Airbnb Rental Arbitrage in Malibu | What You Should Know!

What is Airbnb Rental Arbitrage?

Airbnb rental arbitrage is a business model that allows you to legally run an Airbnb business without owning property. A type of subletting for Airbnb, rental arbitrage involves long-term renting of a property such as a home (with the owner’s permission) and listing it on Airbnb in your own name. You use the Airbnb income to pay off your rent and other expenses and pocket the profit for yourself. Rental arbitrage allows you to scale quickly while running a far lower risk.

Malibu as a Tourist Destination

A city renowned worldwide for its white, sandy beaches, being home to the rich and famous, and gorgeous winding drives taken in fancy sports cars, Malibu is located in the Santa Monica region of Los Angeles County in California. Despite its elite profile, Malibu is a small town by comparison that is accessible to visitors of all sizes of pocketbooks, attracting 13 million visitors for its nearly 13,000 residents.

With 27 miles of beachfront to explore, visitors can choose from an extensive number of beaches with different vibes. Also known as Billionaire’s Beach, Carbon Beach may provide glimpses of ultra-luxurious beach homes; Paradise Cove Beach is popular for having been the filming location of several movies and tv shows; Topanga Beach which extends to one mile of oceanfront is popular among surfers and surf watchers, scuba divers and windsurfers; while Zuma Beach with its free parking is perhaps the favorite of native Angelenos.

Malibu is part of the Santa Monica Mountains National Recreation Area and thus offers vast spaces and varied trails for hiking. Malibu Creek State Park, home to Malibu Lake, provides 15 miles of waterside hiking and includes historic sites from the 19th century such as the Sepulveda Adobe. Zuma Canyon offers a 750 ft elevation gain and continuous ocean views while the Escondido Falls trail offers up two waterfalls. Visitors can also choose to explore the trails on horseback. Malibu also provides access to both the Leo Carrillo State Park and Beach and Ramirez Canyon Park situated on its borders.

Malibu Pier is believed to offer the best view of the city, overlooking the Pacific Ocean and the rising Santa Monica Mountains. Being Californian, Malibu also offers travelers wine tasting experiences but with a twist. For example, Malibu’s wine safaris combine wine tasting with a tour of exotic animals while others enjoy the tipple while hiking.

All that coast alongside occupancy by those with rich tastes means Malibu offers some of the best places to eat seafood. There’s Neptune Net which has been featured in movies including The Fast and the Furious franchise, Paradise Cove Beach Café which boasts its own private beach and cove, and Reel Inn known for taste and affordability. Travelers can also take in Malibu’s history, being home to the Chumash people and Spanish settlers at the Malibu Lagoon Museum which also includes the Adamson House and gardens. Meanwhile, Malibu County Mart features unique and upscale boutiques, art galleries, and the best ice cream in the city at Grom. Meanwhile, its proximity to Pepperdine University makes western Malibu attractive to college student renters who may not mind a slightly longer commute.

Airbnb Rental Arbitrage Potential in Malibu

According to July 2021 data from the leading vacation rental data and analytics provider AirDNA, hosts in Malibu enjoy an:

• Average Daily Rate of $933

• Average Occupancy Rate of 90%

• Average Monthly Revenue of $16,700

Furthermore, 93% of short term rentals in Malibu that are listed on Airbnb and VRBO are entire homes with 1, 3, and 4 bedroom houses being the most common. Meanwhile, 7% of such rentals are private rooms.

According to Realtor.com, the average rents in Malibu are:

• $4,000 and upwards for a 2 bedroom house

• $5,000 and upwards for a 3 bedroom house

• $6,000 and upwards for a 4 bedroom house

Homes right on the beachfront can cost upwards of $10,000 with super luxury homes renting for even $45,000 and $60,000.

Most visitors stay 2-3 nights while the most commonly utilized cancellation policy by hosts is Strict, followed by Moderate, and Flexible.

Airbnb Rules in Malibu

On January 15, 2021, the Malibu City Council adopted Ordinance No. 468 (Enforcement Ordinance) went into effect, creating a regulation system for short term vacation rentals in the city.

Short Term Vacation Rental Permit

Applying for a Short Term Rental Permit

Operating or advertising a residential property as a short term rental without having obtained a permit to do so is considered a violation of Ordinance No. 468 and Malibu Municipal Code Chapter 17.55. The offense subjects the short term rental to a fine of $1,000 per each day of violation or twice its advertised daily rate per day of violation, whichever is higher. Unregistered short term rentals may also become ineligible to apply for a permit in the future.

Hosts to be can apply for permits online or via mail.

Online application

• Online applications will require a copy of the grant deed to prove ownership and an operating agreement if applicable

• The attestation must be printed, signed, and initialed before uploading in the application

• The original signed and initialed attestation page must be mailed to ‘City of Malibu Short-Term Rental Permit Program, 23825, Stuart Rach Road, Malibu, CA 90265’

Mail-in application

• Fill in the mail-in application form. Sign and initial as required. Mail to ‘City of Malibu Short-Term Rental Permit Program, 23825, Stuart Rach Road, Malibu, CA 90265’

• A copy of the grant deed to prove ownership as well as one of the operating agreement, if applicable, must be sent alongside the filled-in form

• A check for the amount of the permit fee must also be enclosed

Renewing a Short Term Rental Permit

A renewal application must be received by the authorities at least 30 days prior to the date of expiration. While applications received after may be considered, they are unlikely to be processed prior to the expiration, placing the host in violation of city rules if they continue to operate in the time period between expiration and renewal.

Appealing a Short Term Rental Permit Application

If the city does not approve your short term rental permit application, you can submit a written challenge via the city’s appeal form, detailing the basis of your appeal and including any additional documentation you want considered. The appeal must be delivered to the City Clerk within 30 calendar days from the date you were notified of the city’s decision for the appeal to be heard.

Upon receiving the completed form in a timely manner, the City Clerk will schedule a hearing before the Planning Commission.

Other Short Term Rental Regulations

• As of January 1, 2023, short term rental of property will be prohibited unless the owner of the property has obtained a valid Onsite Wastewater Treatment System (OWTS) operating permit or has entered a compliance agreement with the City excusing such compliance. Any property not compliant by the date will lose its permit immediately. Because ensuring either of the requirements can take at least 6 months, owners/property managers should begin the process immediately. Meanwhile, permit holders are encouraged to submit documentation of their OWTS operating permit or compliance agreement by December 1, 2022.

• The owner, property manager, or other designated party with access to the short term rental property and the authority to fix any problems or violations must be available 24/7 at a phone number provided to both the city and all guests.

• The owner, property manager, or other designated party must provide full access to the property and related documentation for inspection during normal city hall business hours or any term the short term rental is hosting, immediately, when requested to do so by the City Manager or a designee.

• All guests must be provided with the city’s Short-term Rental Code of Conduct. It must also be posted on the inside of the main entrance door to the short term vacation rental property or on the wall adjacent thereto.

• Maximum occupancy (including the guests, owner, and any other natural persons) is limited to two people more than twice the number of bedrooms listed on record up to a maximum of 14 people, unless a special event permit has been obtained.

• The short term rental permit number must be prominently posted on all advertisements for the vacation rental property.

• The owner is ultimately held responsible shall for, and actively prevent, any nuisance activities that may take place as a result of short-term rental activities.

• A separate short term rental permit is required for every legal lot or condominium unit (if a condominium unit is to be rented).

Violations

• Noise levels must not violate limitations set forth in Chapter 8.24 of the Municipal Code.

• All short term rental properties must comply with all applicable codes regarding fire, building and safety, and other relevant laws and ordinances.

• The short term rental permit holder will be held responsible for any violations of the Municipal Code committed by guests at the property.

• Any violation constitutes a separate offense for each and every day the violation occurs or persists.

• Violations apart from that of Chapter 17.55 of the code will be subject to a fine of $500 per day of violation or the short term rental’s advertised daily rate per day of violation, whichever is higher.

• All penalties and remedies are cumulative and in addition to any other penalties and remedies available to the City.

Hosted Ordinance

Adopted on November 23, 2021 by the Malibu City Council, the Hosted Short Term Rental Ordinance will only go into effect once the corresponding Local Coastal Program Amendment is certified by the California Coastal Commission.

If approved, the ordinance will create two types of annual short term rental permits:

• A Hosted Short Term Rental Permit for primary resident owners of single-family homes and condominiums who live on-site during rental and be on site between 9pm and 6am. They will also be expected to appear immediately if any issue arises during that time.

• A Multifamily Short Term Rental Permit for owners of multifamily and duplex properties who can rent up to 40% of units but no more than 2 units per parcel provided that the others are rented on a long-term basis. Duplex property owners can gain a permit to rent one unit as long as the owner lives on-site in the other whole unit while it is rented.

Airbnb Taxes in Malibu

The city of Malibu imposes a Transient Occupancy Tax of 15%. It also makes hosting platforms like Airbnb responsible for collecting the tax and remitting it to the city.

The state of California imposes a Lodging Tax and holds hosts responsible for collecting and remitting the tax on time.

All taxes are based on the total cost including cleaning fees.

Conclusion

Renowned worldwide for miles of gorgeous beaches and a particular atmosphere not found anywhere else Malibu has long been a favorite tourist destination. As the short term rental market trends to travelers picking outdoorsy locations with access to state and national parks, Malibu with access to a number of such parks is also set to capitalize on the growing group of sports-oriented travelers. Favored by families, friends, and couples alike, Malibu is unlikely to be short of visitors. Despite high rents, the average monthly rental revenue points to good potential for rental arbitrage.

If the Hosted Ordinance (No. 472) is adopted, however, requiring onsite host presence, primary residency requirements, and multifamily restrictions, it can make rental arbitrage more challenging or in the case of some properties, cut into profits directly. It is also expected to bring amendments to zoning requirements. The ordinance is currently being considered and is expected to be voted on by the California Coastal Commission in latter 2022.