Is Rental Arbitrage against Air BNB Rules?

[Brittany Wade]

Hello! I am a realtor in Kissimmee Florida area trying to help a friend of mine get into rental arbitrage for Air BNB. My broker is advising against this and says that Rental arbitrage is not allowed by Air BNB. In all of the research and videos I’ve watched on the topic I have never heard or seen anything stating this is illegal. Can someone with experience please weigh in on this? 

[Dave Stokley]

“Illegal” and “not allowed by Airbnb” are not the same things. Anyway, I don’t think it is explicitly disallowed by Airbnb. They certainly don’t do any sort of ownership verification before allowing you to list a property.

You'll no doubt hear from the BP community here (probably even before I finish typing this) that despite all the Instagram millionaires STR arbitrage is not a good business model and is generally discouraged.

[Paul Sandhu]

You are a realtor.  You should know the answer.

[John Underwood]

Arbitrage is not a good business model and is generally discouraged.

[Bill B.]

Hey. Thanks! I didn’t think of that one.  Now there’s a new reason to discourage it. Airbnb might change their rules tomorrow and require you to be an owner. Heck certain cities/counties already do that. And as mentioned on a recent BP podcast, other cities are limiting how many you can have.  Any of these things happen and you’re on the hook for a lease you can’t pay. Another reason to only do it when you have nothing to lose if they sue you for breaking your lease. 

Add it to the list of reasons it’s a bad idea. 

[Dave Stokley]

What @John Underwood said.

[Eunice Villarroel]

Rental arbitrage may not be a bad idea for now in certain states but a lot of states are tightening their grips around Airbnb which can lead to laws and regulations changing overnight and you’d be left in a tight spot depending on the terms of the lease. That being said it’s definitely not illegal unless there is a state law against it. As a real estate agent in Florida I am not aware of any laws in place here that make it illegal to perform rental arbitrage on airbnbs. I don’t know that there are certain buildings particularly and heavily populated areas that do not allow for Airbnb rentals but that’s completely different Love you deals directly with the homeowners Association of the property and not necessarily Airbnb or the state of Florida. I will definitely get a second opinion maybe consult another broker on your firm. A lot of brokers are not even aware of what rental arbitrage is so maybe your broker understood a completely different concept. Best wishes fellow Florida agent :)

[Brittany Wade]

I appreciate your insight! Thank you! 

Quote from @Dave Stokley:

“Illegal” and “not allowed by Airbnb” are not the same things. Anyway, I don’t think it is explicitly disallowed by Airbnb. They certainly don’t do any sort of ownership verification before allowing you to list a

[Brittany Wade]

Thanks I appreciate your response!

Quote from @John Underwood:

Arbitrage is not a good business model and is generally discouraged.

[Brittany Wade]

your response is much appreciated and makes a lot of sense. While I think my broker may be misinterpreting the business model, I still understand what you are saying about rules and laws changing over night. Your entire response is greatly appreciated my fellow FL realtor!



Quote from @Eunice Villarroel:

Rental arbitrage may not be a bad idea for now in certain states but a lot of states are tightening their grips around Airbnb which can lead to laws and regulations changing overnight and you’d be left in a tight spot depending on the terms of the lease. That being said it’s definitely not illegal unless there is a state law against it. As a real estate agent in Florida I am not aware of any laws in place here that make it illegal to perform rental arbitrage on airbnbs. I don’t know that there are certain buildings particularly and heavily populated areas that do not allow for Airbnb rentals but that’s completely different Love you deals directly with the homeowners Association of the property and not necessarily Airbnb or the state of Florida. I will definitely get a second opinion maybe consult another broker on your firm. A lot of brokers are not even aware of what rental arbitrage is so maybe your broker understood a completely different concept. Best wishes fellow Florida agent :)

[Kai Kopsch]

It doesn't matter what Airbnb might say, as a realtor, you have to use the NAR rental contract from you're State and RE Commission or an attorney draft one. No BIC that I know would allow using an attorney draft one for a rental the risk is too high for a little rental commission.

The NAR contract is very clear
14. Occupants: The Tenant shall not allow or permit the Premises to be occupied or used as a residence by any person other
Than Tenant and the Permitted Occupants. Tenant shall be subject to a fine of $ _____________________ for any violation of this
paragraph, and Tenant agrees to pay any such fine upon receipt of Landlord’s demand therefor. Payment of any such fine shall not
permit any person for whom the fine was imposed to occupy or use the Premises as a residence.

[Andrew Street]

Rental arbitrage can definitely make a lot of money through cashflow if done right. It's not investing to others points, but it is a way to scale and make money so that you can buy property. This forum discourages it, however, if the money makes sense then it doesn't matter. Airbnb has no rules against arbitrage, you just need to make sure that all the details are hammered out with the landlord and that your city allows for it. Happy to connect for more details on this.

[Nathan Gesner]

Quote from @Kai Kopsch:

It doesn't matter what Airbnb might say, as a realtor, you have to use the NAR rental contract from you're State and RE Commission or an attorney draft one.

Are short-term rentals regulated by that state commission? In my state, rentals less than 30 days are not regulated by the Real Estate commission.

I don't think any of these short-term rental platforms explicitly prohibit arbitrage, but I wish they would. I wish they would require proof of ownership/authority, and proof that the property is properly registered and authorized to operate as a short-term rental. Of course they won't do that because it would probably cut their numbers by 50%

[Brittany Wade]

Thank you I appreciate your response 

Quote from @Kai Kopsch:

It doesn't matter what Airbnb might say, as a realtor, you have to use the NAR rental contract from you're State and RE Commission or an attorney draft one. No BIC that I know would allow using an attorney draft one for a rental the risk is too high for a little rental commission.

The NAR contract is very clear
14. Occupants: The Tenant shall not allow or permit the Premises to be occupied or used as a residence by any person other
Than Tenant and the Permitted Occupants. Tenant shall be subject to a fine of $ _____________________ for any violation of this
paragraph, and Tenant agrees to pay any such fine upon receipt of Landlord’s demand therefor. Payment of any such fine shall not
permit any person for whom the fine was imposed to occupy or use the Premises as a residence.

[Chad McMahan]

Quote from @Brittany Wade:

Hello! I am a realtor in Kissimmee Florida area trying to help a friend of mine get into rental arbitrage for Air BNB. My broker is advising against this and says that Rental arbitrage is not allowed by Air BNB. In all of the research and videos I’ve watched on the topic I have never heard or seen anything stating this is illegal. Can someone with experience please weigh in on this? 

Brittany,
this is a bit embarrassing. As a realtor, do your research and trust your broker. Definitely do not post on a high caliber investment site like this, that as a realtor you want advise on basic topics and do not understand the difference between illegal and what a company policy is.

[Brittany Wade]

As you stated this is a high caliber investment site, and I would like the opinion of high caliber investors who have done this before. I have done research on the matter, which I did state in my question. My broker, a person who I trust as very knowledgeable has told me that rental arbitrage is against Air BNB rules which is something I have not yet run across and am unable to verify. Posing such a question is not embarrassing to me as I am not a expert on the matter that you say is basic. I appreciate the value that others have given, even the ones siding with my broker. But the insults I can do without. Thanks for chiming in.



Quote from @Chad McMahan:

Quote from @Brittany Wade:

Hello! I am a realtor in Kissimmee Florida area trying to help a friend of mine get into rental arbitrage for Air BNB. My broker is advising against this and says that Rental arbitrage is not allowed by Air BNB. In all of the research and videos I’ve watched on the topic I have never heard or seen anything stating this is illegal. Can someone with experience please weigh in on this? 

Brittany,
this is a bit embarrassing. As a realtor, do your research and trust your broker. Definitely do not post on a high caliber investment site like this, that as a realtor you want advise on basic topics and do not understand the difference between illegal and what a company policy is.

[James Hamling]

Unless a person has COMPLETE competency in performing a STR-A, they should NOT do it.

I do a fair # of these with many clients and ALL are doing fantastic. I appreciate persons assumptions STRA is no good, but it's far from the truth. It IS a mastery level of contracts to do it correctly, lot's of ways to do it wrong, very few on doing it correctly so it's a win-win-win. 

STRA is at it's foundation simply a lease with rights to sub-let. These have been around for decades, pre-dating Air BnB by decades. If don't have full comprehension of these, then it's well beyond your knowledge point and don't try it. 

I do not know of 1 jurisdiction who has any kind of "bar" to subletting. HOA's yes, fairly common they have such, not a governance as a whole.

Again, it does require a very high level of knowledge and experience so it is NOT for the novice at all, but far from "bad". 

[Luka Jozic]

Quote from @John Underwood:

Arbitrage is not a good business model and is generally discouraged.

 I'd like to understand why that is. Do you have a link to some of those older links that you have mentioned?

[John Underwood]

Quote from @Luka Jozic:

Quote from @John Underwood:

Arbitrage is not a good business model and is generally discouraged.

 I'd like to understand why that is. Do you have a link to some of those older links that you have mentioned?

 There are a lot of them. The search function should find them.

[Alex Hochberger]

It's not investment, and it's certainly riskier, but it's not some absurd concept.

Leasing an item to use in business is pretty standard.

I don't see why leasing an apartment or house to use as a short term rental is any crazier than renting a crane and using it in construction. I have leased an office to run a business in it. At one point I incubating other businesses in spare space in my office as an equity opportunity.

I don't like the term arbitrage. Arbitrage is a risk free transaction to buy and sell at the same time and pocket the difference. It's really just leasing instead of owning the underlying asset.

But if you are leasing the property at a premium for the right to use it as a STR, that's a win for the landlord. If you can use the leased property in a STR Business, then that's a win.

But's it's not an investment, it's a business. The investor portion is whether a landlord should rent their property to an AirBNB host for a premium or insist only on primary residential usage. The business use of the property is a red herring for investing.

[JD Martin]

As a property owner, I would never allow a tenant to sub-let my property for any reason whatsoever. And the above examples I don't think are good analogies - renting a crane and using it for other productive work is not the same thing as renting something and just pocketing the middle man fee. A closer analogy would be: renting aisle space from Wal-Mart or Kroger to sell groceries. What logical reason would the retailer have to rent you their space to do the exact same thing they're doing? 

If you rent out a property to someone, the property is the product and the rental - long term or short term - is the service. If someone rents the property so that they have office space to run some other business, that is not the same thing as renting the property so they can just re-rent it to someone else for more money. 

In any case, "rental arbitrage" is almost 100% done because the lessee is broke as a joke and couldn't muster up bus fare home, so they use someone else's asset in order to cover for their lack of resources. If a landlord wants to do this on the up-and-up, I don't have a problem with it either way, but I would hazard a guess that 95% of all arbitrage is done against the lease and the landlord's wishes, because I've personally never seen a professional lease that permits subletting. Most of the people looking for arbitrage targets look for one-off Mom/Pop outfits that work off some lease they drew up in 10 minutes on Microsoft Word or a notepad, where subletting isn't explicitly prohibited.

Because, again: if I have a property, and it can make more money STR than LTR, what sense does it make to give Broke Joe the keys when I can just make the money myself? Even if I don't want to do it myself, I can just hire a PM and keep *all* the profits.

[Nick Mcroberts]

Quote from @Chad McMahan:

Quote from @Brittany Wade:

Hello! I am a realtor in Kissimmee Florida area trying to help a friend of mine get into rental arbitrage for Air BNB. My broker is advising against this and says that Rental arbitrage is not allowed by Air BNB. In all of the research and videos I’ve watched on the topic I have never heard or seen anything stating this is illegal. Can someone with experience please weigh in on this? 

Brittany,
this is a bit embarrassing. As a realtor, do your research and trust your broker. Definitely do not post on a high caliber investment site like this, that as a realtor you want advise on basic topics and do not understand the difference between illegal and what a company policy is.

 It would be one thing to advise someone on a topic and then it would be a completely different thing to give advice.......if you're going to chastise someone for asking a legitimate question at least run spell check before you give your enlightening response. 

[Alex Hochberger]

Because the underlying housing asset (the leased property) is only one component of an STR hosting business. A hosting business involves marketing (LTR only markets when there is a vacancy), cleaning/turnover, check-in/check-out procedures, and a concierge communication.

The analogy to Walmart is absurd. It’s is much more analogous to the large department store having a premium brand running a dedicated area with their own expert staff- which is exactly what they do.

Look at the various “make up” counters in any mall anchor department store. They are managed by those brands.

Running an STR business is an active business. Leasing a LTR is classified as passive despite the occasional needs to actively protect the asset.

In Ocean City, NJ there was a little store that had stores within it. LocaL artisans could rent an area to sell their stuff. I have no idea if the booth was rented directly from the property owner or if someone rented it to run that mall and subleased the spaces, but not sure why it matters. Hair dressers “rent their seat” in salons all the time.

Now a residential property owner may not want their property used as a quasi hotel, but suggesting there is no reason that someone could do something absurd like leasing an asset to use in a buusiness is rude and demeaning.

[Scott MacComb]

I've also been considering this as an idea for generating cash flow with minimal capital outlay. The concept is the same as the hotel industry where many hotels are owned by a REIT/Landlord who leases it out to an operator/manager. The operator/manager runs the business while the landlord receives a fixed rental income or even some percentage rent upside. Similarly, by renting out their house to a STR operator, the landlord receives secure rents rather than taking on the heavy lifting of operating a STR. If the STR operator (master tenant) is really good at running STR properties, they can generate more revenue than the LL might have done on their own.

What are some of the key lease provisions people are using? Termination right if STR no longer allowed, profit sharing, purchase option or ROFR, length of lease and lease options, how to handle major repairs, who pays initial investment in upgrading property, etc.

P.S., this is also similar to co-working locations where the operator signs a master lease with the building owner and then rents out cubicles to individual customers.

[John Underwood]

Quote from @Scott MacComb:

I've also been considering this as an idea for generating cash flow with minimal capital outlay. The concept is the same as the hotel industry where many hotels are owned by a REIT/Landlord who leases it out to an operator/manager. The operator/manager runs the business while the landlord receives a fixed rental income or even some percentage rent upside. Similarly, by renting out their house to a STR operator, the landlord receives secure rents rather than taking on the heavy lifting of operating a STR. If the STR operator (master tenant) is really good at running STR properties, they can generate more revenue than the LL might have done on their own.

What are some of the key lease provisions people are using? Termination right if STR no longer allowed, profit sharing, purchase option or ROFR, length of lease and lease options, how to handle major repairs, who pays initial investment in upgrading property, etc.

P.S., this is also similar to co-working locations where the operator signs a master lease with the building owner and then rents out cubicles to individual customers.

It takes a considerable amount of effort and money to adequately furnish a house to make it a decent STR.