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.

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