Subleasing Airbnb properties for profit is a business model involving renting a property from a landlord and subletting it on a short-term basis on platforms like Airbnb, Vrbo, or Booking.com. You are both a tenant and a host, acting like an intermediary between the landlord (property owner) and short-term guests. With careful planning and legal oversight, subleasing arrangements (rental arbitrage) can substantially increase your annual income without owning an additional property, whether you need extra cash or want to build a business.
The Subleasing Business Model
For example, getting started on re-renting or sub-leasing on Airbnb (other platforms will have different requirements and rules) requires having good credit, connecting with amenable landlords, furnishing the rental, and listing it on Airbnb.
While some landlords reject rental arbitrage, others are happy to have a steady lessee who maintains the property. Property owners using real estate investments to garner favorable tax breaks or create inheritance structures are less concerned with maximizing profits on monthly rental rates. A symbiotic relationship allows the lessee to maximize monthly profit and take their cut.
Before Rentals in Your Area Before You Begin
Solid market research is essential before taking the plunge into rental arbitrage. Identify which cities or areas can create a lucrative vacation rental business in a highly trafficked area. Ensuring stable rental income flows will be challenging without identifying the right location, such as active cities with tourist attractions.
Run the numbers and calculate the potential return on investment (ROI) that a property can generate. Remember that while properties on the outskirts of a city look more affordable, you will rent more consistently with locations close to main attractions and amenities like a grocery store or metro station. Also, when you rent in a popular tourist area, you can charge a higher nightly rate.
Starting costs will typically include:
- Application fee
- Deposit (and subsequent monthly rent)
- Legal fees such as licenses, permits, etc.
Legal Considerations of Rental Arbitrage
From a legal standpoint, there are many laws and rules of Airbnb (or other platforms). Subleasing can be a legitimate business venture. However, it may lead to legal and ethical issues if not done correctly.
Check the Platform’s Terms and Conditions
You must abide by Airbnb policies and terms of service. Subleasing might be prohibited or restricted in certain cases, so thoroughly review the terms and conditions.
Get Permission from the Host
If you’re not the property owner (host) but want to sublease the property, you must obtain explicit permission from the host. Subleasing without the host’s knowledge or consent can lead to serious consequences, including removal from the platform and potential legal actions.
Understand Local Laws and Regulations
Subleasing laws may vary depending on the location. Some cities and neighborhoods have specific short-term rental and subleasing regulations. Ensure you comply with all local laws and tax requirements.
Set Clear Agreements
Create a clear and comprehensive agreement between you and the host for subleasing. This agreement outlines responsibilities, revenue sharing (if applicable), and other relevant terms.
Maintain Transparency with Guests
Make it clear to guests you are not the owner but acting on their behalf as a subleaser on a property through Airbnb.
Ensure Proper Insurance Coverage
Confirm that the property owner’s insurance covers subleasing activities or acquire additional insurance to protect yourself and the property.
Provide Excellent Guest Experiences
Reputation is crucial in the short-term rental business. Positive guest experiences create good reviews, attracting future bookings. If problems do arise, address them promptly and responsibly. Issues may include maintenance, disputes, or anything impacting the guest’s experience.
Be Aware of Taxes
Subleasing may have tax implications, so it’s essential to understand these obligations and keep accurate financial records.
How a Real Estate Attorney Can Help
You may want to consult with and retain the services of a real estate attorney when planning to sublease an Airbnb property that you don’t own to help you avoid potential legal issues. A real estate attorney can provide advice and guidance specific to your jurisdiction and the unique circumstances of your subleasing arrangement.
Reasons to consult a real estate attorney include:
A real estate attorney knows how to draft a comprehensive sublease agreement and outline terms and conditions, including responsibilities, rental rates, and any limitations the property owner sets.
If you plan to sublease without the property owner initiating the subleasing, you’ll need to obtain explicit owner permission. A real estate lawyer can guide you through the appropriate steps, ensuring you have proper authorization.
A real estate attorney can give advice that protects you from potential legal liabilities during subleasing.
Reviewing the relevant insurance policies associated with the property with your real estate lawyer can help determine if additional coverage is necessary to protect your interests during the sublease period.
Subleasing can have tax implications. A real estate attorney can provide insights into potential tax obligations and how to handle them properly.
If any disputes arise during the sublease period, a real estate attorney can guide you through the resolution process and protect your interests. Negotiations that foster resolutions are far less expensive than litigation.
Rental arbitrage is a low-cost way to enter a growing and often lucrative business model if approached properly. Consulting our real estate attorneys experienced in short-term rentals and subleasing will provide you with the most relevant and up-to-date advice.
We can discuss your situation and help you understand your legal rights and responsibilities, drafting a sublease agreement that is fair to both you and your landlord.
We hope you found this article helpful. Contact our Chicago area office at 630-568-6656 to discuss how we can help you with any legal questions you may have. We look forward to the opportunity to work with you.