Top U.S. Markets For Short-Term Rental Arbitrage

It’s a short-term rental dream: Lock in a long-term lease on a property and collect more than the lease amount by renting it out. The added bonus is you don’t have to deal with owning the property. 

It’s called “short-term rental arbitrage” and unfortunately, it’s not that easy. 

Local regulations are an issue. And if the property doesn't attract enough bookings, you're still stuck paying the rent.

“Some of the reasons one might consider this is, there's low capital requirements for entry. People also do this to mitigate risk, especially regulation risk,” said Bram Gallagher, an economist at AirDNA. “There are some markets where you're not sure what the regulation is gonna look like a year from now — so you might want to get into the market with arbitrage, if you don't have that sort of capital exit strategy that you would need with purchasing.”

In the first half of 2021, strong demand for short-term rentals combined with limited supply made for good arbitrage activity. Short-term rental revenues made through arbitrage netted premiums (the percentage difference between the revenue and rent owed) as high as 179%, according to AirDNA.

However, increased listings in the second half of 2021 led to a slowdown in monthly revenues and a decline in premiums. 

Top Markets With High Premiums

The good news, according to AirDNA, is that some markets still offer reasonable arbitrage premiums – the percentage difference between the revenue the short-term rental operator makes and the rent they pay.

The top markets with high premiums in 2023 include Charleston, South Carolina; Providence, Rhode Island; Jacksonville, Florida; and Nashville, Tennessee, among others. (See the chart below.)

“You have slightly different market dynamics because in Jacksonville and Nashville, you've got those long-term rents that are stable,” said Gallagher. “We've seen an explosion in Nashville over the last decade. Similar story in Jacksonville; people visit Jacksonville more frequently as a tourist destination now. And that's what the arbitrage is all about, you know, you've got this hot tourism market, but it's a pretty stale long-term rental market, so you take a product from one area and offer it in another.”