waste of time to speak to agents. Although the majority of them will tell you to get lost, there are still a bunch out there that understand the arbitrage model and would be happy to pass along the message to the owner they represent.
However, the best option overall is simply through networking. Getting involved in the property community and getting to know industry leaders whether through apps like LinkedIn or by getting involved in organisations like the South African Property Investors Network (SAPIN) would be a great start to getting to rub elbows with people in the industry.
Signing on the dotted line
Once you have found a willing property owner to hear you out, the final part of the puzzle is convincing them that you would be a better tenant than a traditional tenant and reducing everything to writing in your lease agreement, which will give you the legal backing to move forward.
In order to give you the best chance possible, here are a couple of common objections you might face and how to handle them:
“What if a guest breaks something? Who pays for that?”
The guest would be held liable for any damages to the property during their stay. If however they do not make payment for any damages, their stay is covered by AirCover. This provides hosts with insurance on any stays made through Airbnb of up to $3 million in damages.
You can explain to the landlord that Airbnb has significantly enhanced their protection policies in recent years precisely because of these concerns. Additionally, you can offer to add the landlord as an additional insured on a separate short-term rental insurance policy for extra protection. Emphasize that you’ll have a strict vetting process for guests, including minimum rating requirements and verification checks that traditional landlords rarely implement with long-term tenants.
“How do I know you can pay?”
Airbnb subletters are no different from regular renters. How can you be sure that a tenant will make payment every month? Take these same precautions you would with us to ensure that we are able to pay. The only difference between an Airbnb subletter and a regular tenant is that the Airbnb subletter has the opportunity to pay for rent from guests’ stays as opposed to paying out of pocket like a normal tenant.
To further ease their concerns, offer to pay a larger security deposit upfront or the first few months’ rent in advance. Present your business plan showing projected occupancy rates and revenue based on similar properties in the area. Share your financial statements or proof of income from other sources to demonstrate that you can cover the rent even during slower months or unexpected vacancies.
“What about noise complaints and neighborhood disturbances?”
This is a legitimate concern, but it can be effectively managed. Explain that you’ll implement strict house rules prohibiting parties and excessive noise, with quiet hours clearly stated in your listing. Modern noise monitoring devices (that don’t record conversations but only detect decibel levels) can alert you to potential issues before they become problems.
Offer to introduce yourself to the neighbors and provide them with your direct contact information so they can reach out to you immediately if any issues arise. Many professional Airbnb hosts find that short-term guests actually cause fewer disturbances than long-term tenants because they’re typically out exploring during their stay and are conscious of maintaining good reviews.
“What about legal and insurance issues?”
Before approaching any landlord, do your homework on local regulations. Be prepared to explain how your operation will comply with all zoning laws, HOA rules, and municipal regulations. Offer to handle any necessary permits or registrations.
As for insurance, explain that in addition to Airbnb’s coverage, you’ll maintain your own comprehensive short-term rental insurance policy. This can often provide better protection than standard renter’s insurance that traditional tenants carry. Offer to name the property owner as an additional insured on your policy, giving them an extra layer of protection.
“How will this affect relationships with other tenants in the building?”
If the property is in a multi-unit building, this is an important consideration. Propose solutions such as creating a separate entrance for your guests if possible, or establishing clear guidelines about common area usage. Emphasize that your guests will be thoroughly briefed on building rules and etiquette.
You can also suggest a trial period of 3-6 months, after which you and the landlord can evaluate any impact on the building community. Share case studies or testimonials from other landlords who have successfully implemented Airbnb arbitrage in similar settings.
When it comes to signing a lease after having convinced the landlord that your business model is sound, be sure to double-check that the lease agreement contains the necessary clauses to show that the landlord fully understands the nature of your operation and how you plan to sublet on Airbnb.
Specifically, ensure the agreement explicitly permits:
- Short-term subletting through platforms like Airbnb
- The ability to make minor, reversible modifications to the property to enhance guest experience
- Clear delineation of maintenance responsibilities between you and the landlord
- Protocols for emergency situations involving guests
Also be sure to include lease length, as signing a year-long lease with a landlord is a good way to sweeten the deal where they may have been looking to sign a month-to-month contract with long-term renters. The longer commitment demonstrates your seriousness and provides the landlord with guaranteed income for an extended period.
Consider offering performance-based incentives in your lease agreement. For example, you might propose sharing a small percentage of profits above a certain threshold with the landlord. This aligns your interests and gives the property owner a stake in your success, potentially turning them from a skeptical landlord into a business partner.
Finally, maintain transparent communication throughout the process. Regular updates on how the property is performing, sharing positive guest reviews, and promptly addressing any concerns will help build trust and potentially lead to lease renewals or even expansion to additional properties owned by the same landlord.
