How to Make Money with Airbnb

By: , Contributor

Published on: Dec 24, 2019

With careful planning and preparation, you too can make money with Airbnb.

There are countless theories online about how to make money with Airbnb, but the truly successful Airbnb hosts have it down to more of a science.

When a would-be host looks up their own home on Airbnb, the platform provides an immediate, extremely attractive estimate of how much they might start making money with Airbnb, assuming 15 nights booked per month at “forecasted daily prices.” Of course, that estimate comes with a fair number of caveats, as it should.

Successful Airbnb hosts who have been at this for more than a year, report acceptable profits, and plan to continue hosting say the process of earning extra money with Airbnb is much more of a science than many instructional pieces on the topic might imply.

Matt Bray, a three-year Airbnb veteran and current “Superhost,” cites the most popular topic, interior design, as only one of eight main factors in creating profitable, productive, positive Airbnb experiences for both host and guest. When these eight factors come together with the right logistics on the part of the Airbnb host, the result can be far superior to other forms of real estate investing in terms of volume and payout.

“In terms of revenue generation, our Airbnb units each make two to three times what our full-time rental unit does on a monthly basis,” Bray reported, adding, “And that is with less wear and tear on the property, since many of the short-term rental guests never use the kitchens and are mainly out and about.”

“If you are smart about making money with Airbnb, it can be a much greater overall return than full-time renting,” he concluded.

Sweat the small stuff

The process of getting started with Airbnb as a host is fairly simple and relatively inexpensive:

  1. List your space for free.
  2. Start taking bookings.
  3. Get paid once guests check-in -- usually within 24 hours!

However, the setup is just the beginning.

Bray believes there are eight factors that play into successful Airbnb hosting, including:

  1. Fitting your amenities and value to your target audience.
  2. Positioning your property correctly in your description so it appeals to people considering a stay in your area.
  3. Taking good but realistic listing photos.
  4. Prioritizing a solid track record.
  5. Knowing your local event calendar and factoring it in when pricing certain dates.
  6. Resisting the urge to undercut yourself with aggressive weekly and monthly discounts.
  7. Pricing based on seasonal considerations.
  8. Reading and responding productively to your reviews and reading those of your competitors.

“There is a lot of competition out there,” Bray said. “You can learn a lot from the mistakes of others and benefit from thanking guests who provide constructive feedback and then responding to it. It is always critical to be thinking of how to improve the experience.”

Be aware of legal issues and liabilities before hosting

While the profit margins on Airbnb rentals tend to be extremely attractive, there are some legal issues and potential liabilities you must address if you want to effectively leverage what many have dubbed “the best side hustle” in the real estate investing sector.

Tom Olson, a Gary, Indiana, investor who owns a dozen vacation/corporate rentals and 40 single-family rentals in addition to managing 160 single-family rentals and two vacation rentals for other clients, warned that the biggest pitfall many Airbnb hosts encounter is that they are not aware of their legal and regulatory obligations as Airbnb hosts.

“You have to check in with your local municipality before you start planning how you will host,” he said. “In some cities, the hoops you have to jump through are just not worth it when you budget everything out. Also, check with your homeowners association, if you have one. Unless we are hosting in a condo community, we stay away from HOAs completely.”

For example, in New York City, short-term rentals are flatly prohibited in many multifamily buildings. The cost of violating these laws runs very high, with the first violation costing a host around $1,000, the second around $5,000, and subsequent violations climbing as high as $7,500 per day.

However, even in New York City, which is known for its stringent regulation of Airbnb and other short-term rental and vacation platforms, there are options for hosts determined to leverage the Airbnb strategy. Often, the bottom line is well worth the effort.

“We average three times the net income on Airbnb that we do on a traditional rental,” Olson said. “For us, that translates to about $300 monthly rent on a traditional rental versus $1,000 a month on the Airbnb locations.”

Interestingly, Olson’s Airbnb properties are not located in vacation rental areas but in areas where people travel for other reasons. “We compete with hotels that have already spent millions of dollars on research to know where to put their hotels, so if we can offer a four-bedroom/two-bath nicely finished (comparable to a fix-and-flip project) for less than someone can get two hotel rooms, that value will always win out,” he said.

Olson cited a conversation had while working through the “fine print” of his Airbnb returns with his accountant as evidence that a good host certainly can make money with Airbnb. “He looks at tax returns for a lot of real estate investors, and he said there are two industries in which there are clearly demonstrated, ‘big’ positive net income: vacation/corporate rentals and assisted living,” Olson said. “However, you have to remember as far as the internal revenue service is concerned, no matter where you are holding your Airbnb properties, they are producing active income. You need to be careful if you thought you would use this strategy to create passive income.”

Airbnb hosting budget line items

Lastly, to make money with Airbnb, you must be sure that your projected returns factor in a few fees and other “line items” hosts must consider. For example, Airbnb and most other short-term hosting platforms charge a host service fee of some sort. This is not a listing fee, but it does take a percentage of the money generated each time you book your property. At Airbnb, that percentage ranges from 3% to 5%.

Both Bray and Olson agree there are other relatively small costs that can add up if a host neglects to consider them upfront. Those costs include:

  • Cleaning fees
  • Turn fees
  • Maintenance fees
  • Communication fees (how you manage correspondence with your guests)
  • Regulatory licensing fees
  • Taxes

Probably one of the biggest “unknowns” is the cost of potential property damage. “It is really important to implement rules that will protect your property, such as penalties for having parties of a certain size,” Olson said.

Unlike a traditional rental, where tenants usually must place a refundable security deposit with the owner of a property, Airbnb handles security deposits a bit differently. While the platform will, on occasion, require a guest to make a security deposit before booking based on the timing of a reservation or unique features of the listing, in most cases, hosts must require security deposits if they wish to employ this type of “insurance.”

However, guests are charged only if hosts make a claim through the Airbnb Resolution Center and the claim is approved. This can mean you might need to plan for delays in future bookings and keep a reserve fund for last-minute maintenance on hand.

The right guest is always right

One thing every successful Airbnb host agrees on is that when it comes to how to make money with Airbnb, the key to success is knowing your “audience.” In this case, that means knowing what type of guests will be most likely to stay with you and customizing your listing, amenities, pricing, and property to their needs.

“You need an angle that helps sell the space; it’s not just about positioning functional statistics,” Bray explained. “Position something special, like the experience, the comfort level, proximity to [relevant] activities, and businesses, or something else entirely” at the forefront of your listing. “For instance, if your property is near business hubs, be sure you have top-of-the-line Wi-Fi and a desk. Design goes far toward increasing overall bookings and Airbnb income, and it does not have to be crazy-expensive,” he said. “Just create a well-put-together experience that feels homey to guests.”

Olson agreed, noting that in his properties, he has found that offering guidebooks with information about local attractions, coupons for local restaurants and activities, and a personalized “goody basket” with a handwritten note for every guest creates a reliably five-star experience.

He recommended customizing the baskets to your expected audience as much as possible and using regular correspondence leading up to the stay to make sure that all questions are answered and “rules of the house” are understood in advance.

Olson and Bray both emphasize that five-star reviews are crucial to your success with Airbnb. Bray noted, “Reviews help you understand your target audience and what your property needs to be attractive and succeed.”

Olson added, “Don’t be afraid to ask for five-star ratings. You can put messages in your communication indicating you hope the experience will be worthy of a five-star rating as well.”

The good news is that nearly everyone who hosts on Airbnb for an extended period of time reports their experience to be a good one. In fact, in a recent study from real estate data company Clever, 82% of homeowners eligible to host said they believe Airbnb is a “good money-making strategy.” It can work for you, too, as long as you do a little bit of planning in advance.

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