Until 2008, a traveler’s lodging options were a hotel, hostel, or on a friend’s couch. An online application broadened those options exponentially, allowing people to find their “perfect place to stay” while allowing others to build an Airbnb business.
Maybe the idea of building a business using your own real estate to generate income has massive appeal. We’ll share the facts, figures, pros, and cons of being in the Airbnb business, so you will have what you need to decide to proceed. We’ll guide you towards success with Airbnb while avoiding “Error Bnb.”
Within this post, note two assumptions:
- Launching an Airbnb business requires internet access and having a personal smartphone or computer. Most, if not all, interactions and transactions happen online via the Airbnb website or app.
- We will focus on building an Airbnb business with real estate you own already. Buying an investment property for the specific purpose of launching an Airbnb business is a separate topic.
A Twist on Typical Real Estate
When you think of renting a residence, you probably think of a long-term (months or a year or more) time commitment during which the person uses your home as a temporary residence. Airbnb turned the typical approach to real estate rental on its head through the idea of paying to sleep on air mattresses.
Wait, what? Before they were co-founders, they were a couple of housemates trying to collect enough money to pay their rent. They opened their home to guests who would pay for a place to stay (in a living room, sleeping on an air mattress).
Working from that basic idea, the co-founders created an online platform. Individuals renting residential property (hosts) and those seeking residential property (guests) visited the online platform operated as a virtual marketplace.
Hosts post pictures of the available space (e.g., house, apartment, condominium, or even a spare room within a house). Accompanying the pictures of the property, the host lists its dimensions, availability, and cost to rent it. Also included are favorable details unique to the property (e.g., 0.1 miles to the beach) and the included amenities (e.g., washer, dryer, electric car charger).
Guests use the platform by selecting filters, such as location or residence type. They browse the results for their preferred property type available in their desired location.
Airbnb provides a forum to connect hosts and guests. They handle advertising, payment processing, and legal terms and conditions. For these services, they get a percentage of the rental fee.
Who would have thought such a genius idea would originate with air mattresses?
Accounting for an Airbnb
People view an Airbnb business primarily as a money-making opportunity. Earning extra cash by using an asset you already own sounds like a financial win. It can be, but it depends on several factors.
The Money-Making Potential of an Airbnb
Research indicates a wide range of incomes earned by being an Airbnb host. Annual earnings for an Airbnb host in North America range from $9,000–$41,000. The Airbnb website has an application that will calculate an estimate of what a host can earn. Websites not affiliated with Airbnb have similar applications.
We’ll dig into the quantitative details in the next section, but the profitability of an Airbnb depends on two factors.
- How much money are you going to charge for a guest to use your space?
- What is the availability of your space?
Other considerations that affect profitability should prompt the questions below.
- Is your property near natural (e.g., the beach) or man-made attractions (e.g., museums and amusement parks)?
- Is your location in a metropolitan area or near one? Business travel hasn’t gone away, even with the pandemic.
- Are there seasons or a time of year when people travel to the area? A lakeside home doesn’t get much use in the winter, but you like snow on the water, and you know most people live at the lake during the summer months.
- What are the unique features nearby? Is your home close to a thriving arts community? Are there well-known historical buildings within walking distance?
The Costs of an Airbnb Business
Now it’s time to get specific (we are delivering on our earlier promise of “quantitative details”).
Recurring costs to Airbnb hosts include:
- utilities
- insurance
- property maintenance
- property management
- taxes
- cleaning fees
It is your space, and you already pay for utilities (e.g., electricity, water, gas). However, guests may have different habits (long showers, anyone?) that will increase utility bills.
You will need to notify your insurance company that you will be renting your property (even if it is one room). Most homeowner insurance policies do not cover renters. It’s protection for you, as well, in case a guest is injured while staying in your space.
Property maintenance costs will depend on your involvement. It includes everything from changing light bulbs to replacing railings. If you’re handy and you know it, you won’t have to outsource this service. You still will have to pay for the supplies.
The cost of property management is a bit like property maintenance, as it depends on the involvement you want to have. Property managers communicate with guests, handle day-to-day hassles, and organize cleaning services.
Whether taxes are collected depends on the country, state, and region in which the property is located. Types of taxes you may have to pay include occupancy, service, rental income, Value Added Tax (VAT), and Goods and Services (GST). Airbnb manages tax collection in some regions but not all.
Researching the local tax requirements and consulting a financial services professional may be beneficial. Also, the local chamber of commerce is a good place to start.
When a guest vacates the property, it will need to be cleaned thoroughly before the next guest arrives. Like property maintenance and management, hosts can go for “do-it-yourself.” However, if the time period between bookings is short or you’re unsure of your availability, a cleaning service is worth the cost.
The Revenue of an Airbnb Business
You have an idea of the costs of running an Airbnb. Let’s talk about a more fun topic: How are you making money, and where do you collect it? Airbnb’s website has the most updated information, but our example below will get you an estimate.
Hosts are paid per booking. A booking is when a guest chooses your property as the place they will stay.
(Number of days * the daily rate) + additional fees = booking subtotal
Add together the booking costs.
(Airbnb collects 3% of each booking) + taxes + service fee = booking costs
Subtract the booking costs from the booking subtotal to determine what you will earn for the booking.
As a host, you’ll be paid by Airbnb. You choose the method of payment (e.g., electronic banking, online payments such as PayPal, Western Union, or international wire). How soon you are paid depends on the payment method.
The Reporting for an Airbnb Business
We have mentioned taxes in previous sections of this post. The specifics of how the taxes are handled vary by area, but there are a couple of things that always apply when it comes to reporting.
Gather your taxpayer information. You will be required to submit this to Airbnb. Ensure you’ve downloaded and reviewed the tax documents from the Airbnb website. Once you’ve completed these steps, it’s go time!
Launching an Airbnb
If you have decided you like the general idea of becoming an Airbnb host, you can turn your attention to the specifics involved.
Research and Review the Guidelines Set by Airbnb
Each Airbnb host can provide a unique dwelling experience (Onsite dry cleaning! Passes for a summer children’s program nearby!) However, Airbnb has requirements and suggestions for any property offered by an Airbnb host.
Properties listed with Airbnb must meet standards for cleanliness and health/safety (e.g., fire alarms). Airbnb also recommends hosts consider these topics:
- Guest privacy (e.g., identify security cameras)
- Quantity of people allowed to be on-premise
- Rules or ordinances about noise
- Neighbors
- Whether they are okay with children and/or pets being on-premise
- Parking
Make sure you know what your responsibilities are and that you can meet them.
Obtaining Permission for Your Airbnb
Even if you own the property that you intend to use as your Airbnb space, different rules apply for real estate properties that are used as Airbnb businesses.
Know the zoning laws and what the local government (e.g., city, township, borough) mandates. Having a license or specific permission may be required.
Ensure your mortgage company knows how you intend to use your property.
Inform your insurance provider.
Confirm with your homeowner’s association (HOA).
Preparing Your Airbnb
Now it’s time for you to be the star of your own HGTV show. In addition to following Airbnb’s requirements and suggestions, you can add your own touches to ensure your guests have a wonderful experience in your space. Keep in mind that guests have the ability to assign a rating to the property, viewable to others on the Airbnb website.
Consider putting a keyless lock on the door to the space. This will save time and avoid logistical hassles.
Diversify the space by adding a wall or partition. This is especially relevant for open floor plans.
Stock the kitchen (if that is part of the Airbnb space) with utensils, flatware, dish detergent, a coffee maker, and cleaning supplies. If you’re inspired to go above and beyond, set out individually wrapped snacks and single-serve beverages.
Purchase bed linens and bath towels, plus bathroom essentials such as soap and toilet paper.
Though the space will be professionally cleaned between guests, it is helpful to have a light-duty vacuum cleaner, surface sanitizing wipes, and paper towels ready so guests can be as tidy as they like.
Determining the Price for Your Airbnb
Setting a rate for your Airbnb business is a multi-step process. Don’t worry; the steps are straightforward.
Know your market. Is your property in a trendy city enclave or adjacent to university housing? What are the rates for similarly situated Airbnb spaces?
Consider the dimensions and usability of the space. You wouldn’t charge the same rate for a full home as you would for a furnished room.
Remember the costs enumerated in an earlier section. Also, Airbnb takes approximately 3% of the booking fee.
Consider the availability of your Airbnb space. If you have more restrictions, such as a set length of stay or disallowing children, you may need to set a lower rate than commensurate Airbnb properties.
Listing Your Airbnb
It’s time to “go live” with your Airbnb business! Airbnb notes its rules and guidelines for listings on its site. Reviewing these in detail is worth the time.
The suggestions below emphasize or amplify your listing.
Pictures of your space are a guest’s first impression of your property. Recall the cliche, “A picture is worth a thousand words.” It’s true.
Be sure to have a picture of each of the main rooms or the main area. Don’t forget to photograph the accessibility points within the property.
Include up-close pictures of appealing details (e.g., a wet bar or a bike rack installed alongside the house). Let the light in by opening curtains or ensuring the lights in the room(s) are turned on. Don’t forget to show off the outside if it contributes to the appeal (e.g., beautiful landscaping or a newly painted deck).
If your Airbnb space includes on-site features that guests may use, include them in your picture-taking session. Especially for spaces that are part of a condominium or apartment community, showing off the outdoor play area or pool may encourage potential guests.
We have a final tip when it comes to pictures. Browsing real estate listings online is a good place to start. Often, realtors have professionals taking pictures. Study them and learn from a pro!
When it comes to writing a description of your Airbnb, it’s all about marketing your space. Think about what your space offers that is appealing. If the bathroom shower is new, mention it. If appliances are included in the space, be sure to share if they are energy efficient or environmentally kind.
Expand your marketing from the space to the environment in which it sets. If the beach is within walking distance, share that detail. If you have a favorite pizza parlor or boba tea shop, mention them.
Hiring a Co-Host
If you’re new to the Airbnb world, have an unpredictable schedule, or already have too many balls in the air, consider hiring a co-host. Like property managers, co-hosts can assist with day-to-day situations (e.g., the living room window is stuck).
Additionally, co-hosts can be in charge of communications with guests. A co-host may advise how to check in and out of the property and what to do about the neighbor’s dog that leaves a daily morning present in your yard.
If you’re hiring a co-host, you and they will decide the amount the co-host earns per reservation. It’s important that the co-host acknowledges and understands Airbnb’s terms of service.
Providing an Airbnb Experience
What Is an Airbnb Experience?
If you want to expand your work with Airbnb or give it a try with less commitment, consider becoming a host for an Airbnb Experience. As a host, you will lead guests through unique classes, workshops, tours, etc. The value of an Airbnb experience is that guests interact with someone “in the know.” Also, guests benefit from a wide variety of experience types that exceed the one-size-fits-all approach of public tours or classes.
Who Can Be an Airbnb Host?
Airbnb has an application process for people interested in qualifying as a host. The step-by-step directions are on the Airbnb website.
Depending on where you plan to host, you may need to apply for a license or obtain a permit from the local government. If your experience involves food, alcohol, transportation, or working with minors, it is highly likely you will need to undergo some type of vetting.
Why Host an Airbnb Experience?
Hosts earn money for the experiences they provide. As with launching an Airbnb business, Airbnb takes a cut (20% at the time of writing) from the revenue generated through the experience.
Hosting an experience is more flexible and requires less of an investment than hosting at an Airbnb property. Especially if you are passionate about a hobby or interest, being a host allows you to indulge in what you love and make some money!
Conclusion
Starting an Airbnb business can be an enjoyable money-making opportunity. Within the post, you’ve become familiar with the processes and practices involved.
We’ve covered the tasks that are integral to owning an Airbnb business.
- Knowing how Airbnb works and understanding the tangible and intangible costs are the first steps toward deciding if it’s the right move for you.
- Researching the market and seeking necessary permissions comprise the first part of launching an Airbnb business.
- Preparing the space, setting the price, and listing the property comprise the second part of the launch.
If you’ve determined a full-on Airbnb business launch isn’t a fit for you. Yet, you like the concept of having a personal business without having to build a framework or deal with administrative overhead. We’ve got you covered by introducing an alternative way to benefit from Airbnb’s structure that allows you to profit from doing what you love.
****If you are interested in keeping up with my blogs. Please join my newsletter or my Facebook group, Home Buying & Selling Resource Community. If you are on the fence about buying a house, pick up a copy of my book Essential Advice for Buying Your First Home and Navigating Through the Mortgage Loan Process. I just released a second book A Look Into the Secrets of Credit Repair: How to Fix Your Score and Erase Bad Debt. It’s available on Amazon in print, kindle, or audiobook format
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