The Short Answer
Rental arbitrage is leasing a property from a landlord and operating it as a short-term rental, keeping the difference between guest revenue and your costs. It is risky because you owe rent whether or not the unit books, you depend on the landlord's continued permission, and you build no equity.
How It Works
You sign a lease that explicitly allows short-term subletting, furnish the unit, list it, and pay rent and operating costs from booking revenue. Startup capital is generally lower than buying because there is no down payment, though deposits, furnishing, and working capital are still required.
Main Risks
- Fixed lease obligation: Slow months still require full rent.
- Landlord risk: The landlord can decline to renew, raise rent, or sell the building.
- Permission risk: Subletting without written permission can breach the lease and lead to eviction.
- Regulatory risk: Cities may ban or restrict STRs, leaving you with a lease you cannot use as planned.
- No equity: Furniture is the only asset you keep.
- Unit-level dependency: Building rules or neighbors can shut you down.
What to Check
- Get explicit written permission for short-term rental, ideally in the lease itself.
- Confirm the property is legally eligible for STR use and what permits apply. See permit requirements.
- Check lease length against your payback period on furnishing costs.
- Model break-even occupancy at your rent level. See break-even nights.
- Confirm insurance covers short-term guests and your contents.
- Plan an exit if the lease ends or rules change.
Arbitrage vs. Buying
Arbitrage trades lower upfront capital for less control and no ownership upside. Buying reverses that trade. Our comparison, rental arbitrage vs buying an STR, covers the decision in more depth. Nothing here is legal advice.