The Basics of Rental Arbitrage

Did you know that rental arbitrage makes it easy for investors to start making a passive income? With vacation rentals ever-growing in popularity, platforms like Airbnb make it simpler than ever before to transform a rental unit into a cash cow.

What is Rental Arbitrage?

Rent arbitrage transforms the current rental market into a haven for the middle man. More specifically, rental arbitrage enables renters to let properties they do not own in exchange for a profit.

Say, for example, that you rent an apartment in Indianapolis, IN. You don’t, however, want to live in Indianapolis. Instead of breaking your lease or otherwise altering your agreement with your landlord, you can instead rent that apartment to someone else. 

Traditionally, this is known as subleasing. Platforms like Airbnb, however, transform this rental experience. You can charge interested parties more than your average rent to stay in the unit you temporarily control. In turn, you can use what you make to pay your rent, all while keeping your net profit for yourself.

It is legal to rent someone else’s property and then list it on a secondary market like Airbnb. With that being said, while the law is on your side, each landlord is entitled to set their own expectations for tenants. There may be a clause in your leasing contract that limits or otherwise bars your ability to sublease your lot. 

Make sure to read your contract carefully and discuss your rental arbitrage possibilities with your landlord so that you don’t breach your existing contract.

The Benefits of Rental Arbitrage

Even before the age of Airbnb, rental arbitrage allowed individuals earn a passive income. Nowadays, the benefits of rental arbitrage include, but are not limited to:

  • Limited Start-Up Costs It is not particularly expensive to get into rental arbitrage. You may want to spend money furnishing or otherwise accessorizing the property you intend to lease. 
    Similarly, creating a portfolio on Airbnb or a related website may come with some start-up fees. However, you won’t have to worry about the cost of purchasing land or building a structure that you intend to rent. 
    In turn, you can rapidly recover your start-up costs and go about securing a consistent net income.
  • Capital Building– It’s harder than it used to be to cultivate an eye-catching investment portfolio. If you don’t know where to start investing, it’s easy to feel overwhelmed. 
    Luckily, rental arbitrage lets you make your way into the world of investing without too much fuss. Not only are the entry fees low to non-existent, but the process also helps you to build up experience and capital. 
    As you generate a passive net income, you can start exploring ways to expand your rental empire. 
  • Property for Personal Use-If you do ever decide that you want to stay in a unique locale, good news! You can take one of your properties off of the rental market. 
    When you have access to a variety of properties around the nation, your ability to use those properties yourself while still making passive income can provide tremendous freedom.

The Downside of Rent Arbitrage

Rent arbitrage does come with a few catches. If you want to lease your rented property to another party, keep an eye out for:

Increased Rental Responsibility

When you rent a unit for yourself, you bear responsibility for that apartment’s overall care. If you damage the unit, you can expect to lose a portion of your security deposit or face repair fees.

When you rent out a leased space to another party, that responsibility doubles. Not only do you have to continue getting rent to your landlord — even if your guests are late on their payments — but you’ll also be to blame for any damages they inflict on your property. 

The good news, of course, is that you can factor that potential expense into your fees. Even so, you’ll have to enact strong rental policies to protect yourself from the expenses your landlord may later assign to you.

Landlord-to-Tenant Control

If you want to re-lease a rental property through a platform like Airbnb, you have to communicate with your landlord. You do not, after all, own the property that you’re listing on the market. 

While your landlord is still making money off of your lease, they may want to do everything they can to protect their own investment from the negligence of an unvetted third party.

A successful rent arbitrage process requires you to communicate regularly with your landlord. If something goes amiss with the rental property, you’ll be the one held to blame for it. You will be expected to bear the responsibility for damages, noise complaints, and other issues that guests might draw to your property. 

You may find your ability to re-lease your property limited by the contingencies set forth in your contract. Make sure to read these carefully before listing a rented property — if you don’t, you risk fines and other serious consequences.

Today’s rental market makes it easier than ever for you to make a passive income. Even if you don’t own property, you may still have the right to sublet your property to another party. Look at your lease or talk to your landlord about your rent arbitrage options.

Managing Rental Arbitrage Properties Online

Rental arbitrage involves renting out one or more properties and subletting them to short-term renters. This practice can be extremely lucrative for individuals looking to make some extra money without too many hours of work involved, but how do you make rental arbitrage happen?

These days, the easiest way to get started with a rental arbitrage property is to use the available online platforms designed for this very activity. Let’s dive into how to succeed with a rental arbitrage property online.

Best Sites for Rental Arbitrage Property Management

Though there are several platforms available online that allow private citizens to rent out homes and apartments on a short-term basis, the most reliable by far is Airbnb. This platform is one of the most common for this type of rental and is used worldwide for various property types and rental periods.

Additionally, the Airbnb interface makes it easy to get your account set up and your property listed in no time.

How to Create a Rental Arbitrage Property

Before you can begin renting out your apartment or home as a rental arbitrage property, it’s important to make sure that this practice is legal in your region. In places where rental arbitrage is legal, you’ll still need to provide full disclosure to your landlord and potentially acquire any necessary licenses or permits.

In order to legally protect yourself from any issues after you confirm your plans with your landlord, you should add a rental arbitrage property clause into your lease so that both parties fully understand what will be expected of them based on your plans with the apartment.

Best Cities for Rental Arbitrage in 2022

Are certain cities considered to be better fitted for rental arbitrage? The answer is yes, based on local real estate purchase and rental costs in different areas and the typical Airbnb traffic to those areas. Let’s take a look at a few of the most promising rental arbitrage cities for 2022:

Boston, MA

There are many tourist attractions that draw visitors to Boston by the hundreds of thousands each year. Additionally, as a major center for commerce on the East Coast, the city is a common destination for business people visiting from other regions.

The median rent per month in Boston is only around $1,369 despite it being such a desirable city.

Austin, TX

Austin is considered to be the “Live Music Capital of the World,” which means that music fans are traveling to the city at all times of the year for different events. Additionally, Austin’s nightlife and business atmospheres are thriving, making it a popular city for short-term visitors of all types.

Rental medians are even lower in Austin at a median of roughly $1,106, making this city a great place for rental arbitrage.

Chicago, IL

Chicago is one of the biggest cities by population in the entire country, so it’s clear to see that there are many significant draws for permanent residents and short-term renters alike.As the home to many major universities as well as many large companies, tourist attractions, and annual live events, this city would be worth investing in for rental arbitrage even if the monthly rent weren’t as low as $987 on average.

There are plenty of great opportunities out there to make extra money with a rental arbitrage business.

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