SingleKey

We’ve acquired Canada’s leading tenant screening provider, Naborly! 🎉 Learn More

Download Free Rental Application
Forms

What goes into evicting a tenant
in Canada?

Free residential tenancy agreements for every Canadian province

Find out how much it costs to evict a tenant in Canada

SingleKey 2021
Rental Reports

Tips, resources and advice for landlords and property managers

Airbnb Arbitrage – Should you let your tenant rent out your property to short-term renters?

If you’ve been a landlord for a while, there’s a good chance you may have been approached by someone expressing interest in leasing your property and renting it out on Airbnb or a similar short-term rental platform. Welcome to the world of Airbnb arbitrage!

Airbnb arbitrage (or simply rental arbitrage) is a relatively new business model. It emerged as a money-making strategy from the growing popularity of vacation rental platforms like Airbnb, Vrbo, and HomeAway. It enables individuals to earn rental income as a side hustle or full-time business endeavour.

But the critical question for you, as a landlord, is whether you should allow a tenant to engage in this type of business in your rental property.

In the latest For Rent podcast, Mackenzie Wilson explains the pros and cons of Airbnb arbitrage from the perspective of property owners and offers advice on how to vet an Airbnb host the right way.

Let’s dive in!

What is Airbnb arbitrage, and why is it so popular?

Airbnb arbitrage is an easy business model to grasp: An Airbnb host becomes your tenant and, in turn, rents out the property to short-term renters (subtenants) through Airbnb’s website. The Airbnb host earns a profit on the difference between the rent they pay you and the rental income they generate from the subtenant. 

In general, an individual pursuing Airbnb arbitrage won’t be the one living in your property – they’re using it strictly for business purposes. However, they’ll typically take charge of duties you’d generally assume as the landlord. These include advertising the property, screening tenants, and maintenance.

 Airbnb arbitrage is growing as an investing strategy because it allows individuals to earn rental income without needing to purchase the underlying property. It’s a shortcut to being a landlord. And it can yield lucrative returns if done right.

Pros of Airbnb arbitrage

Professional property management.

A well-organized and reputable host will oversee cleaning duties, conduct minor repairs, and ensure your rental is well-maintained between tenancies. As a result, you’ll have more time to attend to other business needs. Since the Airbnb host’s target market is short-term renters, your property will likely benefit from superior upkeep compared to a regular tenant. The reason is that the Airbnb host has a financial incentive to keep things neat and tidy to attract renters.

Lower tenant turnover

As long as their arbitrage operation is profitable, an Airbnb host will likely be your tenant for an extended period. They’ll happily renew their lease year after year. As a result, you’ll spend less time and money searching for new tenants and benefit from a steady rental income.

No need to find and screen new tenants

Finding suitable tenants and screening them can be tedious, especially if turnover is high. Luckily, the Airbnb host will relieve you of this task as it’ll be their responsibility to source and short-term vet renters. That means you’ll play more of a passive role in your rental business, which means you can dedicate your time to other priorities.

Strong business relationship potential

An Airbnb host has the motivation to foster a positive relationship with you, as it increases the chance for future business opportunities and collaboration. This isn’t surprising, as the two of you share a common business goal: earning consistent rental income. For this reason, you can expect a degree of honesty, transparency, and professionalism that you may not find with a regular tenant. 

Cons of rental Arbitrage

Less control

If you’re a hands-on property manager, relinquishing control to an Airbnb host could be problematic. Because you won’t be in charge of many day-to-day decisions in running your rental, you’ll have fewer opportunities to ensure things are running smoothly. You’ll need to depend on the host to ensure nothing goes wrong.

Higher risk of property damage

Airbnb arbitrage focuses on short-term tenancies, which typically last one month or less. Due to the high tenant turnover rate, there’s an elevated risk of one of the guests causing severe damage to your property.

No personal vetting of subtenants

Since the Airbnb host bears responsibility for screening tenants, there’s a risk you could wind up with one or more problematic individuals living in your rental. Essentially, you’re trusting the Airbnb host to vet each tenant competently. Many issues can arise if they fail in their duty, including the guest causing property damage and engaging in criminal activity.

Potential for wide swings in rental income

Depending on your property’s location, the Airbnb host’s rental income may fluctuate widely. They may fall behind on their lease payments to you if it drops substantially. For example, if they cater your rental exclusively to tourists, a significant recession, weather event, or pandemic like Covid-19 could trigger a sharp drop in demand for their services.

Should you permit your tenant to rent out your property on Airbnb?

Each landlord has their opinion on whether Airbnb arbitrage is something to embrace or reject. However, the truth is that it’s neither purely good nor bad. Instead, it depends on how comfortable you are with the concept and the quality of the Airbnb host you take on as a tenant.

With the right host, Airbnb arbitrage poses no threat, and you can benefit from the arrangement. With the wrong host, you can experience all sorts of issues that can adversely impact your bottom line – and cause immense stress.

What to consider before allowing Airbnb arbitrage in your rental property

Let’s assume you’ve weighed both the pros and cons of Airbnb arbitrage and are considering accepting an Airbnb host as your tenant. In that case, it’s imperative to do extensive research to ensure the host you choose runs a successful Airbnb business operation.

As Mackenzie points out, “If you do your due diligence, as you always should when finding the right tenant to put in the property, and ask the right questions, you’ll verify very quickly if this person has a legitimate business, has systems in place, or is a fly-by-the-night individual who’s trying to make a quick buck.”

Here are some of the critical factors to evaluate when screening an Airbnb host:

Website

Pretty much every business today has a website, so be sure to check how Airbnb host presents themselves online. A serious host should have a professional, well-organized website with helpful content that conveys a consistent brand. These are clues that suggest the individual or company takes their business seriously.

Licensing and regulations

Each municipality has regulations that govern the operation of short-term rentals. You’ll need to become familiar with them to ensure you and the Airbnb host aren’t breaking any rules. Otherwise, you end up paying a hefty fine or face a lawsuit.

Many jurisdictions require an Airbnb host to register their business, obtain a licence, and adhere to specific bylaws, so verify that your host meets these requirements. Also, ensure they can legally operate an Airbnb business in your district – zoning regulations may prohibit short-term rentals in some regions of your city.

One thing to note is that some municipalities have a primary-residence requirement. This regulation specifies that the Airbnb host must live in your rental to operate their arbitrage business legally.

Most municipalities classify short-term rentals as those were the tenancy lasts 30 consecutive days or less. Tenancy periods that exceed this limit are typically subject to different regulations.

Liability insurance

To shield yourself from lawsuits and costly repair bills, ask the Airbnb host if they have their own liability insurance. If something goes wrong, their insurance provider will step in to cover any claims involving injuries or property damage.

Some short-term rental platforms sell liability insurance policies, which the Airbnb host may carry. For example, Airbnb offers AirCover for Hosts, which provides up to $1 million in coverage.

 Suppose your tenant doesn’t have short-term rental insurance. In that case, you can purchase the coverage personally, adding it to your homeowner’s insurance policy. Still, an Airbnb host with liability insurance indicates they’re trustworthy, professional, and reliable.

Social media presence

Like a sleek and professional website, you can garner crucial information about an Airbnb host’s business by examining their social media presence. Online visibility is vital for any company today, so a legitimate Airbnb host will likely use social media for marketing their business effectively.

Check out LinkedIn, Facebook, Twitter, and other social media websites to see how the Airbnb host presents themselves:

    •  Is their brand, messaging, and overall content consistent across each platform (and their website)
    • Are they active on each platform, posting regular messages and responding to inquiries?
    • Do they engage with their clients, landlords, and others within their industry? 
Airbnb profile

If your tenant purports to run an Airbnb arbitrage business, they should be visible on Airbnb’s website. Ask them to provide a link to their Airbnb profile (or whichever platform they use) and review it to determine how effective they are as hosts. Be sure to look at the following:

    •  Length of business history – the longer they’ve been around, the better, as it indicates they have plenty of experience running short-term rentals.
    • Reviews – are most customers raving about their service, leaving five-star reviews? If so, that’s a good sign.
    • Level of detail – a profile that provides loads of helpful information, including plenty of pictures, shows the host has nothing to hide.
    • Response rate and time – some short-term rental platforms show how quickly the host responds to inquiries. A fast response time indicates punctuality and solid communication, a positive attribute you want in a host. You can also test their timeliness by emailing or texting them several times and seeing how quickly they respond.

Our Final Thoughts

Depending on your risk tolerance, preferences, and goals, allowing your tenant to transform your rental into an Airbnb business may or may not be for you. As we’ve discussed, this arrangement has clear benefits and drawbacks.

However, if there’s one thing you need to remember, it’s this: always do your due diligence if you’re considering taking on an Airbnb host as a tenant.

Research the candidate thoroughly to ensure they’re honest, reliable, and competent. By doing so, you can identify a quality host and reap the benefits of Airbnb arbitrage while avoiding the pitfalls.

Of course, it’s always possible things can go awry. For example, the Airbnb host may fail to secure tenants and fall behind on their rent payments. As a result, you lose your income stream overnight – not good!

It only takes one non-paying tenant to devastate your rental’s profit margins, which is why SingleKey developed the Rent Guarantee program. By enrolling in the program, you’ll be eligible to receive up to $60,000 in lost rent over a maximum period of 12 months should your tenant default on their payments. As a bonus, you’ll also receive coverage for up to $10,000 in property damage.

Click for the BBB Business Review of this Screening - Tenant in Toronto ON
Join Our Newsletter
Contact
The SingleKey Rent Guarantee coverage is provided by Lloyds Lloyds Crest Lloyds, rated A+ by A.M. Best. Coverage is offered in the form of a surety performance bond. SingleKey is a participating member of Protected Cell Captive insurance company that is one hundred percent reinsured within the Lloyd’s Market rated A+ by A.M. Best. 

© All rights reserved SingleKey 2022.