Airbnb continues to grow with more and more holidaymakers and business travellers turning to the platform for accommodation on their travels. One misconception is that you have to own a property in order to generate income from Airbnb. You can achieve this by utilising a technique called Airbnb arbitrage which can be very rewarding but can also come with risks.
What is Airbnb rental arbitrage?
Airbnb arbitrage is a technique where an individual rents property on a long let contract and then sublets the property on Airbnb. With property prices rocketing it’s becoming harder and harder to purchase a property and taxes on property investors also increasing make this strategy very attractive. The strategy allows you to create a positive cash flow without the challenges of ownership.
For example, if you rent a flat or house on a long term contract with a landlord for £1,500 per month. If you can then find a property that can demand a nightly fee of £150 you can pay your rent off in just under 2 weeks. Once the rent is paid off the rent of the month is pure profit after maintenance and overheads.
Seems too good to be true? Yes and no, the above example is a simplification but gives a clear guide to the concept. The strategy will work well in particular markets where demand for short term rentals has a far higher value to a customer than a long term let.
Holiday or city break locations is a very good example of this compared to a residential area where tourism and travel is low, the demand for long term rentals will be higher than short term leaving you a smaller arbitrage opportunity.
Is Airbnb arbitrage legal?
Yes, Airbnb arbitrage is completely legal in the UK however standard rental agreements such as Assured Shorthold Tenancy agreements (AST’s) CANNOT be used a custom agreement between yourself and the landlord would have to be drawn up.
Subletting a property where you don’t have an explicit contract allowing that activity is a breach of your contract and would leave you legally exposed. We would recommend speaking with a lawyer and getting a template drawn up that you can then reuse for multiple properties as you grow your portfolio.
Where to find a landlord?
Finding a landlord who is willing to offer their property for you to sublet can be challenging and is one of the hardest aspects to Airbnb arbitrage. The most obvious place to look in this instance is the last place you should look. The likes of Rightmove and Zoopla are the hardest places to find landlords and you will be faced with letting agents turning you down before you can even speak with the landlord.
You need to focus on notice boards such a gumtree and openRent where you will have direct access to landlords who aren’t using an agent. Although it’s still not guaranteed they will accept your proposal you will have a far greater chance of success. You will be faced with a large number of rejections however you will eventually find a landlord willing to work with you.
From experience, once you have a proven track record it becomes easier to convince landlords and it also helps to have as mentioned above proper legal documentation prepared.
How to convince a landlord?
You’ve searched all the notice boards in your target area and you’ve found a handful of properties that are perfect for your business case. Now you need to convince a landlord to accept your sublet agreement. Here are a few discussion topics to try and convince a hesitant landlord:
- You’ll care more about the property than any other tenant they might find. Scuffed walls, beat-up floors and generally not keeping the place clean will not produce 5* reviews on Airbnb. In other words, a tenant may not clean the flat and let the property go into disrepair however, after every stay you will be getting their property professionally cleaned and vetting tenants to minimise the potential of any damage.
- You are running a business from their property which will hopefully be lucrative giving greater assurances that they will receive their rent on time every month and won’t have to worry about chasing tenants.
- Running a short-term let business is by no means passive income like a traditional long-term rental is. So by all means, the landlord could try and run the apartment themselves. However, if they agree to the arbitrage, they won’t have to be burdened with the work of managing it, keeping the unit clean or marketing the listing on Airbnb.
Other tactics to convince difficult landlords
Landlords sometimes bring up the issue of noise complaints and Airbnb parties. It’s a valid concern. If your short-term rental bothers other long-term tenants, it could mean that the landlord has to deal with higher turnover. Then there’s the issue of insurance. Who will pay for damages? This is where technology comes in. Depending on the resistance faced, you can make it part of the agreement that you’ll use one (or more) of these tools:
- Autohost – Automatically screens problematic tenants.
- NoiseAware – Noise sensors with the option of 24/7 call centre coverage (they’ll make calls if things get out of hand).
- InsuraGuest or Safely – Their algorithms calculate risks and provide affordable coverage that goes above and beyond the Airbnb or Vrbo policies.
The best part is that these tools integrate with most major property management systems (PMS). As we’ll see below, you’ll need a solid PMS if you’re to operate a successful Airbnb rental arbitrage business. By integrating the service into the PMS, you’re getting the benefits of coordinating and automating those services at scale (because let’s face it, you’ll have more than one arbitrage property in no time).