Economics of Becoming an Airbnb Host: How Much You Can Make

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 considering becoming an Airbnb host yourself. So, we’re here to discuss the economics of hosting on Airbnb—how much money can you earn renting out your space to travelers, and how much the process will cost you.

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 more than 65,000 cities around the world, with upwards of 4 million listings.

Unlike ride-sharing apps like Uber, which are the constant center of analysis, Airbnb doesn’t get as much focus, so it’s hard to tell whether the time, effort, and investment of becoming an Airbnb host is worth the payoff. But it’s a question worth asking. To help you answer that question, we’ll show you how to Airbnb your house (/villa/cabin/yurt/treehouse) and, along the way, what hosting on Airbnb will cost you.

How Much Money Can You Earn as an Airbnb Host?

If you’re thinking about becoming an Airbnb host, your intention is more than likely to pick up a side hustle, not to start a fully-fledged business. On average, Airbnb hosts make $924 a month, but those numbers truly vary. Some hosts even buy or lease a number of apartments or homes and rent them out full-time, creating what could be a six-figure income. 

If you’re curious about how much you can really earn by becoming an Airbnb host, you can plug in your location, the number of guests you can host, and how much of your home you can rent out on Airbnb’s website, and they’ll show you an average number.

Of course, your true earning potential depends upon how much you charge for your space, and how often you can rent it out—both of which are ultimately dependent upon how much time and money you can spend on furnishing and maintaining your home. (Not to mention the sweat equity you’ll need to contribute toward making your space hotel-worthy.)  

So, the first thing you need to do is decide what your goals are for becoming an Airbnb host, and how much you’re willing to put into it, both effort- and money-wise. Keep in mind that 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 an entire home.

1. The Cost of Creating Your Space

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

Naomi Slipp has experience running two different Airbnbs: a family cottage in Cape Cod, Mass., that had previously been outfitted as a rental space; and a separate wing in a home she bought in Montgomery, Ala.

“Our summer property has always in part supported itself through rental. But becoming an Airbnb host was the perfect way to 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 amenities, 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, like a fridge, microwave, a Keurig, and a separate, furnished television area. 

Regardless of whether you choose to rent out your entire home, like Slipp did, or just a room, you’ll need to factor in the costs of stocking that space with necessities. Airbnb lists clean sheets, towels, and toilet paper as must-haves, but to score the highest ratings, you’ll need to go above and beyond those basics.

Keep in mind, too, that your utilities bills will increase with an extra few people living in your space.

Get Permission!

If you’re considering becoming an Airbnb host, it’s crucial that you receive the proper permission from your landlord, co-op board, or homeowner’s association, if relevant. Even before you approach your landlord, read your lease, which will include a provision about subletting.

Depending on where you live, too, there might be legal restrictions to renting your home on a short-term basis. Sorting through the fine print is a headache, we know. But better the headache than violating your city’s or home’s laws, which can result in pretty hefty fines.

2. Research Your Market and Set Your Price

Once you have in mind what your economic goals are for becoming an Airbnb host, and you know what your space will look and how much you’re willing to contribute toward furnishing and maintaining that space, 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.

How to Set Your Airbnb Price

When deciding how to price your house and what parameters to set for visits, the platform has a number of tools to help you. Airbnb’s 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 will include cleaning and upkeep. Also consider charging for extra guests, or for any additional services you may want to provide, like cleaning, equipment rental, or city tours.

Another thing to think about is your profit goals; how much you charge needs to be a part of that discussion.

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

How (and How Much) You Get Paid for Your Airbnb Rental

Airbnb charges your guests before arrival, and they’ll release your money according to the method of your choice (like PayPal or direct deposit) 24 hours after your guest checks in.

The platform takes a host service fee of 3% to 5%, so the listing price that your guests see is higher than what you earn. Some other factors might impact how much you get paid, too, including:

• A weekly or monthly discount
• Weekend or seasonal pricing
• Payment for any co-hosts you enlist
• VAT in certain non-US locations

3. Hire (or Enlist) Some Help

Becoming an Airbnb host 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.”

Co-hosts can help you deal with urgent issues, provide neighborhood-specific tips, aid the check-in process, and more. Find a co-host in a family member, friend, or neighbor.

If you do choose to enlist someone to help you navigate logistics, add your co-host to your listing (you can add up to three), and make sure they understand Airbnb’s Co-host Terms of Agreement.

Co-hosts don’t come for free, though. Together, you and your co-host will determine how much they’ll be paid per reservation.    

If you can’t find a trusted co-host, consult any number of cottage industries that have grown up around Airbnb, and which help hosts deal with inquiries, clean spaces, and more. Some of these Airbnb-adjacent businesses include: 

• KeyCafe: Turns cafes near your spot into a key-storage location (if you don’t invest in a keyless lock).
• Guesty: A property management company that helps you handle the backend of the process, such as bookkeeping. 
• Properly: Offers changeover cleaning services to spruce up your rental between guests.

Of course, these services also come at a price. However, you might find that an extra hand, either human or digital, might be worth the extra cost to help you run your rental space smoothly.

4. The Time Investment of Hosting on Airbnb

After finding and outfitting your space, your next biggest investment of becoming an Airbnb host 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. And 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. “Many 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.”

Of course, the more effort you put into your space to make it as beautiful, functional, and comfortable as possible, and the more time you allot to being available to respond to your guests’ concerns, the better your reviews and ratings will be.

On the flip side, you don’t get paid for all the effort you contribute to your rental space. The messages you respond to that don’t convert, and the time you spend decorating, anticipating people’s needs, responding to issues, and so many other aspects of the job simply 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.”

Like Slipp, you might not receive enough money from your efforts to actually live off of. It’s up to you to decide whether the positive (we hope!) experience of hosting guests justifies your monetary earnings.

5. How Airbnb Taxes Work

As you might expect, Airbnb taxes are complicated, and there’s no uniform tax policy that applies to every single Airbnb host. Rather, Airbnb hosts might have different tax policies depending on the city they live in, so get acquainted with your local laws to understand what you’ll need to collect or pay in order to host.

Collecting Taxes from Guests

If your city does require you to collect local taxes from your guests, you’ll need to let them know the exact amount before they book; you can either include the amount in the listing proper, or not.

If you choose not to include the tax amount in your listing, you’ll need to collect that amount from your guest when they arrive. Know that Airbnb can’t ensure or aid in tax collection, though. 

Reporting Your Airbnb Income to the IRS

As a host, you’ll need to report your Airbnb income and expenses to the IRS if you rented out your house for more than 14 days over the calendar year; or if you live in the house you’re renting for more than 14 days, or more than 10% of the total days it’s rented out to guests.

Also, Airbnb will send you a Form 1099-K if you’ve earned over $20,000 and had 200+ reservations over the calendar year. And hosts who’ve had their taxes withheld from their payouts will receive a tax form from Airbnb so they can accurately report their income.

And you can deduct certain expenses from your Airbnb income, but Airbnb (and we) urge you to consult a tax professional on all these matters.

As an Alternative, Consider Hosting an Airbnb Experience

If you want to be an Airbnb host, but you’re not in a position to rent out your home, consider hosting an Airbnb experience, instead.

Essentially, Airbnb Experiences is the platform’s tour-guide service, which hooks up guests with knowledgeable hosts for unique, hyper-local activities—think yoga classes under the Eiffel Tower, surf lessons at Venice Beach, a Harry Potter walking tour in London, and a pasta-making class in Rome.

As an Airbnb experience host, it’s up to you to create and facilitate these one-of-a-kind experiences for travelers through your city.

Just like being an Airbnb host for a house, you set the terms of your Airbnb Experience hosting gig—you pick your hosting schedule, how often you can host, the size of the group you can oversee, and your rate. Unlike renting out your home on Airbnb, though, there are far fewer cost considerations to becoming an Airbnb Experience host.

Who’s Eligible to Become an Airbnb Experience Host?

You don’t need to be an Airbnb home host to be an Airbnb Experience host—but according to Airbnb, experience hosts must be credible, genuine, and empathetic. In other words, you need to have a skillset or area of expertise, a deep knowledge of your city, and the desire and ability to share both with strangers.

Beyond that, you might need to have a business license to be eligible, depending on the experience you’re hosting and your local laws. Pay special attention to legal stipulations if your planned experience involves alcohol, food, or transportation.

Also keep in mind that Airbnb experiences aren’t available in every city, so you’ll need to check the website to see if becoming an experience host is viable for you. If so, you’ll need to submit your experience application to Airbnb, who’ll vet you, and your experience request, and typically respond within 1 to 2 weeks. Be aware, though, that there’s currently a waiting list in most cities.

And if you do start to host Airbnb experiences, you might actually need to register your experiene as a business. That depends on your local laws, and whether your hosting gig complies with your jurisdiction’s definition of business activities. It’s up to you, not Airbnb, to check up on your local laws and make sure you’ve acquired all the necessary licenses or permits.

So, Is Becoming an Airbnb Host Worth It?

Ultimately, whether becoming an Airbnb host is “worth it” depends on your economic goals, and how much time and effort you’re willing or able to put into your rental.

Being an Airbnb host can certainly make you money, but it’ll cost you, too. Some costs to consider include:

• Furnishing, stocking, and maintaining amenities in your rental space
• Cleaning services between reservations
• Co-host income
• Taxes and Airbnb’s fee
• Higher utility bills    

It’s best to keep your profit expectations conservative, especially if you’re not willing or able to contribute huge amounts of time and energy into your hosting gig. After all, for the vast majority of us, becoming an Airbnb host is intended to be a gig—not a full-time job, with full-time earning potential. 

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 the Cape property is 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 per se, 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/becoming-an-airbnb-host