The property is a fully renovated, nicely furnished three-bedroom, one-bath home.

But first, what is rental arbitrage?

Rental Arbitrage Defined

Rental arbitrage is a strategy where an investor leases a property from a landlord or owner, with permission, and re-rent it on short-term rental platforms such as Airbnb, VRBO, or Booking.com.

Instead of owning the property, the investor profits from the difference between the rent they pay and the income they earn from short-term guests.

The owner receives consistent rent and benefits from having their property well-maintained, while the investor handles furnishing, marketing, and management through the platforms.

In other words, it’s about leveraging a long-term lease to create short-term rental income—a model that allows investors to generate cash flow without the capital needed to purchase real estate.

In this case, the property is already turnkey—furnished with everything from kitchenware and linens to cleaning supplies. That alone made it an appealing opportunity. Even better, the investor has been hosting on Airbnb for eight years, and this particular property has over 130 reviews with a solid 4.81 rating. Clearly, guests like it.

But—as is often the case when a deal seems too good to be true—there’s a catch. The numbers didn’t quite meet expectations.

Running the Numbers

The owner shared that she only listed the property on Airbnb and rents it part-time. Over the past 12 months, she netted $16,272.19, which averages $1,356.01 per month after booking fees. Based on 3.5 bookings per month, that’s about $387.43 per stay.

If we added VRBO, it’s reasonable to expect at least one additional monthly booking, bringing total projected income to around $1,743.44 per month. After paying the $1,275 rent, that leaves about $468.44 in profit—before expenses.

Now, let’s factor in the actual operating costs:

• $400 – Housekeeping (based on four bookings per month)

• $300 – Utilities, internet, and lawn care

• $50 – Restocking supplies

• Total Monthly Expenses: $750

After these costs, we’d be roughly a negative $281.56.

Because this property is in the same area as most of our current short-term rentals, I know the market extremely well. We used to operate six other 3-bedroom, 1-bath short-term rentals nearby. Today, only one remains. We converted one back to a long-term rental and sold the other five—either turnkey to investors or retail to owner-occupants. The reason? Three-bed, one-bath homes simply don’t perform as well in this area.

Our remaining 3/1 still operates as a short-term rental, generating about $20,000 annually and netting around $12,000 after expenses—roughly $1,000 per month.

For a new arbitrage deal to make sense for us, we’d need to clear at least $500 per month in profit after all expenses. That means monthly revenue would need to rise from $1,743.44 to $2,243.44. The owner’s past 12 months of performance only hit that number four times.

When I shared my analysis, her response was:

“The algorithm favors click-through rates and full-time listings, so the blocked dates reduced bookings. A new host listing it full-time would see higher results. The last 12 months don’t reflect its true performance or future potential. While I understand your analysis, I stand by my projections.”

While I appreciate her optimism, the math doesn’t support that theory. The last 12 months’ income is the most reliable indicator of what we can realistically expect moving forward.

The Pros and Cons of Rental Arbitrage

This situation highlights both the potential and the pitfalls of the rental arbitrage strategy.

Pros:

• Low barrier to entry: You don’t need to own property—just lease it.

• Scalability: You can grow quickly by leasing multiple units.

• Fixed rent: Your main cost is predictable.

• Potentially high returns: In the right market, short-term rentals can outperform long-term leases.

• Flexibility: Easier to exit than selling a property.

• No exposure to property value risk: You’re not affected by market price swings.

Cons:

• Thin margins: One slow month can erase profits.

• Landlord dependency: Permission and cooperation are crucial. If they chose not to renew your lease, what next?

• Market volatility: Seasonal dips and competition affect income.

• Regulatory risks: City ordinances can shut you down overnight especially if you are arbitraging a rental such as a condo with an HOA.

• High management demands: Turnovers, cleanings, and maintenance add workload.

• No equity or tax benefits: You’re building income, not wealth.

• Upfront costs: Furnishing can be expensive before earning your first dollar.

For some investors, the low barrier to entry and flexibility make arbitrage a great short-term play. But for me, every deal starts and ends with numbers—and these simply didn’t pencil out.

Options Moving Forward

1. Convert it to a long-term rental. Market rent is about $1,275 per month.

2. Keep it as a short-term rental, though her visa for the move abroad restricts variable income.

3. Hire a co-host to manage it, though she wouldn’t be able to report that income for visa purposes.

4. Sell the property. 

I respect this investor, but expecting market rent for a property that doesn’t cash flow under a rental arbitrage model simply isn’t sustainable. The math tells the truth, and in this case, it’s clear: the deal looks good on paper, but not in the bank account.