Airbnb Rental Arbitrage: What It Is & How to Succeed

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By Rafael Loza, an accomplished real estate investor who has extensive experience with Airbnb and the hospitality industry, as well as a proven record of transforming properties into high-yield assets
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Airbnb rental arbitrage is a popular option for those looking to get into the short-term rental business. But how exactly does Airbnb arbitrage work, and is it the right call for you? If you’re looking for the answers to these questions, you’re in the right place! I’m Rafael Loza, a real estate investor at Knight and Reign Properties, LLC. I have extensive experience in short-term rentals and the hospitality industry, and I’m here to share everything you need to know about Airbnb arbitrage, including how it works, its pros and cons, and how to succeed with your own Airbnb arbitrage property.

Airbnb Arbitrage 101

Airbnb arbitrage is a business model that involves renting a home or apartment, then subletting it as a short-term rental on platforms like Airbnb or Vrbo. Airbnb arbitrage is legal, as long as you get permission from your landlord and follow any ordinances in your city regarding short-term rentals.

Section 1 of 8:

What is Airbnb rental arbitrage?

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  1. Instead of purchasing the home or apartment, you rent it at market rate, furnish and design it, then re-rent it for a premium on platforms like Airbnb, Vrbo, or Booking.com. You then make a profit on the difference between what you pay in rent and what you earn from the short-term stays.
    • For example, say you rent a home from a landlord for $3,000 per month. If you then listed it on Airbnb and made $6,000 in a month, that $3,000 difference would be your profit.
    • The main costs are rent, internet, and utilities. Most maintenance is handled by the landlord or management company. Your job is to ensure that the space looks great, meets customer needs, and is ready to rent out nightly at a premium.
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Section 2 of 8:

Is Airbnb arbitrage legal?

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  1. 1
    Yes, Airbnb arbitrage is legal. You just need to get explicit permission from your landlord and make sure that you’re in a market that allows short-term rentals (some cities have rules against them or specific guidelines you need to follow). If you do both of these things, you’re good to go!
    • Look up the city ordinance for short-term rentals in the area where you want to open your Airbnb. They might require a permit or tax payments, or they may not allow it at all.
    • Don’t try to open an Airbnb in a city that bans them. Some people try to operate their business “under the radar” in these areas, but it’s not worth the risk when the fines hit.
    • Similarly, don’t try to open an Airbnb in a place where there aren’t any regulations yet. I used to advise going into unregulated areas, but I now recommend being cautious about this—regulations eventually catch up, and you could be forced to shut down when they do.
    • The best option is to open your Airbnb somewhere where there are clear rules and official permission, whether that means getting a business license, a permit, or just paying taxes.
  2. 2
    Rental arbitrage is also completely allowed on Airbnb’s platform. In fact, Airbnb even has programs with certain landlords and buildings that pre-approve arbitrage. You can find these “Airbnb-friendly” apartments on their site, but keep in mind that these usually come with extra fees, like a 15% cut to the landlord or management.
    • I don’t usually recommend these pre-screened options on the Airbnb website, since profit margins are thinner right now, so you don’t want to lose that 15% cut. But it is good to know that these options exist, if you’re having trouble finding apartment buildings that allow Airbnb arbitrage.
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Section 3 of 8:

Airbnb Arbitrage Profits & Startup Costs

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  1. Airbnb arbitrage can definitely be profitable and may cost $10k+ to get started. With arbitrage, your main start-up costs are your deposit and first month’s rent for the property, plus furnishing and designing that property. For a 1-bedroom unit, that might total around $12,000-$15,000. In the right market, that unit could then net you $800-$1,200 per month in profit. Over a year, that’s about an $8,000 return on a $15,000 investment, which is a solid ROI.
    • Now, compare that to actually buying a home to turn into an Airbnb. If the home is $300,000, you’re putting 20% down (about $60,000), plus closing costs (another $10,000-$12,000), plus $30,000 to furnish and decorate. In this case, your total investment would be $100,000.
    • Yes, you own the home and you get appreciation over time, but your monthly profit might only be $3,000. That’s $36,000 per year on a $100,000 investment. So here’s the summary:
      • Arbitrage = lower investment, higher margins.
      • Owning = higher investment, lower margins (but long-term wealth).
    • It just depends on your goals. If you’re just starting out and want to grow capital, arbitrage is amazing. If you already have capital and want long-term equity, go for ownership.
Section 4 of 8:

Benefits of Airbnb Arbitrage

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  1. One big benefit of Airbnb arbitrage is that you can start with a relatively small amount of capital, compared to the traditional model of buying a property to turn into an Airbnb. Even if you’re only making a profit of $300 a month to start, the low initial investment means that you recoup your money faster.
  2. 2
    Ease of entry Airbnb arbitrage is a pretty simple and low-risk way to get into the short-term rental and hospitality business. Instead of spending hundreds of thousands of dollars to buy a property, you can test the waters with a smaller investment of $10,000 to $15,000.
  3. 3
    Opportunity to gain experience With Airbnb arbitrage, you get a chance to gain real-world experience in hospitality, which is super important if you’ve never worked in the industry before. As you start and run your business, you’ll be able to determine if the industry actually fits your personality and skills before deciding to make a larger investment.
  4. 4
    Travel opportunities & lifestyle perks One of the personal benefits of Airbnb arbitrage is the ability to stay in your own arbitrage properties when you travel. For example, if I want to take a weekend trip to San Diego, I can just block out those dates for my own unit and stay there.
  5. 5
    Lower maintenance responsibility Although you will be responsible for small issues, major property repairs like plumbing or HVAC problems are the landlord’s responsibility. As a result, you’ll only handle minor upkeep and day-to-day problems, which is a pretty big weight off your shoulders.
  6. 6
    Scalability An Airbnb arbitrage business is easier to scale. Once you have a successful system in one location, you can replicate it across multiple units and cities quickly, which gives you the opportunity to grow your business.
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Section 5 of 8:

Risks of Airbnb Arbitrage

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  1. 1
    You don’t own anything Airbnb arbitrage can be lucrative, but it is strictly a cash flow play. You’re renting the property, not buying it, so you don’t build equity or long-term wealth through property appreciation.
  2. 2
    Lease dependency & potential relocation costs One big downside of Airbnb arbitrage is that you’re always at the mercy of your landlord. If they decide not to renew your lease or change the terms, you could lose everything you’ve invested. Relocation can also be very costly, since you’ll need to pay for a deposit, first month’s rent, and furniture/decor for a whole new place.
  3. 3
    Negligent landlords If a landlord refuses to fix something urgent—like a broken air conditioning unit—it can negatively impact your guest experience, which can then hurt your business on Airbnb. In this case, you may opt to resolve the issue, even if it’s not technically your responsibility, which can be expensive.
  4. 4
    Exploitative landlords Some landlords may try to overcharge you for rent because they know you’re using the unit for Airbnb. In these cases, landlords are often trying to get a cut of your profits without contributing anything to the business.
  5. 5
    Hostile neighbors or tenants If your unit is in an apartment building, other tenants in the building might dislike having short-term guests nearby, leading them to complain to management or the owner. This can create tension, and in some cases, it might even cause you to be forced out.
  6. 6
    Market saturation The Airbnb platform is crowded, and it’s hard for listings to stand out without offering unique experiences. You’ll need to constantly update pricing and optimize your listing to stay competitive. Luckily, I’ll go over some helpful insider tips to help you start a successful Airbnb arbitrage business below!
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Section 6 of 8:

Insider Advice for Starting an Airbnb Arbitrage Business

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  1. After the COVID travel boom, everyone jumped into Airbnb, and markets got saturated. Now, Airbnb is experience-driven, not just stay-driven, meaning you’ll need to offer lots of unique amenities. For example, if you’re opening in an area like Joshua Tree, your costs might be super high for things like pool cleaning, propane, utilities, cleaning, etc.
    • Ask yourself, “Can I profit at least $500 per month after expenses?” If not, it’s likely not worth it—especially if this particular unit is far from you or requires frequent maintenance.
    • Personally, I won’t take anything that nets me under $500 per month. The effort has to match the reward!
    • My advice would be to use a spreadsheet to calculate everything (rent, utilities, cleaning, consumables, average nightly rates, etc). Make sure it’s profitable on paper before moving forward.
  2. 2
    Start with a property that’s close to where you live. Arbitrage works best when you’re hands-on, so don’t jump three cities or two states away from where you live just because the area looks good on Instagram. If you’re far from that property, you’ll need to hire people for cleaning and maintenance to make sure you have boots on the ground, and that eats into your profit fast.
  3. 3
    Pick the right unit and property. In the real estate world, Class A represents the highest quality properties (newer, top amenities, more luxurious, etc), and Class B represents properties that are just one step below this. For a successful Airbnb arbitrage business, you’re looking for high-end units with great amenities, so stick with A or B-class properties, and avoid anything C-class or below.
    • Specific ideal features to look for include:
      • Pools and/or jacuzzis
      • Rooftop patios
      • BBQ areas
      • Gyms
      • Office spaces
      • Easy access/navigation
      • Secure entry (but not overly complicated)
    • You’ll also want to choose a property that fits your ideal customer. Are you targeting families? In that case, a studio won’t work. Is your market business travelers? If so, no need for a 3-bedroom house.
  4. 4
    Don’t skimp on furniture and design. You want guests to choose your place over others, so aesthetics really matter. It may be tempting to furnish and decorate the place cheaply, but if you want to stand out and score guests, it’s best to spend a little more. You’ll need something unique and attractive, like an accent wall, premium interior design, or amenities like a pool and barbecue area. Unfortunately, a plain white-walled unit with IKEA furniture won’t cut it anymore!
    • Try to think like a customer. A lot of people look for generic inspiration on sites like Pinterest, but to really be successful, you need to design for your ideal guest.
    • Think about the things you want when you travel (comfort, convenience, certain amenities, etc), and let this guide you when deciding how to design and furnish your unit.
    • Tailor your decor to your specific market, as well. For example, if business travelers are your market, make sure there’s a proper work desk—not just a sofa and a coffee table.
  5. 5
    Provide amenities that offer high value for their cost. You can’t always measure ROI on specific amenities, but if something makes your listing more bookable, that’s a win. For instance, I talked to my buddy in Joshua Tree recently about adding a cold plunge to an Airbnb. You can’t measure the return on this exactly, but he said, “You’ll get a marketing return,” which is gold. People will see the photo, think “I’ve always wanted to try a cold plunge!” and boom—they’ll click, book, and stay at your place.
    • In my arbitrage units, I include a big computer screen on a standing desk, plus a separate keypad and mouse. Travelers who work remotely love it, and these are the types of subtle features that boost appeal and justify higher rates
  6. 6
    Optimize your listing on Airbnb. To have a successful business, you’ll need customers to choose your property over others. Optimizing your listing is an essential part of making this happen. Here are some specific must-know tips to follow:
    • Get professional photos taken. Don’t just take shots on your cell phone—hire someone who specializes in Airbnb photography. Airbnb images are meant to sell an experience, not just show the layout, and a professional will be able to do this best.
    • Choose a strong cover photo. The first image on your listing should highlight the best your property has to offer. That might be a bright living room with a large TV and entertainment system, or an aerial shot showing proximity to key locations. No matter what, it should catch the customer’s attention immediately when scrolling.
    • Pick an effective title and description. Use clear, eye-catching keywords (“hot tub,” “walk to bars,” “3 mins to Disneyland,” etc.). Keep the description short, and avoid writing five paragraphs. Use bullet points to highlight key information instead.
    • Pay attention to pricing. Know your competition and position your price to be competitive, while still reflecting value.
  7. 7
    Focus on guest experience. Positive guest experiences earn you high ratings on Airbnb, which in turn secures you more business and attracts the kind of customers you want. To ensure an amazing guest experience, here are some helpful tips to keep in mind:
    • Always deliver on expectations. Guests hate when they show up to a property and it doesn’t match the photos. So, if you update the furniture or change a design, make sure to retake your pictures. Consistency is key!
    • Set up a smooth check-in system. For example, if the code to the door doesn’t work when your guests arrive, their experience is already ruined. Make sure all your instructions are correct and all your keypads are activated on time.
    • Provide a spotless unit. Cleanliness is everything. Make sure there are no hairballs in the shower and no grime on the doorknobs, and ensure that high-touch areas (like the kitchen and bathroom) are immaculate. Once things start off on the wrong foot, a guest will likely nitpick the rest of the stay, so the first impression is essential!
  8. 8
    Update your pricing often. Airbnb favors lower prices, so adjusting pricing frequently is key. I check our pricing weekly since we have many listings, but when I neglect it for even two weeks, bookings and revenue tank—seriously. You have to constantly ask yourself:
    • Am I overpriced by $5 or $10?
    • What are competitors charging?
    • Why am I on the second search page?
  9. 9
    Focus on systems, automation, and delegation to scale your business. When you’re stuck doing everything yourself, that’s just burnout waiting to happen, which can easily kill your business. From day one, document what you’re doing, so you know what to delegate later. I also use Loom.com to record training videos, so whenever an employee asks me a question, I can send them a quick training video.
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Section 7 of 8:

How to Pitch Airbnb Arbitrage to Landlords

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  1. The hardest part of Airbnb arbitrage is finding a landlord who will allow it. Many landlords are hesitant because they’re worried about constant turnover, noise, and property damage, but this is all a misunderstanding of the business. In reality, people who start Airbnb arbitrage businesses take better care of properties than most long-term tenants.
    • For example, Airbnb hosts usually get their units professionally cleaned 5-12 times per month. Long-term tenants, on the other hand, might never get a professional cleaning the entire time they live there. When they move out, the unit is often dirty or worn.
    • Explain this, and go over everything they need to know about your business plan (how you’ll manage the property, screen guests, handle maintenance, keep things spotless, etc.).
    • When you lay all this out in front of them, landlords often see the benefits of Airbnb arbitrage and open their minds about it.
  2. 2
    Highlight the benefits of Airbnb arbitrage for landlords. Make it clear that Airbnb arbitrage isn’t just a lucrative business for you—it’s also super beneficial for them. For landlords, one bad month with a long-term tenant can wipe out profits for a year or more, so guaranteeing consistent rent, zero vacancy, and better upkeep is a huge win. Here are some specific pros to list out if you need help convincing them that it’s a win-win situation:
    • They’ll be receiving market-rate rent from you.
    • There will be zero vacancy for their property.
    • You’ll take care of the property, furnish it, decorate it, and invest in it.
    • You’ll personally check and maintain the space between guests.
    • You’ll cover all the day-to-day wear and tear.
  3. 3
    Address common objections proactively. There’s a lot of media about Airbnb parties, which could make landlords hesitant. However, you can counter this fear by explaining the security measures you’ll take to make sure this never happens. These security measures could include:
    • A Ring doorbell and exterior cameras to monitor who comes and goes.
    • Keypad locks that are only accessible by the guest who booked the unit.
    • Live monitoring of the unit during stays (if you see someone show up with a cooler or sound equipment, you could act immediately to make sure a party isn’t planned).
    • Instant intervention in a worst-case scenario (if a party seems to be forming, you’d personally show up to shut it down).
  4. 4
    Ask them to give you a trial run. Once landlords realize that Airbnb arbitrage isn’t all that different from what they do (it’s just on a shorter-term basis), most will give you a shot. If they’re still hesitant, say, “Let me take the risk. Try me out for six months. I’ll furnish the unit, and you can come and see it. If you’re not happy, I’ll leave.”
  5. 5
    Get written permission from them. Once your landlord agrees, make sure you have their permission in writing, ideally in your lease or an addendum. This gives you security for the long term.
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Section 8 of 8:

Airbnb Arbitrage FAQs

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  1. 1
    Do you need an LLC for Airbnb arbitrage? You don’t need an LLC to start, but it is recommended. I started with one and kept everything (banking, finances, etc.) separate from my personal life. This offers protection and shows that you’re treating it like a real business. Depending on your tax situation, some might prefer an S-corp or another structure, but it really does depend on your goals and scale.
  2. 2
    Is it harder to have a successful Airbnb business now than it used to be? Yes, starting a successful Airbnb arbitrage business is a little harder than it used to be several years ago. The market is tougher today, guests are pickier, and in general, the Airbnb platform favors guests over hosts. As a result of all this, competition is real. It can be difficult, but it isn’t impossible—you’ll just need to work hard and stay committed!
    • Keep an eye out for good deals when you’re getting started. For example, if you can find an apartment complex that offers one or two months free rent as a move-in deal, that’s huge. You can either use that money upfront to offset start-up costs or spread it over the lease to reduce monthly operating costs.
    • Travel is down, so you need to provide value and be lean. A unit with zero deposit or reduced deposit is also gold. These cost-saving entry points matter now more than ever!
  3. 3
    What are the best cities for Airbnb arbitrage? It’s hard to give specific city recommendations because markets shift. For example, Santa Ana and Costa Mesa in Orange County, CA were amazing two years ago, but now, short-term rentals aren’t even allowed, though the demand is still high. In general, I’d recommend looking for untapped markets (locations that are not saturated with listings), as well as areas near attractions. Many suburban areas are also emerging as solid markets because major cities (LA, Chicago, etc.) are burned out.
    • Do your research. If there are only a few Airbnb listings in the area and it’s also near a tourist draw, it might be perfect! Just check the legality and make sure the area allows short-term rentals.
  4. 4
    What are some of your tips for maximizing profits? Broadly, maximizing your dollar means knowing your expenses from day one, keeping track of your expenses carefully, and staying on top of your pricing. Don’t set and forget your listing—update pricing frequently!
    • If you’re looking for a super-easy and specific way to maximize profit, try charging a pet fee. I charge $35 per night per pet, so if I’m renting a unit at $100 per night, the pet fee will bump that night up to $135.
  5. 5
    What are some alternatives to Airbnb arbitrage? Alternatives to Airbnb arbitrage include co-hosting, passive investing, and hybrid ownership. Here’s a quick breakdown of each:
    • Co-hosting: You manage someone else’s listing and take a percentage of the profits. This option is great for those who don’t have the funds to start their own Airbnb, but you need experience for the host to trust you.
    • Passive investing: Partner with professional operators (like me). I work with investors who give me money to run units, and I give them a return on that investment.
    • Hybrid ownership: Buy a property and hand it off to someone else to manage. You might break even or need to come out of pocket at times, but it’s a long-term play.
  6. 6
    How do you decide whether to do arbitrage or another business model? It really comes down to your personal investing goals and where you are in life. If you’ve got $100,000 in capital, I’d recommend buying a property instead of arbitrage. On the flip side, if you’ve got $10,000-$15,000 and time to spare, arbitrage is a great way to get started. Just keep in mind that it isn’t passive—you need to be hands-on with guest communication and problem-solving. If you're working 80 hours a week at another job, arbitrage probably isn’t right for you.
    • Here’s a simple breakdown:
      • No money? → Co-hosting.
      • Some money and time? → Arbitrage.
      • Decent money, but you want it passive? → Buy and outsource.
      • Lots of money? → Invest with someone you trust.
  7. 7
    When is the right time to start an Airbnb arbitrage business? There’s no perfect time. Waiting for a "perfect market" is like waiting forever—there's always risk. If you’re holding off because you're scared, push yourself to take action. If you lack knowledge, study and research more. If you're worried about the market, remember that it always cycles. Make your best judgment, and move forward!
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