Airbnb rental arbitrage is a high-margin, high-intensity business model evolving in recent years in the market of short-term rentals. In this article, we’ve collected some solid insights for the investors looking out for Airbnb opportunities in Europe in 2024. Who knows, maybe investing in Airbnb without owning the properties might be your ticket into this flourishing industry.

What is Airbnb rental arbitrage?

Airbnb rental arbitrage refers to renting a property (apartment, house) with a long-term lease and then subletting it short-term, on platforms like Airbnb. In fact, it can be any OTA platform like Booking.com, Expedia, Google Vacation Rentals, VRBO, etc.

In other words, rental arbitrage allows you to profit from the difference in the leasing rates.

In different contexts and countries people might use other names for short-term rental arbitrage, just to name a few:

• Airbnb rental hustle
• Passive rental income
• Vacation rentals management investment
• Property subletting for short-term rentals

The core element about all these businesses is that an investor or manager has an opportunity to generate income without owning a property.

How Airbnb rental arbitrage works

Airbnb rental arbitrage is a simple mechanism that only requires a few steps:

1. Airbnb arbitrageur (you) finds and rents a property long-term.
2. Landlord gives permission to sublet it short-term (stipulated in the agreement).
3. Official registration of the short-term rental business – in 2024 it is a must in certain EU countries.
4. Airbnb investor publishes short-term rental listings on Airbnb and other OTAs.
5. Guest books on Airbnb.
6. Profit comes from the price difference between long-term and short-term rent.
7. Scale the business, sublet more properties.

Of course, the devil is in the details. So continue reading!

How Airbnb rental arbitrage works (image from @FourWeekMBA)

Is Airbnb rental arbitrage legal?

Airbnb allows rental arbitrage, in fact, it is very common to list properties using rental arbitrage. For instance, Sean Rakidzich is one striking example of a property manager  who sublet numerous properties on Airbnb using rental arbitrage.

However, the European Union has its own set of regulations, which vary by country. It is highly likely that you will need to comply with certain legal procedures:

• Share your tax information with authorities (initiative known as DAC7 EU directive)
• Make guest registration if you plan to rent out properties in Spain.

Before you invest in Airbnb

Pretty sure you want to make an informed decision. Here are some questions that span across the entire scope of your research:

1. Legal and regulatory considerations
2. Local market analysis
3. Competition and pricing
4. Property contract with a landlord
5. Property management services
6. Marketing and branding
7. Financial projections for an Airbnb investment
8. Airbnb risk management
9. Rental arbitrage software you should be using

1. Legal and regulatory considerations

• What are the local legal requirements for short-term rentals in the target cities or regions?

DAC7 EU directive

As an EU resident or investor looking for an Airbnb investment in Europe, you should be very careful with the local regulations on the short-term rental industry.

We highly recommend reading about the EU concepts of ‘reportable seller’ and ‘sales channels’ (with Airbnb being one of these channels).

Starting from January 1, 2023, both you as a rental manager and your long-term landlord might be eligible to report on the incomes from vacation rentals business.

Local regulations

For example, Florence, Italy, has a ban on short-term rentals in the city centre.

In London, Vienna, and Berlin there is a 90-day annual limit on the number of days the property can be rented out.

In Edinburgh, Scotland, and some other places, hosts must obtain a licence for short-term letting before renting out on Airbnb.

If you plan to do arbitrage in Spain you should know about the Spanish guest registration.

Subletting apartments in Sweden is prohibited unless approved by the housing association. Similarly, there are local restrictions all over Europe, and you need to be aware of them.

2. Local market analysis

Location is the number one criterion in short-term rental arbitrage. So get backed up by data.

You might want to calculate the property revenue potential and investigate the average daily rates (ADR) for low and high seasons in a specific area. A popular tool for this purpose is AirDNA.

Fortunately, AirDNA now offers free access to basic analysis. You can research your locality narrowed down by a specific area code, city or even the number of rooms.

We made an analysis of the top 60 cities in Spain, Italy and France and laid down some tips on how to choose the best Airbnb locations.

Questions to keep in mind during the market research:

• What is the demand for short-term rentals in the chosen locations? Does it apply all year round?
• Are there specific peak seasons or local events that drive demand?
• How saturated is the Airbnb market in this area?
• What types of properties are in high demand in the chosen locations: apartments, villas, or other unique types of accommodation?
• Are there untapped lodging niches or underserved segments?

AirDNA analytics for a particular location and property type (check more in our AirDNA Rentalizer blog) 

3. Competition and pricing

Learn your main competitors in the local Airbnb niche. One easy way to do it is by searching ‘apartment in [your location]’ – on Google or using the Airbnb/Booking.com search. Tools like AirDNA or Mashvisor can also be of great help.

• Select 5 local competitors and evaluate their revenue potential, occupancy rate, average daily rate, seasonality, property type, and general level of competition.
• Does my target listing stand out? It’s a big topic. We’ll slightly mention that delivering the ultimate service and experience should always be your priority. Why not consider adding some decor to your property instead of using cheap Ikea furniture this time? Or consider investing in an extra bunk bed to accommodate more guests.
• Competitive pricing. When possible, implement dynamic pricing. It is available as a standalone service or within some advanced channel managers. For example, with Your.Rentals you can set dynamic pricing with aggressive or less competitive bidding. That will affect your bookings and revenue.

4. Property contract with your landlord

A sublease contract is not obligatory, however, you may have to interact with incredulous landlords. Typically, they prefer to sign a contract. 

Think of the landlord contract conditions:

• What’s the monthly rent amount? When are monthly payments due?
• What is the rent contract duration and its potential for extension?
• Who is responsible for the maintenance and repair of the apartment?
• Can you make changes to the apartment? What changes require landlord approval?
• What insurance is required for the property?

Make sure your landlord knows about your plans to sub-rent the property for short-term rentals. In some cases, you’d need to prepare a strong intensive to negotiate this. This could be an extra remuneration or enticing perk. One good idea is to present yourself as an Airbnb management company, rather than an individual. 

5. Property management services

When you’re settled with a property and the rent contract it’s time to think about questions like cleaning, house maintenance, and guest communication. 

• Do you need a management service?

The typical Airbnb management fee for full-service vacation rental property management companies ranges from 15-35% of monthly revenue for most hosts.

Maybe you only need cleaning, or cleaning and maintenance? Think about your own situation and how much are you willing to delegate at the beginning.

6. Marketing and branding

Define your short-term rental brand, stand out by providing real guest value. 

• What is your value proposition? It could be discounts for longer stays, free parking, or a tasty breakfast.
• Are your listings up-to-date? Airbnb internal platform marketing is all about the frequency and quality of your listing updates: strong listing titles, accurate and detailed descriptions, quality photos, lists of amenities, etc. 
• Do you collect reviews? Think about when and how to encourage guests to leave positive reviews on your listing. This is a big factor affecting your visibility on Airbnb.
• Do you do social media promotion? Plan to use Facebook, Instagram, and TikTok to reach a wider audience. Here we’ve put a social media guide for short-term rentals.
• Do you partner with local businesses? Collaborate with nearby restaurants and museums to provide guests with exclusive discounts and special deals.
• Do you market listings outside Airbnb? Win direct bookings by investing in a website with local SEO. Use promo codes on your social media – Your.Rentals can help you build personalised coupon codes for selected guests or seasons.
• Explore Airbnb Host Assist apps. If you are located in a country eligible for Host Assist, try to find some apps that can enhance your Airbnb guests’ experience and communication. 

Consider how you want to market and promote your listings in general, and the channels you wish to utilise.

Social media activity to drive direct bookings to your vacation rental website

Last but not least, ponder over your brand name: should you stick with your host persona or create a distinct holiday rental brand? 

7. Financial projections for an Airbnb investment

Airbnb investors do not require a down payment in the traditional sense. Instead, a property manager would typically negotiate the terms of the lease agreement with the landlord, including the monthly rent, lease duration, and any other relevant things.

The financial commitment for a 2-bedroom property investment in Europe could look like this:

Airbnb investment costs

• €400-700 – first month’s rent (or €14-20 per square metre in Europe)
• €2000 – security deposit for the landlord, which is typically 2-3 month rents.
• €0-7000 – commission for a lawyer, real estate broker (could be 5-10% of the total annual rent) or a fee for using online marketplaces for landlord research.
• €7000 – room furnishing and decor.
• €1500 – towels, linens, toiletries and other supplies.
• €3000 – collaborator fees for management and cleaning services. 
• €1000 – marketing budget including photo session, advertising, and cost of social media manager. 
• Total: up from €15,200 per property. 

Sometimes investing in property renovation can be a necessary move to reveal the true value of your Airbnb proposition. This could start at €5000 for miscellaneous kitchen repairs or landscaping. 

The costs in the example above may significantly differ based on your negotiation power and specific situation. You can potentially save on expenses for a security deposit or a lawyer by securing the use of a neighbouring property. Or you can buy good quality furniture from a flea market at a low cost.

Airbnb projected revenue

Consider the average daily rate (ADR) and occupancy rate (OR) for similar properties in your target location. 

For example, if the ADR is €150 and the expected occupancy rate is 70%, the monthly revenue projection would be:

€150 (ADR) x 30 (days) x 70% (OR) = €3,150

If your monthly revenue minus costs per property yields a relatively low profit, it may be wise to reconsider the viability of this opportunity. Of course, the initial months’ profit could be lower.

A Forbes featured Airbnb arbitrage businessman Chi Ta uses a strategy to research areas where Airbnb is already in demand and where the monthly profit should exceed $2000.  

8. Airbnb risk management

What risks do you anticipate in the Airbnb arbitrage business, and how do you plan to mitigate them?

• Income volatility: rental arbitrage is highly dependent on the property’s location, occupancy rate and nightly rates. 
• Property damage risk: guest screening might be a good idea, allowing you to avoid potential disputes with the landlord
• Lack of control: As a sub-tenant, the manager may have uncertainty when it comes to long-term planning and contract extensions.
• Lack of experience: be sure to use professional tools like channel manager, dynamic pricing and keep customer satisfaction at maximum. At Your.Rentals you can have a dedicated manager helping you optimise your host routines.

Think of a contingency plan for unexpected things, such as changes in regulations or another wave of the pandemic.

9. Rental arbitrage software you should be using

When it comes to Airbnb management it’s all about time and ability to coordinate activities on the go. Therefore, we highly recommend getting some useful apps from day one of your Airbnb business. Just to name a few:

• Host Assist apps: within Airbnb, depending on your country location, you as a host might be eligible for useful host apps, like channel managers, utility and property management apps.
• Your.Rentals: we are an all-in-one channel manager and communication tool which doesn’t have a monthly fee, pay per booking as you grow your vacation business.
• PriceLabs: dynamic pricing. 
• AirDNA: data and analytics for hosts.
• TouchStay: a digital welcome book useful for the guest experience.
• Turno: cleaning services.

Do you make more money with Airbnb rental arbitrage than renting long-term? 

If you have the right mix of location, landlord agreement, and put hard work into your rental arbitrage marketing, you can make more money than the landlords who only lease an apartment for long-term. 

Although, 20% of Airbnb hosts who tried arbitrage ended up losing money, according to a study by AirDNA – it is still an investment offering worthwhile returns.

Here is an example comparison of the short-term rentals (STR) revenue vs the long-term rental (LTR) rent in some European cities (STR monthly revenue is nightly rate x 20):

You should not overestimate the demand for your STR property. It is unlikely that it will be booked 30 out of 30 days. That’s why in our example we took 20 days (optimistic). 

Example of Airbnb arbitrage 

A young entrepreneur rents a well-located flat in Barcelona’s city centre for 1000 EUR/month. Recognizing the potential, he lists it on Airbnb, averaging 150 EUR/night. With 20 nights booked monthly, he generates 3000 EUR. After deducting expenses, the host earns a monthly profit.

Learn from popular Airbnb arbitrage professionals

To prepare yourself for the Airbnb business, consider stepping into the shoes of an Airbnb arbitrageur. 

Here are some famous rental arbitrage experts whose expertise and personalities can inspire you:

• Sean Rakidzich: expanded his business to over 100 units.
• Chi Ta: Airbnb billionaire, founder of the BNB University.
• Nick Loper: marketing consultant who gives clear and concise explanations of the arbitrage process, as well as his tips for success.

More things to learn about rental arbitrage 

Here are some suggestions that can be useful to manage your rental arbitrage:

• Property management system: it allows you to list multiple properties on numerous OTAs, and manage them from one place. These softwares can make your life easier by saving you time in many parts of the process.  
• Build your own website: Once you have listed your property on many Channels, you might consider having your own website. Own website is able to generate organic traffic from the internet and convert it into direct bookings.
• Direct booking: with a direct booking widget you can get direct reservations from everywhere – your website, your social media. This way you could save 15% fees you pay to the OTAs, and receive your booking directly on your site. 
• Make use of Social Media: you need to understand how to convert your Instagram, Facebook or Youtube accounts into machine-driving bookings. Learn powerful strategies and build your short-term  rental brand. 

How can I convince my landlord?

There might be some hesitant landlords who do not see the bright side of the rental arbitrage, and they need a little persuasion before they allow you to start your business by listing the property on various OTAs. 

Here are some tips that you could use in your argumentation:

1. Fake it before you make it. To achieve greater bargaining power, it is advised to project yourself as an established company, even if you’re just starting out. To make your Airbnb business more rentable, in the future consider adopting a multi-property management approach.
2. Maintenance guarantee. Renting the property short-term indicates your commitment to responsible maintenance of the apartment. Since the condition of the apartment impacts the guest experience and reviews of your listings, neglecting the apartment is not an option for you. Hence, allowing you to sublet the apartment might be a benefit for the landlord, since you would take care of the apartment like no other tenant who only rents the apartment for long-term.
3. Stable cash flow. Since your business will produce revenue every month, the landlord does not have to worry about you not paying on time. 
4. If they agree for you to do the arbitrage, the landlord won’t have to be burdened with the work of managing the apartment, keeping it clean or listing it on Airbnb.

In essence, it is a win-win situation for both parties, because you will take fantastic care of the property, and because of the potential profit you make, the landlord can collect the rent on time every month.

A closer look: pros and cons of Airbnb rental arbitrage

Benefits of Airbnb Rental Arbitrage

Engaging in Airbnb rental arbitrage comes with numerous benefits that make it a popular choice for many.

• Lower Investment: Since you skip buying a property, it saves you a lot of initial costs. The only investment you need to make is the monthly rent and to furnish the apartment.
• Potential for high returns: With smart property selection, the income from short-term rentals can significantly exceed the cost of leasing. 
• Brand building: Successful hosts can cultivate a strong reputation on Airbnb, attracting more bookings and allowing for higher rental rates. A host who consistently provides exceptional service and a clean, comfortable space can accumulate glowing reviews, increasing their property’s visibility and appeal on the platform.

Downsides of Airbnb Rental Arbitrage

Despite the potential gains, Airbnb rental arbitrage is not without its share of downsides. 

• Competition: More and more people are joining the Airbnb rental arbitrage game (over 7 million active listings in 2023), which suggests higher competition within the business.
• Limited control over the property: Any changes to the property, such as renovations to enhance appeal, may require the landlord’s approval.
• Unstable income: One of the key risks associated with this business model is the volatility of the short-term rental market. Factors such as seasonal demand fluctuations, increased competition, or unforeseen circumstances like a global pandemic can significantly impact rental income and profitability. 

Conclusion

In conclusion, Airbnb rental arbitrage can serve as a lucrative business for individuals seeking to enter the vacation rental industry without owning a property. 

European laws might be an impediment to launching a short-term rental business because of the DAC7 tax law and some local regulations.

The low initial investment, high potential returns, and opportunities for brand building make it an appealing business model. 

However, you need to consider the uncertainty of the market, limited control over leased property, and the high competition. 

As such, it is not a one-size-fits-all solution, and its suitability varies depending on one’s circumstances, risk tolerance, and the work they are willing to put into it.