Many homeowners these days are considering renting out their spare rooms or entire homes on Airbnb (or other short term rental sites) to make some extra cash. It’s a tempting endeavor to pursue because many homeowners have empty rooms they can share or may be out of town a lot over the summer, so why not make some extra money while not occupying a property?
While listing a home on Airbnb can be a fun and rewarding way to earn extra income, there are many things that need to be taken into consideration before renting out a home on the platform. Below are some essential things to consider before a homeowner decides to host on Airbnb.
Guests’ standards for rentals are high
Simply snapping some photos and offering a bed with a room is not a good approach to hosting on Airbnb. Potential guests expect a lot from their hosts and will want items like shampoo, toilet paper, soap, linens, coffee, etc. included in their stay. Some hosts even have irons, ironing boards, hair dryers, curling irons, lotion, mouthwash, and even spare toothbrushes.
Additionally, even if plans change, it’s important that hosts don’t cancel their guest’s stay as there will be penalties for the violation. While this is not set in stone, there is a certain etique that needs to be followed by hosts to ensure guests continue to have trust in their listing, which ultimately impacts the success that’s achievable on the platform.
In the U.S. hosts need to follow Airbnb’s guide for responsible hosting by doing their due diligence and preparing guests for possible emergencies that might arise during their stay. For example, hosts need to provide a first aid kit, fire extinguisher, and emergency numbers. Additionally, the property needs functioning smoke and carbon monoxide detectors.
Check to see if permits are required
Hosting also comes with other hidden costs such as the possibility of needing a permit. Many cities require hosts to apply and pay for permits / registrations to legally rent out their homes on the short term rental market.
It’s essential to look up permitting, zoning, safety, and health regulations of which several government agencies might be in charge of in a particular area.
Check to see if HOA rules apply
Just like a city’s regulations, homeowners associations or co-ops all treat short term rentals differently in terms of the rules that might apply. Some HOA’s might have no rules all together while others might be very strict and not allow an Airbnb listing. It’s best to refer to your HOA guidelines and see what is allowed and not allowed.
Be prepared to pay extra taxes on rental income
All profits that are earned from renting out the home are subject to income tax. Airbnb will report earnings to the IRS (if hosts make over $20,000 or have 200+ transactions) to ensure that hosts are on the hook to report taxes. This even includes hosts that make money on properties in other countries.
However, the good news is that rental income that is required to be reported also has deductions, including the hosting fees that are paid to Airbnb. For example, buying toothpaste, soap, coffee, cleaning services, linens, can all be written off of taxes.
Additionally, deducting depreciation can also apply to the property as it does to rental properties. The depreciation formula is based on the number of days a property is rented out and also depends on if it’s the entire house or an individual room.
With that said, it’s important to keep track of everything that is purchased and also the receipts associated with the purchases to make sure all tax breaks are being taken advantage of.
How to get started
Once everything necessary to successfully become an Airbnb host has been taken into consideration, actually getting on the platform and setting up a listing is quite easy. Airbnb makes it very easy to market a listing by offering pricing tools, photography services, and other features to ensure success is had by hosts. Below are some items that need to be taken care of before the first guest is booked.
Take excellent photos: Photos help demonstrate how nice a unit is and they are imperative to success. Airbnb will send out a photographer (Airbnb deducts the cost of the photographer from future payouts) or a host can simply hire their own photographer.
Write a good description: Guests want to be able to envision themselves in not just the unit, but also the neighborhood. Describe what makes a neighborhood so special and amenities that are around such as coffee shops, bars, restaurants, walkability etc.
Set the price of the Airbnb: The price is ultimately up to the host but utilizing some tools such as Airbnb’s smart pricing tool is helpful. Additionally, Airbnb provides metrics to hosts to show how a unit’s nightly prices compare to other ones in the neighborhood.
Buy essentials: Stock the space with thoughtful touches and everything a guest might need. Extra razors, phone chargers, soap, wash cloths, towel, hair dryers, curling irons, first aid kits, and even a computer monitor are all going to help a guest enjoy their stay even more. These items do take a bit of upfront investment but are also tax deductible.
Be responsive: The Airbnb platform allows guests to communicate with hosts and vice versa, so it’s imperative that a host responds to messages quickly. Airbnb monitors this and factors it into your listing. Guests are more likely to book with a host that is consistently responsive and has good communication skills in case.
Maintain a superbly clean space: Guests want a space to be as clean as possible which will also be reflected in reviews. Ensure that towels and linens are washed after every use. Additionally, make sure to mop, dust, sweep, wipe down surfaces, etc. once a guest leaves. Hosts are allowed to charge a cleaning fee to help cover the cost of a cleaning service as well in case there isn’t time to perform all the tasks every time.
Brady Miller, CFA is Chief Executive Officer at Trelora, Inc. Brady joined Trelora in August, 2018 as Chief Financial Officer. He moved into his current role later that year and is responsible for all daily operations and growth of the broader real estate business. Prior to joining Trelora, Brady was Chief Financial Officer of Leeds West Groups which is one of the largest, and fastest growing automotive retailers in America. Brady managed their real estate portfolio, financing, human resources, and accounting. He earned a Charted from the CFA Institute in 2016 and holds a bachelor’s degree from the University of Colorado, Boulder where he majored in Finance and Real Estate.