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44 | What Is Rental Arbitrage & Should You Do It?

Dec 25, 2019

 

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We’re going to talk about rental arbitrage. That sounds like one of those terms a sleazy businessman would use to sell you on some kind of scam, but it’s really not! Arbitrage is an important concept to understand, and leveraging it correctly could allow for HUGE growth potential in your business!

 

So what exactly is arbitrage?

Essentially, arbitrage is purchasing something in one market and then introducing it in another market where there is higher demand for profit. For example, you could rent a location from a landlord (long term rental market), furnish that location, and rent it out on Airbnb (short term rental market). The goal is to take home more from the short term rentals than you are paying in rent.

 

Why should I do retail arbitrage?

With retail arbitrage, you could potentially scale up your Airbnb or short term rental business faster. If purchasing a property isn’t necessarily in the cards for you, this allows you to remain independent while increasing your earning potential.

 

What are some of the risks?

The biggest risk is the long term commitment you will be making. By signing a lease, you will be locked into a property for a certain amount of time. By weighing your options, planning ahead, and diversifying your properties, you can reduce some of that risk. You are also at risk of market swings, where you may end up paying more for a space than you are able to get from rentals.

 

Other considerations

Make sure you are protected in your insurance, and not just the landlord. Plan ahead, and know what your potential profit margins are going to look like before deciding on a property. And make sure you know who is responsible for utilities and making any repairs: you, or the landlord.

It is important to know what your options are. Retail arbitrage is not going to be for everyone, and it may not be the right way to grow for you, but you are better off knowing that it exists and can be a tool to help you expand your short term rental opportunities.

 

Resources:

#STRShareSunday: @enchantedviewcabin

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