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Is Airbnb Arbitrage Legal? — 5 Legal Pitfalls To Avoid In Airbnb Arbitrage

March 15, 2024

by Ippei Kanehara

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 How I make $52K per month

Is Airbnb Arbitrage Legal? Yes, Airbnb arbitrage is legal. However, some cities have restrictions on this business model. It involves renting properties and subletting them on Airbnb for profit. With over 4+ million Airbnb hosts worldwide and 6+ million active listings on the platform, Airbnb has a significant presence in over 100,000 cities worldwide. However, the legality of Airbnb arbitrage can vary depending on the specific location. Some cities have regulations or restrictions that may prohibit or limit this business model. It is important to research and comply with the local laws and regulations in your area to ensure you're operating within the boundaries of the law.

If you want to generate passive income without the legal concerns of Airbnb arbitrage, check local lead generation. It’s like owning digital real estate instead of physical property. You simply create websites that rank high on search engines like Google. Once the website generates leads, you rent them out to local businesses for a monthly fee that provides you with a passive income stream. Local lead generation is a completely legal and profitable way to generate passive income.

5 Legal Pitfalls To Avoid In Airbnb Arbitrage

1. Unauthorized Subleasing

Subleasing a property on Airbnb without obtaining proper permission from the landlord is one of the common legal issues in Airbnb arbitrage. This occurs when a tenant rents out their leased property on Airbnb without explicit consent from the landlord.

PRO TIP:

Always review the lease agreement and seek permission from the property owner before listing the property on Airbnb.

2. Breach Of Lease Agreement

Another legal issue arises when a tenant violates the terms of the lease agreement by using short-term rentals without the landlord's approval. This breach happens when the lease agreement explicitly prohibits subletting or short-term rental.

PRO TIP:

Always read and understand the lease agreement to ensure it allows subletting to avoid breaching the agreement.

3. Zoning And Regulatory Compliance

It refers to the adherence to local zoning laws and other regulations that govern short-term rentals. Different cities may have specific rules and restrictions about the use of properties for Airbnb arbitrage.

PRO TIP:

Conduct research into the local zoning laws and regulations pertaining to short-term rental in your chosen area.

4. Tax Obligations

As an Airbnb host, you have tax obligations and must report your rental income to the appropriate tax authorities. This includes reporting your earnings and paying taxes on the rental income generated from your Airbnb bookings. In the United States, cities like San Francisco and Chicago require hosts to collect and remit occupancy taxes.

PRO TIP:

Consult a tax professional to understand your specific tax obligations as an Airbnb host. They can help you navigate the complexities of reporting rental income, deductible expenses, and complying with local tax laws.

5. Guests Safety And Discrimination

You need to ensure your guest's safety and avoid discriminatory practices. This is a crucial legal obligation for Airbnb hosts. You must provide a safe environment for guests to protect them from potential accidents during their stay. In the US, the Fair Housing Act prohibits discrimination based on race, color, religion, sex, disability, familial status, and national origin.

PRO TIP:

Implement safety measures on your property to focus on guest safety. This includes installing smoke detectors and fire extinguishers. Also, provide clear instructions on emergency procedures. You must avoid any discriminatory practices during the guest selection process.

Are There Lawsuits Against Airbnb?

Yes, there are lawsuits against Airbnb. Some lawsuits mainly comprise class actions. It offers potential opportunities to take part in settlements and guidance on filing your own claim.

3 Notable Lawsuits Against Airbnb

1. Airbnb Sued For Missing Payments To Hosts

An Airbnb host from Texas, Anthony Farmer, filed a class action lawsuit in November 2020, accusing Airbnb of breaching its contract with hosts by providing full refunds to guests during the pandemic. According to CNBC, the lawsuit claims breach of contract, breach of fiduciary duty, and violation of California consumer protection laws. It was filed in the United States District Court for the Northern District of California in San Francisco.

2. Airbnb Sued For Alleged Racial Discrimination

In March 2015, Gregory Selden, an African-American user, filed a lawsuit against Airbnb, alleging that he was denied a booking based on his race while similar requests made with fake accounts featuring white men were accepted by the host. Selden claims that his complaints were ignored by the company. According to CNBC, Selden is not alone in suing Airbnb. Selden and other victims are violated under the Civil Rights and Fair Housing Acts.

3. Airbnb Sued for Discrimination in Israeli Settlements

In 2019, 6 plaintiffs, including Eve and Earl Harow, Fay and Neal Shapiro, and Joel Taubman, filed a lawsuit against San Francisco-based short-term rental company Airbnb. According to CBS SF Bay Area, the lawsuit alleges that the company's policy discriminates against Jewish people by limiting the listings of homes in Israeli settlements.

Is Airbnb Arbitrage Legal In California

Yes, Airbnb arbitrage is legal in California. You just need the landlord’s approval and a legal lease contract to operate rental arbitrage in California. However, some cities prohibit short-term rentals and Airbnb arbitrage. Adhering to these regulations will help you operate your Airbnb business and avoid any potential penalties or legal issues.

Rules and Regulations For Airbnb arbitrage In California

  • Berkeley: It allows short-term rentals for less than 14 days, but there are certain restrictions and requirements in place.
  • Beverly Hills: Short-term rentals are not permitted, and the minimum rental length allowed is six months.
  • Malibu: Registered short-term rentals must display a permit number on listings. Also, adhere to specific limitations on the number of listings.
  • Palm Springs: Short-term rentals are possible but have limitations on the number of bookings per year and need a permit fee.
  • Pasadena: Pasadena allows short-term rentals as long as they are the host's primary residence. It must also comply with maximum rental periods and tax obligations.
  • Sacramento: Short-term rentals must have a permit, and there are specific rules for primary and secondary residences.
  • Santa Cruz: New unhosted short-term rentals are not allowed, but hosted rentals can operate under certain conditions.
  • Sunnyvale: It limits short-term rentals to the host's primary house and has restrictions on the number of occupants.
  • West Hollywood: It restricts short-term rentals to home-sharing scenarios, and must have a license.
  • Various cities such as Calabasas, Hermosa Beach, Huntington Beach, Manhattan Beach, Redondo Beach, and Sausalito prohibit short-term rentals.

Is Airbnb Arbitrage Legal In Florida

Yes, Airbnb arbitrage is legal in Florida. Yet, it's important to follow certain guidelines and regulations to ensure a lawful operation of rental arbitrage in the state. Additionally, it's important to make careful selections of tenants to minimize the risk of negligence that might leave you in debt.

Rules and Regulations For Airbnb arbitrage In Florida

  • Landlord Approval and Legal Lease Contract: Make sure you have the landlord's approval and a legal lease contract in place before engaging in rental arbitrage in Florida.
  • Licensing and Registration: It requires all short-term rental owners to get a license from the Department of Business and Professional Regulation (DBPR) and register with the Florida Department of Revenue for state taxes.
  • Compliance with Building Regulations: It's important to follow building regulations and inspections to meet the safety standards for short-term rentals in Florida.
  • City Zoning Regulations: Some cities, like Miami, may have additional zoning regulations and requirements.

Is Airbnb Arbitrage Legal In Texas

Yes, Airbnb arbitrage is legal in Texas. The state has few regulations on short-term rentals, making it an attractive option for investors. But check the licensing requirements in a specific city, such as Austin, to ensure a lawful operation of your Airbnb business in Texas.

Rules and Regulations For Airbnb arbitrage In Texas

  • In Texas, there are no state-level restrictions on Airbnb arbitrage. However, it's important to note that major cities like Austin have their own licensing requirements. In Austin, many properties require a short-term rental license.

Is Airbnb Arbitrage Legal In NYC

Yes, Airbnb arbitrage is legal in New York City (NYC). NYC is one of the best cities for Airbnb arbitrage, but you must exercise caution and comply with certain regulations to avoid penalties. 

Rules and Regulations For Airbnb arbitrage In NYC (NYC.gov):

  • Entire Apartment Rentals: Renting out an entire apartment for fewer than 30 days, even if you own or live in the building, is not allowed.
  • Partial Home Rentals: If you are renting out a portion of your home for less than 30 days, you must be present during your guests' stay.
  • Maximum Number of Guests: You can have up to two paying guests staying for less than 30 days. They must have free and unobstructed access to every room and each exit within the apartment.
  • Common Household: All occupants need to maintain a common household, and internal doors cannot have key locks that allow guests to lock their rooms.
  • Safety and Compliance: Property owners ensure the residence is safe and compliant with building codes.
  • Advertising Restrictions: New York State Law prohibits advertising Class A dwellings for periods less than 30 days. Unlawful advertisements can cause fines of up to $7,500 for those responsible.

Is Airbnb Arbitrage Legal In Illinois

Rules and Regulations For Airbnb arbitrage In Illinois

Yes, Airbnb arbitrage is legal in Illinois. However, in the city of Chicago, there are specific laws and regulations that you need to be familiar with to ensure compliance.

  • Vacation Rental Definition: A vacation rental is a dwelling unit with 6 or fewer sleeping rooms available for transient occupancy by guests. It does not include units with month-to-month rental agreements, corporate housing, guest suites, or shared housing units.
  • Primary Residence Requirement: If you have a vacation rental in a building with 4 units or fewer, it must be your primary residence where you live for at least 245 days in a calendar year.
  • Zoning Considerations: Before obtaining a business license, check the zoning regulations for your residence to ensure it permits vacation rentals.

Is Airbnb Arbitrage Legal In Canada

Yes, Airbnb arbitrage is legal in Canada. But, it's important to know that different cities have their own rules. To avoid fines or legal problems, make sure you understand the regulations in your city.

Rules and Regulations For Airbnb arbitrage In Canada

  • Quebec: Short-term rentals of fewer than 31 days require registration and a license.
  • Toronto: All short-term rental properties must be registered.
  • Vancouver: Short-term rental licenses are only given for main residences, and hosts must live on the property.
  • Edmonton: Hosts in Edmonton need a business license.

Is Airbnb Arbitrage Legal In Australia

Yes, Airbnb arbitrage is legal in Australia. However, each state in Australia has its own rules for subletting on Airbnb.

Rules and Regulations For Airbnb arbitrage In Australia

  • In greater Sydney: Hosts who are not present can lease their property for up to 180 days per year.
  • In all other regions of NSW: If the host is not present at the Airbnb, they can lease it year-round.
  • If the host is present at the Airbnb, they can lease it for 365 days per year, regardless of location.

Is Airbnb Arbitrage Legal In UK

Yes, Airbnb arbitrage is legal in the United Kingdom, although rules and regulations may vary from city to city. It's important to be aware of and comply with the specific regulations in the city where you plan to engage in Airbnb arbitrage in the UK.

Rules and Regulations For Airbnb arbitrage In the UK

  • Short-term Rental Policy: Rentals must not exceed 31 continuous days. Stays longer than 31 days are long-term rentals.
  • Availability and Rental Period: The property must be available for rent for at least 210 days in a tax year. Additionally, the rental must be actually let for at least 105 days within that tax year, in periods shorter than 31 days at a time.
  • Northern Ireland: To start a short-term rental business, you are required to get an official tourism certificate.
  • Edinburgh and Glasgow: Planning approval is necessary to convert a property into short-term rentals in these cities.

Why Are Some Cities Banning Airbnb?

✅ Housing availability
✅ Neighborhood disruption
✅ Regulatory compliance

Some cities like New York, San Francisco, and Barcelona have implemented bans or strict regulations on Airbnb arbitrage to address concerns related to housing availability, neighborhood disruption, and regulatory compliance.

Airbnb arbitrage can contribute to a shortage of long-term housing options for residents, as properties are converted into short-term rentals. Also, the constant flow of tourists in residential neighborhoods can disrupt the community's peace. Moreover, there are concerns regarding compliance with local regulations and taxation. Some Airbnb hosts do not adhere to the same standards as traditional accommodations. 

Is Airbnb Arbitrage Still Profitable?

Yes, Airbnb arbitrage is still profitable with its 40% revenue increase in 2022. Airbnb reached a huge increase up to $8.4 billion. This success is from higher demand and rates on short-term rentals. In the fourth quarter of 2022, Airbnb made a record $1.9 billion that makes 24% year-over-year growth. Also, the bookings have a 20% increase compared to 2021. However, the success in Airbnb arbitrage may vary based on factors like location, property type, monthly rental fee, and demand in the market.

Is Airbnb Arbitrage A Safe Investment?

Yes, Airbnb arbitrage is a safe investment when certain measures are taken. It is important to organize and prepare all the licenses and permits and ensure compliance with rules and regulations to maintain legality. With millions of hosts already operating on Airbnb, it shows the safety and viability of the business model. Before starting, it is crucial to ensure full compliance.

One advantage of Airbnb arbitrage is the minimal startup costs and the flexibility to exit the business easily if needed. Since you are not purchasing a property, there are no long-term debt repayment concerns or monthly mortgage payments. Overall, with proper preparation and adherence to regulations, Airbnb arbitrage offers a safe and financially viable opportunity.

Airbnb Arbitrage Related Article

What Is Better Than Airbnb Arbitrage?

Local lead generation through rank and rent is better than Airbnb arbitrage. You just need to create websites that rank high on search engines for local services using SEO techniques. Once your website ranks, you can rent it out and generate passive income with minimal maintenance. I created a tree service lead gen website in 2015 and it continues to make me a passive income of up to $2,000 per month. However, Airbnb arbitrage can be a good ticket to passive income. But it requires significant investment in scaling your Airbnb business. It includes Airbnb startup costs, outsourcing, and automation of tasks. If you want a more hands-off approach to create a passive income stream, check out local lead generation.

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