Property owners, landlords, and HOAs are concerned about property upkeep, rent payments, and budget balance. They also need to be aware of a practice called rental arbitrage and how it could impact the landlord-tenant relationship and create financial issues.
If your property or association permits rental arbitrage, you should learn more about it and understand its advantages and disadvantages, which could impact your property. Let’s examine what rental arbitrage is and what it means for your rental property.
What is Rental Arbitrage?
While most laypeople would assume that rental arbitrage is simply subletting a rental unit, it differs in some key ways. Forbes describes rental arbitrage as the practice of renting out a long-term rental on a short-term basis. It is a very specific form of subletting that usually involves turning over a lease to one individual for an extended period. Arbitrage, however, typically describes renting to many different short-term renters.
The process would include a tenant who rents a property from a landlord and decides to sublease the apartment to someone else or utilizes platforms like Airbnb or VBRO to rent the unit out as a short-term rental. Through this process, the tenant becomes a kind of middle manager of the property as they rent it out to other individuals.
The high cost of rentals combined with the prevalence of sites like Airbnb has led to an increase in the popularity of this process. Unfortunately, some issues could be worrisome for landlords and property managers.
Pros and Cons of Rental Arbitrage
While there are a few compelling reasons to permit this rental tactic within your community, there are some drawbacks to be aware of should you allow this to occur on your property.
Advantages
Filled Vacancies
One of the most time-consuming aspects of being a landlord is finding good renters for your units. The practice of rental arbitrage guarantees long-term income through your original tenant, thus allowing for a steady flow of rent payments.
Increased Income
Many landlords that allow this practice of short-term subletting find that they can get a premium for the units they rent. When the initial tenant feels they can make money on the investment as well, then they are willing to pay a premium for the location and unit. 
Disadvantages
Extra Wear and Tear
Units that are a part of this type of real estate tactic have short-term renters in and out of the unit, thus potentially causing more wear and tear on the property than one would expect with a long-term renter.
Lack of Vetting
By allowing renters to have sub-renters for short periods, similar to Airbnb, landlords lose the ability to vet those who will be on the property.
Are you considering prohibiting or allowing renter arbitrage on your property? Talk to our team at Thayer & Associates about what risks and benefits could land at your feet.