Summary: Short-term rental arbitrage is a strategy to get into the short-term rental game and generate additional income. While it can be a source of extra income, it’s not a wealth-building strategy. Ultimately, if your goal is to get rich with short-term rental arbitrage, you’d be better off buying and operating your own short-term rental.
[Disclaimer: We are not accountants, lawyers or financial advisors, so please consult your own team of professionals about the topics covered in this article.]
Over the past several years, short-term rentals have grown in popularity since they can be a great way to generate an extra source of income, while also providing you with substantial tax benefits.
However, buying a property, fixing it up and furnishing it requires a significant financial commitment. This poses a substantial barrier to entry, especially for those with lower incomes.
This is where short-term arbitrage comes in. It’s a way for someone to get into the short-term rental game with less money.
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What is short-term rental arbitrage?
Short-term rental arbitrage is when you lease someone’s property, furnish it, then rent it out as a short-term rental. It’s also known as master leasing.
The idea is to make more money from using it as an Airbnb than the costs associated with leasing the property. This could include not only the rent, but also the utilities, parking fees, and whatever other fees you’re required to pay the owner to rent the property.
What are the upsides of short-term rental arbitrage?
The main upside is what we discussed before. You don’t have to come up with the money to buy the property, and assuming you do a good job operating the property as a short-term rental, you can make money without owning the asset.
Another benefit is that you’re not responsible for the property itself. That’s the owner’s responsibility. The owner is responsible for maintaining the property. They have to pay property taxes and they are liable for any additional fees, such as HOA dues.
What are the downsides of short-term rental arbitrage?
Finding an owner willing to let you operate the property as a short-term rental is one of the main drawbacks of short-term rental arbitrage. Owners may believe that the property will sustain more wear and tear. They may think they will receive complaints from their neighbors and that they will be held accountable for injured guests. As a result, they may want to charge you a higher monthly fee and expect you to assume responsibility for all guest-related issues.
We know some people who do not get the necessary permission from the owner. This is risky because the proprietor may shut you down if you do not obtain the approval. There will also be a significant amount of added stress on you.
Furthermore, one of the major downsides of short-term rental arbitrage is not owning the asset – more on that below.
Why short-term rental arbitrage won’t make you rich
Why is owning the asset so important?
Wealth building is about accumulating assets. So if you want to become rich, you need to acquire more assets.
With short-term rental arbitrage, you use someone else’s asset to make money. It’s a job, not a wealth-building strategy. When you stop operating the short-term rental, you stop earning money and have nothing to show in your asset column for it.
In contrast, when you own the asset, you can hire someone to do all the work of operating the short-term rental, and it will generate money. Over time, you’ll pay down the mortgage. The property will likely appreciate. And it can be passed down to many generations to eventually make your grandkids money.
For high-income professionals, it makes even less sense to pursue short-term rental arbitrage because you are still trading time for money, but probably at a lower rate than you can make in your day job. So using your time this way may actually make you poorer!
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Key takeaways
If you’re thinking about short-term rental arbitrage to get into the short-term rental game, consider the reasons and whether or not it aligns with your goals.
Short-term rental arbitrage may be suitable for someone without a lot of funds to acquire a property. It can be a means to an end, with the end being to eventually acquire a property to use as a short-term rental. However, it will not be suitable for someone who has the assets to acquire a property themselves or isn’t looking for another lower-paying job.
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