Last updated on June 26th, 2023
Table of Contents
What is Rental Arbitrage?
Rental Arbitrage is a method similar to house hacking. But unlike house hacking in Rental Arbitrage, you don’t own the house. Instead, you convince a landlord to lease you a property which you then furnish and sublease on Airbnb and VRBO.
Rental Arbitrage is a really good method to do in a multifamily house, duplexes, or triplexes. You can easily use the money from your short-term rental to pay off your lease and also profit some more. If done right this can be a full-fledged business in itself. If you own a duplex or triplex then it is pretty straightforward. You can live in one section and rent out the other. This is known as house hacking. People use this after taking a loan on a property and use the rent to pay off the mortgage. The short-term rent helps you pay for the long-term lease that you have on the house. This helps you keep the difference at the month-end after paying for the long-term lease. Let’s take an example to help you understand Rental Arbitrage better.
Assume you are renting a duplex in Orlando for $1,800/month. You are living by yourself on one of the sides and you decide to sublease the other on Airbnb. Let’s say you listed it for $100/day and got 80% occupancy. This will bring in approx $2,600/month in revenue. Not only will it help you pay off your complete rent, but give you a profit of $800. This, in a nutshell, is called Rental Arbitrage.
Read more in detail about short-term rental arbitrage to make sure that you’re on the right track!
Things to do before getting started?
How to convince the landlord
Let’s say you want to get into Rental Arbitrage. Now comes the big question, how to find a good property and how to convince the landlord. Later in the blog, we’ll be explaining how to find a good property by doing proper research using vacation rental analytics. In this section, we will be focusing more on how to convince landlords. As you’ll begin your Rental Arbitrage journey, you’ll come to know that this is the hardest part of the whole process.
You need to be prepared and well researched, good communication skills come in handy here. Also, one thing to always keep in mind: never sublease without informing the landlord, there will be a huge number of people coming in and going out when you’re sub renting, it will not be hard for the landlord to figure out that you are subletting and you might end up getting in trouble.
For the convincing, rule number one is always talking about the upsides. If you can rent the property on Airbnb, so can the landlord himself. You need to make a deal with the landlord that is beneficial to them. So they lease the property to you instead of renting it by themselves.
Points to tell an indecisive landlord.
- Doing Rental Arbitrage is a full-time business. It doesn’t generate passive income like long-term leasing. You should try approaching older people who are looking for some sort of passive income. They are more likely to agree to a fixed long-term lease. You can also reach out to full-time working professionals or business owners. They will also be happy with a source of passive income till their property is well maintained. This brings us to our next point.
- You are more likely to take care of the house than a normal renter. As you are using the property to do business you will take good care of it to make sure you get better reviews. Having a beat-up property isn’t good for business and you are more likely to monitor it often. Not monitoring it will affect your revenue a lot. You may end up paying a huge sum of money for damages done by someone else. So telling this to the landlord might instill some confidence in them.
- You can ensure timely monthly rent. You can tell the landlord that doing Rental Arbitrage is a full-time business with ups and downs. It doesn’t guarantee fixed income at all like long-term leasing. But if they lease it to you, you’ll make sure to pay the lease no matter what. Either from the money made after rental arbitrage or from your savings. You need to ensure timely monthly lease payments to gain the trust of a landlord.
In conclusion, you need to take care of the property like your own. Make sure to timely pay the monthly lease and keep the situation beneficial for both parties.
Ensure the Property and Gain landlords’ trust
Being on the safe side is always a good idea. From trouble guests to bothering landlords. You need to make sure you are using the right tools to ensure the property is safe and neighbors are happy. Many landlords will have this concern when renting out their property to you. They will be worried about neighbors raising noise complaints. It is a legitimate concern. To help you with all these problems, here are some suggestions that you can implement and have peace of mind.
- Simply Safe – These are home monitoring tools that you can install in the house to make sure no suspicious activity is happening there. Make sure to let the guests know about them and have their consent.
- Auto host – Automatically screens problematic tenants.
- Alexa Guard: If you already own an Alexa, you can use its Alexa guard feature to detect parties. It is an inbuilt feature that monitors changes in sound and sends you an alert in case the guests are having a party and making too much noise.
- InsuraGuest – This insurance and tech company helps you with risk analysis and gives protection beyond Airbnb and VRBO policies.
- Vacation Rental Income Calculator – Give your landlord ease of mind by providing income estimates backed by Airbnb data.
You can integrate the majority of these tools with a PMS of your choice.
Pro’s and Con’s
The initial cost of starting Rental Arbitrage Orlando?
You can expect to spend anywhere between $3,000 to $5,000. This cost consists of everything including deposit, furnishing, amenities, legal paperwork, and LLC Incorporation.
But doesn’t this contradict the low upfront cost of Rental Arbitrage? Well, these estimates vary from city to city. There is a possibility to do Rental Arbitrage for even less than this depending upon your situation and the type of property you lease.
Still, the amount is much less than investing in a new property and getting a mortgage of thousands of dollars. Plus you won’t be on the hook for property maintenance expenses and being stuck for years with debt.
But this doesn’t mean Rental Arbitrage can be done with no or very tight budget. There will be some upfront costs that you would have to bear. Having some extra cash is also a good thing to have. It will help pay off the lease in not-so-profitable months in case bookings don’t happen right away.
Expense 1: Rental Deposits
A Rental Deposit is going to be one of the first and major expenses. You would need money to be able to sign a long-term lease with the landlord. For that, you will need a Security deposit, First and Last month’s rent. Sometimes you can negotiate with the landlord and use the first month’s rent as a security deposit.
Expense 2: Furnishing
Most of the time you should always aim to lease a semi-furnished place. As someone with a fully furnished home might be doing short-term rentals themselves. Also furnishing a place from scratch can add anywhere from $3,000 to $5,000 to your initial capital. Not choosing the right property can make Rental Arbitrage not so low cost, so choose wisely.
If the place is semi-furnished, then your best bet is to shop cheap for the rest of the stuff. You can go and find cheap supplies from places like Home Depot and IKEA. Sometimes even Walmart can have a hidden gem if you look closely.
Expense 3: Photography
Do it yourself!!! iPhones have good cameras. Will save you some money.
Expense 4: Cleaning Services
This is not a starting cost, but you will end up spending on cleaning eventually. The best way to save money is to do it yourself initially if you have the skills and experience.
If you have no experience or you don’t want to invest time in cleaning a place. Then your best bet will be to hire a professional cleaner. This can cost you anywhere from $50 to $250 depending upon the size and location.
Expense 5: Legal Consultation
Maintaining a professional relationship with a Real Estate lawyer can be very helpful in the Airbnb business. Airbnb regulations keep updating and you would need some legal guidance on the way to adjust your business accordingly.
They can also come in handy if you face any legal issues with the landlord or guests. They can help in damage claims and insurance as well in case of any mishappening.
Legality and Regulations in Orlando
Residents in Orlando can now register their home as a home-sharing house as of July 1, 2018. Yet, there is one snag: you cannot rent out your entire home. Homes, so, are being approved for house sharing to advertise on Airbnb and other similar sites. To receive a short-term rental permit from the city of Orlando, you must first submit an application.
A short-term rental property permit for anyone who wants to use a section of their home for a short-term rental is necessary.
You must complete these conditions to rent out a piece of your house for a short-term rental.
- If you have a residential rental property, you can only rent out half of it.
- You can only rent out half of your home;
- You can only rent out half of your home;
- Only one reservation can get done at a time.
You must collect sales tax besides possessing a short-term rental property permit. The Florida Department of Revenue will need you to register. Short-term rentals are often known as “transient” rental arrangements.
Apart-hotels are becoming popular among residential complexes, and Orange County is approving them. It’s a reliable source of cash that’s also pretty appealing. Many apartments from a complex are rented out by property management businesses. After that, you may rent them out on short-term rental sites like Airbnb. Only a few properties in Orlando were approved for master leases or corporate leases.
On its website, Airbnb provides a wealth of information on local rules in various places. . This information is useful in establishing whether your home complies with the Airbnb rules and legislation. Before moving forward with Airbnb, we recommend meeting with a local legal or tax specialist.
The Land Development Code
It is a set of rules that governs land use. Orlando City Code contains information that is relevant under the Land Development Code. The majority of land use in Orlando is overseen by this. You can check here to determine if your listing complies with any zoning regulations. “Apartment,” “accessory apartment,” “dwelling,” “bed and breakfast facility,” “commercial dwelling unit,” “commercial usage,” “dwelling,” “dwelling unit,” “group housing,” “hotel,” “motel,” “residential use,” and “owner-occupied home sharing” are all crucial terms to look for when searching.
Housing and Building Codes
You should review the rules and regulations governing the smallest building construction, design, and maintenance standards. Regulations on habitability, health, and safety should all be considered. Your listing may be subject to some limitations. The Orlando City Code contains the Building Code and the Minimum Standards Code.
Registration of a company
The city of Orlando requires all firms to get a business tax receipt. The Orlando City Code can assist you in determining whether these rules apply to your listing.
Owner-Occupied Home Sharing In Orlando, you must register for owner-occupied home sharing. The Home Sharing Registration page has further information about fees, registration requirements, and the registration application.
Because of Orlando’s zoning restrictions, this is necessary. When renting out a piece of your home, they need you to be present.
Taxes in Orange County
Within the city of Orlando, Orange County collects tourist development taxes. Hotels, inns, tourist homes or houses, and other home-sharing properties are all subject to these taxes.
For transitory rental accommodations in Orlando, you must collect sales tax. You will need to collect this from each renter because you can only offer short-term rental alternatives due to zoning rules.
There are a few more rules to investigate and understand. These include other contracts or rules that bind you.
Leases, condo board or co-op rules, HOA rules, or rules set by tenant organizations could all be examples. Checking with your landlord is the best method to find and understand these. You might be able to locate them in your lease agreement as well.
Best areas for Rental Arbitrage Orlando
Some obvious places come to mind when thinking of Orlando like Lake Underhill, Mills 50 and Rose Isle. But two of the best choices for rental arbitrage top our list. The first one is:
According to our Airbtics Dashboard, Parramore is the top market to start your Rental Arbitrage business. There are more than 17,185 Airbnb listings with 3,598 private rooms properties and 2,160 one-bedroom properties. Monthly revenue for most properties is more than $3,090/month with occupancy being more than 50%.
2. South Eola
According to our Airbtics Dashboard, South Eola is the second-best market to start your Rental Arbitrage business. There are more than 15,235 Airbnb listings with 3,457 private rooms properties and 2,085 one-bedroom properties. Monthly revenue for most properties is more than $3,034/month with occupancy being more than 48%.