Many singles with expensive leases in major cities, traveling retirees with empty homes, and couples with a spare room and a desperate need for cash are looking for ways to make the space they rent or own pay for themselves. Many budget-conscious vacationers, seasonal university-town students, and hotel-weary business travelers are looking for cheap, attractive, short-term accommodations. Where the two sets of people often meet is a growing marketplace of online communities that connect hosts with travelers – services like Airbnb, VRBO, and FlipKey.
Although I can’t rent out a room at the moment, the idea appeals to me. Not only is being a short-term rental host a way to earn extra cash; it presents the opportunity to ‘travel,’ learn, and widen your perspective as you meet all sorts of interesting people from different cultures and walks of life – without having to leave your home.
Before getting too caught up in the possibilities and contingencies (what it involves, the legalities, the material risks), the first question I’d need to answer is whether it would be profitable for me. Unfortunately, that requires a little math.
The Math of Short-Term Renting: Arbitrage
Although services like Airbnb act as the mediator between travelers and hosts, they are not what creates the market force known as “rental arbitrage” – a fancy term for the earning potential created when the daily rental rate exceeds the daily rental/payment cost. Crunching these numbers is the first serious step to determining if being a short-term rental host would be profitable for you. There are four steps:
- Search out the average daily weekday and weekend rental…
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