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The Often-Overlooked Costs of Renting Your Home on Airbnb

Hosting an Airbnb rental comes with surprising costs that many homeowners overlook.

[Updated: Feb 04, 2021] Feb 19, 2020 by Erik Martin
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You're eager to begin renting your home on Airbnb and earning extra cash. But being an Airbnb host has its challenges, too. There are many costs involved with offering a short-term rental. You could be required to pay taxes, your mortgage may be affected, and a cleaning fee could apply. It's wise to consider all of these potential expenses and related real estate factors before diving into the pool. We'll look at some of the common -- and unexpected -- costs that come with being an Airbnb host, including:

  • Airbnb service fees.
  • Needed supplies.
  • Cleaning costs.
  • Utilities, maintenance, and emergencies.
  • Insurance coverage.
  • Taxes for renting out your home.
  • Business incorporation expenses.
  • Local fines.
  • Mortgage costs.

Airbnb service fees

The first expense you can count on is applied to every Airbnb host. Airbnb charges a 3% service fee once you receive a reservation. That may not sound like much, but renting your home on Airbnb several times a year can make this fee add up quickly.

Needed supplies

Your home for rent will need supplies, including fresh bedding, towels, linens, toilet paper, soap, and toiletries. You'll probably want to stock the fridge and cupboard with at least a few edibles to make your rental feel more like home, as well.

Also, it's smart to invest in security technology when renting a home. Consider newer and better door locks, including a strong deadbolt. You may want to install smart locks that require the use of a keypad, for which you can provide a temporary key code to guests. Smart locks can run a few hundred dollars for the hardware and installation.

Securing your property with outdoor cameras like a video doorbell and hardwired or Wi-Fi waterproof exterior cameras is a good idea, too. The cost to install four higher-quality video cameras is around $1,200.

Cleaning costs

Of course, renting your home on Airbnb will require cleaning. Cleaning supplies are relatively cheap, but prepare to spend perhaps a few hours doing laundry, cleaning the bath and kitchen, vacuuming and mopping, and tidying up. If you don't want to do the work or won't be around to handle it, you'll need to hire a cleaning service. Their cleaning fee may run you over $200 for each session.

You'll probably pass on these and other costs to guests in the form of a higher rental fee, or you can actually add a separate cleaning fee to your rental listing. Some people charge the exact cost they pay for a cleaning service. Of course, this may turn off potential renters. That's why many hosts choose to clean, stock, and maintain their rental properties themselves and keep costs down for everyone.

Utilities, maintenance, and emergencies

Expect your utility costs to vary when renting out your home. Your guests may crank up the heat or air conditioning more than you anticipate. They could take long showers or forget to turn off the tap water. Factor these likely higher costs into your budget.

Occasionally, you should also expect the unexpected. Unforeseen emergencies could include:

  • A pipe bursting during a cold snap.
  • A sudden storm breaking a window or compromising the roof, leading to water damage.
  • The air conditioning unit suddenly dying.

Airbnb hosts need to have funds saved up for routine maintenance as well as unforeseen repairs and emergencies.

You'll also want to keep an eye out for the more mundane maintenance issues. "A broken ceiling fan chain or handle on a toilet is the responsibility of the host to repair after a guest has vacated," says David Reischer, a New York City attorney.

Insurance coverage

Perhaps the costliest aspect of renting your home on Airbnb is the insurance coverage involved. Your existing home insurance may allow you to rent your property with no additional coverage needed or cost charged. But you have to notify your insurer well in advance and get permission. Your insurer could make you get a rider or endorsement to your current policy, for which you'll be charged extra.

"An insurance premium bump of at least a couple of hundred dollars on an annual policy can be expected if you let your insurance carrier know you are renting out your property through Airbnb," says Reischer.

You may be required to purchase commercial insurance coverage similar to a bed-and-breakfast or hotel if you rent out on Airbnb frequently enough. Say you end up renting your home to one family, couple, or person for a long time. The Insurance Information Institute reports that landlord or rental dwelling coverage can run you 25% more than a typical homeowners insurance policy.

Airbnb provides insurance protection to hosts in America that safeguards you if a guest gets injured while staying on your property. The Airbnb Host Guarantee covers you for up to $1 million in damages (beyond the security deposit) to your property caused by your guests. But this coverage isn't all-inclusive. It won't cover wear and tear, personal liability, jewelry, securities, cash, pets, collectibles, or rare artwork. That's why it's smart to remove any valuables before renting out your home.

Taxes for renting out your home

If you rent out your home on Airbnb for more than two weeks (14 days), the IRS considers you a landlord and will require you to report your rental income on your tax return. The good news here is that any rental expenses you incur are deductible. But you'll need to keep good records; that's because you'll have to document costs based on the days your home is used for rental versus personal use. Read the fine print on the IRS rules carefully.

Note that Airbnb may send tax forms to the IRS detailing your rental income. This could result in you receiving a letter from the IRS requesting you to pay taxes on unreported income. If you hosted for 14 days or fewer in a tax year, prepare to provide proof that backs up your claim.

Here's another worry: Renting your home using Airbnb for extra money may cause you to lose your homestead exemption.

"Many states grant owners tax reductions for primary residences," says Suzanne Hollander, a real estate attorney and Florida International University senior instructor. "However, if your residence is income-producing, you may lose your homestead exemption."

Business incorporation expenses

Some experts recommend incorporating your business for tax purposes. Forming a corporation or LLC can protect your personal assets in the event you are sued, and it may yield some valuable tax deductions, too.

But the costs to incorporate can be high, depending on the state you live in. You may have to pay annual franchise taxes, filing and administrative fees, and an accountant or attorney to help you establish your business or manage tax matters.

Local fines

Here's an often overlooked expense that some hosts find out about too late: fines imposed by their municipality, homeowners association, or co-op board. They may have rules against short-term occupancy or require a license to rent out your home.

"It's not uncommon to have a lease simply terminated by a co-op board that prohibits a person from subleasing or renting out a property on Airbnb," Reischer adds. "And the financial consequences of renting out a unit unlawfully carry a huge financial penalty."

Mortgage costs

Renting out your home via Airbnb may also cost you if you plan to refinance your home's mortgage. That's because the income generated from your rentals may not be accepted on your refinance application. That would affect your debt-to-income ratio, possibly resulting in a higher interest rate on your new loan.

In summary, renting out your home on Airbnb can be a great way to make extra cash. But you need to carefully consider all the various associated costs to decide whether this strategy is right for you.

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