Is rental arbitrage profitable? Run the numbers first

Monthly profit = payout after platform and co-host fees − turnover costs − rent − bills. Payback = setup cost ÷ monthly profit.

Rental arbitrage means renting a home on a long lease and hosting it as a short-term rental. Whether it makes money depends entirely on your numbers: the rent, the bills, what it costs to furnish, and the nightly rate and occupancy you can actually achieve. Nobody can promise you in advance that it will be profitable, and this page does not. What you can do is test your own numbers before you sign anything.

Not affiliated with Airbnb, Vrbo or any booking platform. The numbers on this page are a fictional example, not market data.

Check your lease and the local rules first: you need the landlord's written permission and any licence or registration your area requires.

The numbers you need

Fixed monthly costs: rent, utilities, internet, insurance and any other monthly bills.
Setup cost: furniture, linens, kitchen kit, photos and deposits.
Your booking estimate: nightly rate, occupancy and average stay length. These are your own estimates, not forecasts.
Per-stay costs: cleaning and supplies for each turnover, and the cleaning fee you charge.
Fees: your platform host fee and any co-host fee.

Worked example (fictional numbers)

Rent $1,400, utilities and internet $220, insurance and other $80: $1,700 a month.
Setup: $5,000, paid once.
Nightly rate $125, 65% occupancy of a 30-night month, 3-night average stay.
Cleaning fee charged $75 per stay; cleaning and supplies cost $85 per stay.
Platform host fee 3%, no co-host.

65% of 30 nights is 19.5 booked nights, or 6.5 stays in an average month. Guests pay 19.5 × $125 = $2,437.50 plus 6.5 × $75 = $487.50: $2,925.00. The 3% platform fee is $87.75, so the payout is $2,837.25. Turnovers cost 6.5 × $85 = $552.50 and the fixed costs are $1,700, leaving $584.75 a month. The $5,000 setup takes $5,000 ÷ $584.75 = 8.6 months to pay back, if every month looks like this one.

Now test the bad months

Run the same unit at 45% occupancy: 13.5 booked nights and 4.5 stays bring guests' payments to $2,025.00 and the payout to $1,964.25. After $382.50 of turnovers and the same $1,700 of fixed costs, the month loses $118.25. The rent is due whether or not guests book.

In this example the break-even point is about 48.4% occupancy. Each percentage point of occupancy adds 0.3 nights × $125 + 0.1 stays × $75 = $45.00 of guest payments, keeps $43.65 after the 3% fee and costs 0.1 × $85 = $8.50 in turnovers, leaving $35.15. Covering $1,700 of fixed costs takes $1,700 ÷ $35.15 = 48.4 points.

So this example only works if occupancy averages above about 48% across the year at a $125 rate. Ask yourself how sure you are of that, and what your slowest season would look like.

Questions to answer before you sign

Does the lease allow short-term subletting, in writing?
Which licences, registrations, taxes or limits apply where the unit is?
What is your occupancy estimate based on: your own booking history nearby, or a guess?
How many losing months could you cover while the listing gets going?
How long is the lease, and what does it cost to leave early?
Who handles turnovers, guest messages and repairs, and at what cost? A co-host fee comes out of every payout.

Put your own numbers into the rental arbitrage calculator and try lower occupancies and rates until you see where it stops working. The break-even nightly rate calculator shows the lowest rate that covers your costs at a given occupancy.