Airbnb Arbitrage: We Ran the Real Numbers on an Austin Two-Bedroom and Said No

Airbnb arbitrage means renting an apartment long-term from a landlord, furnishing it, and re-listing it nightly on Airbnb, keeping the difference between the nightly income and the monthly rent. You don't own the unit. You own the furniture, the listing, and the risk. We own all seven of ours, and last spring a landlord in East Austin offered us a two-bedroom on exactly those terms for unit eight. We ran the numbers for three weeks and said no. This post is those numbers, plus what we'd need to see to say yes.

We're not against it. Plenty of people in this city make it work. But most of what you'll read about arbitrage is written by people selling a course, and the math in those posts skips the four line items that decide whether you make money or lose the deposit. We'll put them all in.

How does Airbnb arbitrage actually work?

You sign a standard lease, usually twelve months, with a landlord who has agreed in writing that you can sublet nightly. That written agreement is the whole business; without it you're violating the lease and one complaint from a neighbor ends everything. You furnish the unit at your own cost. You list it, host it, clean it, and pay the rent whether it books or not. If it grosses more than rent plus your costs, you keep the spread. If it doesn't, you eat the loss, and you still owe eleven more months.

The pitch is that you get into hosting without a down payment. That part's true. The part that gets left out is that you've taken on a landlord's fixed cost with a hotel's variable income, and in a soft month that's a bad place to be standing.

The unit we were offered, and the real math

Two-bedroom, one bath, 890 square feet, ground floor of a fourplex off East 7th. Rent $2,350 a month, twelve-month lease, landlord's permission to sublet in writing, two months' deposit. Comparable listings in that pocket were running $165 to $210 a night with occupancy around 68 percent across the year, based on our own two units within a mile and a pricing tool we pay for.

Here's the income side at realistic numbers, not brochure numbers. Say $185 average nightly rate, 68 percent occupancy: that's about 20.4 nights a month, $3,774 gross. Airbnb's host fee takes 3 percent, so $3,661. That's the number the course-sellers stop at, and at that number it looks like a $1,300 monthly profit.

Now the costs. Rent, $2,350. Cleaning at $95 a turnover, and at an average stay of 3.1 nights that's about 6.6 turnovers a month, $627, of which we'd recover most through a cleaning fee but not all, because the fee has to stay competitive. Call the net cleaning cost $180. Utilities and internet, which on a lease are yours: $210 in a mild month, $340 in August with the AC running for guests who leave it at 68. Supplies and restocking, $85. Hotel occupancy tax in Austin runs roughly 17 percent between city and state, which Airbnb collects on the guest side for the most part but not for every channel, so budget some friction there. Short-term rental license, insurance rider because a renter's policy doesn't cover paying guests, and a share of the pricing software: about $95 a month spread out. Repairs and replacement, which in our experience run 4 to 5 percent of gross on a furnished unit that turns over six times a month: $165.

Add it up: $2,350 + $180 + $270 + $85 + $95 + $165 = $3,145. Against $3,661 net. Profit: $516 a month. Not $1,300.

The furniture, and why it changes everything

Then there's the money you put in before the first guest. We know what it costs to furnish an 890-square-foot two-bedroom to our standard because we've done it seven times, and we've written the full setup checklist. Done carefully, mostly secondhand, with the lighting done right using plug-in sconces so we're not touching a landlord's wiring: about $9,800. Done fast, all new: $14,000 and up.

At $516 a month, $9,800 takes nineteen months to earn back. The lease is twelve. So you're betting on the landlord renewing at the same rent, which in East Austin in the last three years has not been a safe bet. If rent goes up $200 at renewal, your profit drops to $316 a month and the payback stretches past three years. If the landlord doesn't renew, you own $9,800 of furniture and a listing with no address. We've seen this happen to two people we know. One of them moved the furniture into storage and paid $220 a month for eight months before finding another unit. The other sold it all on Marketplace for about a third of what she'd paid.

What arbitrage is actually competing with

Here's the comparison that settled it for us. On the unit we own down the street, similar size, our mortgage plus taxes plus insurance runs about $2,180 a month. Every dollar of that mortgage is buying us the building. When we eventually sell or refinance, the furniture spend and the four years of bookings are on top of an asset that's been appreciating. On the arbitrage unit, every dollar of that $2,350 is buying us the right to keep going for one more month.

We're not saying buy. Buying in Austin right now is hard and the down payment on a two-bedroom is real money. We're saying that the honest way to evaluate arbitrage is against the alternatives for the same $10,000 of furniture money and the same hours of hosting, and one of those alternatives is doing nothing and waiting for the next chance to buy.

When arbitrage does make sense

We'd have said yes if three things had been different, and we told the landlord so.

First, a longer lease. Twenty-four months minimum, with a written renewal option at a capped increase. That gets the payback inside the term and takes the biggest risk off the table. Some landlords will do this because they'd rather have a professional tenant who keeps the place spotless than roll the dice on a new one every year.

Second, a lower rent relative to the nightly market. The rule of thumb that actually holds up is that you want projected gross at realistic occupancy to be at least 2.5 times the rent before you look at anything else. This unit was at 1.6. We've seen deals at 2.5 and above, usually where a landlord has a unit that's been vacant and would rather have a sure $2,000 than a hoped-for $2,400.

Third, furniture you already own. If you're moving out of a furnished place, or you have a storage unit full of stuff from a previous rental, the payback math changes completely. Your setup cost might be $2,500 instead of $9,800, and $516 a month on $2,500 is a fine return.

How to find a landlord who'll say yes

Since people ask: the landlords who agree to this aren't found on the big listing sites, where every unit has forty applicants and nobody needs to allow subletting. They're found on the smaller buildings, the fourplexes and the eight-unit walk-ups owned by one person or a family, where a vacancy costs the owner real money and a reliable tenant who'll keep the place immaculate has value. The one who approached us owns three buildings in East Austin and had been burned by a long-term tenant who trashed a unit. He'd rather have us.

If you're going looking, the pitch that works is not "I want to Airbnb your apartment." It's "I run short-term rentals professionally, here are my reviews, here's my insurance, here's my cleaner's schedule, and I'll sign for two years." Bring the numbers. Offer a slightly higher deposit. Offer to let them see the listing before it goes live. Landlords who say yes are buying certainty, not a tenant.

And get everything in the lease. Not a side letter, not a text. A clause that says short-term subletting is permitted, that names the platforms, that says what happens to the security deposit if a guest damages something, and that spells out the renewal terms. We had a lawyer look at the draft we were sent. It cost $350 and it found two problems, one of which was that the "permission" was revocable by the landlord with thirty days' notice, which is not permission at all.

The furniture math, done properly

Because it decides the deal, here's how we'd budget an arbitrage unit if we did one, using our real setup costs from the last two units we furnished.

Beds and mattresses, two bedrooms: $1,400 buying decent mid-range mattresses new and frames secondhand. Sofa, performance fabric with washable covers: $1,100. Dining table and four chairs, secondhand: $380. Two nightstands, a dresser, a console: $520 secondhand. Linens at par stock, three sets per bed plus towels: $640. Kitchen fully stocked to our kitchen essentials list: $710. Lighting, which we do with plug-in sconces and swag pendants so we never touch a wire and can take it all with us: $860. Rugs, washable: $290. Art, mirrors, plants, the styling layer: $450. Smart lock, noise monitor, a couple of smart bulbs: $340. Window coverings: $310. TV and mount: $420. Miscellaneous, the hooks and bins and trash cans and shower curtains that add up: $380.

Total: $9,800. We didn't round that up for the post; that's where the last two landed within a hundred dollars of each other. The only places to cut meaningfully are the sofa and the mattresses, and those are the two things guests mention in reviews, so we wouldn't.

The number to hold onto is that in a lease deal, every one of those dollars needs to come back within the lease term, plus a return. In an owned unit, it needs to come back over the life of the furniture, which is five to seven years for most of it. That's the whole difference between the two models in one sentence.

The things nobody puts in the arbitrage spreadsheet

Neighbors. In a fourplex, the other three units know within a week that strangers are rolling suitcases past their door. One complaint to the landlord and the "permission to sublet" clause is worth exactly as much as the landlord's patience. We've hosted long enough to know that a bad guest is a when, not an if.

The city. Austin's short-term rental rules have changed twice since we started, and a Type 2 license, the kind for a non-owner-occupied unit, is the one that's been under the most pressure. If you own, you can wait out a bad rule year. If you're on a lease, a rule change in month four leaves you with eight months of rent on a unit you can't legally list.

Damage. On a unit we own, a guest who wrecks the floor is a repair. On a leased unit, it's a repair plus a conversation with a landlord who now wonders what else is going on. The deposit is two months' rent, $4,700, and you'll want all of it back.

Your own time. Seven units is a lot of turnovers. We wrote about the systems that keep it sane, and an eighth unit would have been fine operationally. But the mental load of a unit you don't control is different. You're always a little bit a guest yourself.

What we'd tell someone about to sign

Run the numbers at 65 percent occupancy, not the 85 the listing tool shows you for peak season. Add 4 percent of gross for repairs and replacement. Add the utilities in August, not April. Divide your furniture cost by the monthly profit and check it's shorter than the lease. Get the sublet permission in the lease itself, not in an email. And ask the landlord, directly, what happens at renewal, because that's the question that decides whether you've built a business or a twelve-month experiment.

If it still works after all that, do it. We'd have. It didn't, so we didn't, and unit eight is still a spreadsheet. We're fine with that. The numbers post has the rest of what it costs to run the seven we own, if you want to compare.