The Economics of Becoming an Airbnb Host

If you’ve traveled recently, there’s a good chance you paid to stay in someone else’s home rather than a hotel, and you did so because of Airbnb. If your experience was positive, you might be wondering what you’d have to do to become an Airbnb host yourself. So we’re here to discuss the economics of running an Airbnb—whether you’re looking to make a little money on the side or become a full-time member of the hospitality industry.

The Airbnb platform has done more to make the home-share model safe, reliable, and culturally acceptable than any other service. Today, Airbnb is active in over 65,000 cities around the world, with over 3 million listings.

Unlike ride-sharing apps like Uber, which is a constant source of analysis and think pieces, Airbnb doesn’t get as much air time over whether the time, effort, and investment put in by hosts is worth the payoff. But it’s a question worth asking.

First: Is This a Business?

According to Airbnb, the platform is not a hotel service. Whether this is just an argument used to help some of its hosts avoid paying extra taxes or not is unclear, but the company says that 87% of their hosts are the primary residents in the homes they rent to guests.

More than likely, you’d fall into that category—though some hosts actually buy or lease a number of apartments or homes and rent them out full-time, creating what could be a six-figure income.

So the first thing you need to do is decide what your goals are for this endeavor and how much you’re willing to put into it. If you’re renting out a room in your house, your roles, responsibilities, and expenses will be much different than if you need to obtain, furnish, and perform upkeep on a separate space.

Creating Your Space

That being said, whatever niche you want to carve out on Airbnb, you likely still need to invest something in your space. Will it be a single room that shares your bathroom? A private wing with its own entrance? Your entire home while you take off for the weekend?

Naomi Slipp has experience running two very different kinds of Airbnb spaces: one, a family cottage in Cape Cod, Massachusetts, that had previously been outfitted as a rental space, and a separate wing in a home she recently bought in Montgomery, Alabama.

“We own this summer property that has always in part supported itself through rental. But Airbnb became the perfect way to reach out and find new renters and advertise to a larger audience and community,” says Slipp. “We listed that place in summer 2013, and at the time I lived an hour away from the property, which made it really easy to co-manage with other members of the family.”

When Slipp was house-shopping in Montgomery, she and her husband specifically looked for homes that could be outfitted with an additional Airbnb space. When they found their home, they made improvements to it to make it a better fit for guests.

“We didn’t move into the house right away, and one of the improvements we made was to build a wall to close off [the room],” she says. “It had been used by the past occupants as a family room. It can become part of the house when our parents are visiting.”

For that space, Slipp invested in a number of things, some which are crucial to the Airbnb experience—a keyless lock to make check-in easier, for example—and others that simply help make the space more comfortable for longer-term guests.

“We bought a lot of stuff for that room—in the little kitchen space, there’s the fridge, the microwave, the Keurig machine. There’s the television area. We wanted to set up that space so it would be functionally independent,” Slipp says.

Research Your Market and Set Your Price

Once you have in mind what your economic goals are for this business, and you know what your space will look like and what it will consist of, you can start thinking about where you fit in the local Airbnb market.

“Someone starting out should think about three things: affordability, knowing your audience, and knowing your market,” says Slipp. “You get rated on overall experience, accuracy, cleanliness, communication, check-in, location, and value—and I find that value, even if you’re comparable to other places in your area, is the thing that people will most likely begrudge you if you’re listing on a higher scale.

“For example, Cape Cod is an expensive summer market. Our house is on the beach, but it’s not the fanciest house. In our market, we’re nowhere near the prices in our area, but sometimes value is what we can get a little dinged on with our property,” she says.

When deciding how to price your house and what parameters to set for visits, Airbnb has a number of tools to help you. Their metrics can show how your nightly prices compare to other homes in the area, or when you might want to consider lowering (or raising) your prices depending on the day of the week or expected surges in demand. You can also set minimums for the number of nights people can stay at your Airbnb—a weeklong minimum, for example, helps offset the cost of turning over the space, which includes cleaning and upkeep.  

Another thing to think about is your profit goals: What do you need out of the property? How much you charge needs to be a part of that discussion.

“We make a profit, but it’s enough to keep the properties. We don’t operate them with higher expectations with that,” says Slipp of her two spaces.

Hire (or Otherwise Enlist) Some Help

Airbnb can be tough to manage alone. Slipp recommends “having at least one other person to help you co-manage, to help you with the slew of emails and communications you deal with, or someone to help you physically on the ground.”

If you don’t have a partner for that endeavor, Airbnb now offers to hook you up with co-hosts who can help you deal with urgent issues, provide neighborhood-specific tips, aid the check-in process, and more.

There are also a number of cottage industries that have grown up around Airbnb that helps hosts increase their capacity to deal with inquiries or clean spaces, for a fee. KeyCafe can turn cafes near your spot into a key-storage location (if you don’t invest in a keyless lock). Guesty is a property management company that helps you handle the backend of the process, such as bookkeeping. And Proprly provides services like fresh linens and chocolates to help bring your game to the next level.

You Get Out What You Put In—Sometimes

After investing in finding and outfitting your space, your next biggest investment will be your time.

If you invest your time, you’ll get more bookings, and hopefully more reviews (though not every guest leaves a review, which can be a bummer). Reviews matter—if you rise in the rankings, you’ll appear more often in people’s search results.

“With our status and how many people we’ve hosted, we show up first, and we get more first bookings,” says Slipp. “A lot of people book with us for a quick overnight, so we get a lot of day of or day before bookings. A lot of those things lead to the increased stays, which has given us the greater number of reviews of late.”

However: You don’t get paid for all the messages you respond to that don’t convert, the investment of time in decorating, anticipating people’s needs, responding to issues, and all the other aspects of the job that can’t be quantified or rolled into your fee.

“I don’t pay myself,” says Slipp. “The amount of messages and inquiries you get that don’t pan out as bookings is shocking. So just the back-and-forth communication with potential guests takes a lot of time. And you really have to be able to drop whatever you’re doing and respond to inquiries quickly to make that time worth it.”

How to Report Your Taxes

Airbnb hosts might have different tax policies and responsibilities depending on the city they live in, so get acquainted with your local laws to understand what you’ll need to acquire or pay in order to host.

In terms of reporting earnings to the IRS, Slipp notes that Airbnb recently changed their policy: “Airbnb used to always generate a 1099 for all of their hosts, and you’d get it in your email. Now your threshold for an automatic 1099 is $20,000 a year, which is quite high. You can still request your 1099. And you’re responsible for reporting to the IRS.”

So Is It Worth It?

Again, whether Airbnb is worth it depends on your economic goals and how much time and effort you’re willing or able to put in.

For Slipp and her husband, being an Airbnb host makes sense for now, so they’ll keep doing it. But Slipp also genuinely enjoys the process of hosting, which she says is a must for potential future hosts.

“I think for the Cape property, it’s definitely worth my time. We make exactly enough to keep the house. We don’t overcharge for that place, we know how much we need to make, and that’s what we make to cover taxes and property expenses,” she says. “Down here [in Montgomery], we’ll do it as long as it’s working for us. It definitely is a lot of work for a smaller payoff, compared to the other property, but right now it’s working and it’s fun, and I really enjoy hosting people.”

In fact, Slipp cites this as perhaps “the biggest thing”: actually liking people. That may sound like a joke, but it’s not.

“I’ve had surprising conversations with people where they think they won’t have to ‘deal’ with guests. You have to actually enjoy people, meeting and helping people, interacting, and engaging with them,” she says. “If you don’t have a lot of patience, or if you feel put upon when people request things, don’t be a host.”

Fair enough, right? Airbnbs may not be hotels, but they’re still a part of the hospitality business. If you keep that aspect in mind while running your listing, you’ll have a much smoother time with things, we promise.

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from Fundera Ledger https://www.fundera.com/blog/being-an-airbnb-host