Side Hustle to Serious Cash — How to Start an Airbnb Business
Starting an Airbnb is a popular side hustle. While most hosts make a modest amount of extra income to supplement their day-job paychecks, some Airbnb hosts turn their short-term rental property into a full-time business, earning a handsome income every year.
While you can make extra money by renting out a room in your home, you’re likely to be more profitable by turning entire houses, apartments or other living spaces into an Airbnb.
If you’re serious about turning this into a real business, these tips will get you started as an Airbnb entrepreneur.
- Finding the Right Airbnb Property for You
- Making Your Airbnb Business Legitimate
- Calculating Your Return on Investment
- Listing Your Airbnb Property the Right Way to Attract Guests
- Taking Extra Good Care of Your First Airbnb Guests
- Improving Your Host Rating
- Accommodating Remote Workers
- Making Sure You’re COVID Compliant
- Is Starting an Airbnb Business Worth It?
Finding the Right Airbnb Property for You
Before you can start an Airbnb, you’ll need property. You can buy or rent property. You can run your Airbnb locally or from a city far, far away.
The decisions you make will impact your profit and the lives of those who live close to your property, so consider each one carefully.
Identify a Good Real Estate Market
An ideal real estate market will have one of two features:
- Tourism. Economies that rely on tourists are ideal for vacation home rentals. That’s because you’ll have a predictable flow of people coming into town.
- Business hubs. Business hubs also attract frequent travelers who are in need of short-term rentals. To compete with hotels, you’ll want to ensure your rental has adequate accommodations for business travelers — like fast Wi-Fi and easy access to public transit. Business hubs can also attract remote workers who are often looking to stay for a month or more.
Once you’ve found good locations, you’ll want to narrow your options by the stability of the real estate market. For example, business hubs in Rust Belt cities are likely to be far more affordable than real estate markets in California.
Consider the Ethics of Your Airbnb Business
You’ll want to consider the ethics of your Airbnb business — especially when you’re shopping in a real estate market that isn’t local to you.
In many cities across the country, there is a homelessness crisis. This crisis may become worse as more corporate landlords replace mom-and-pop landlords who had to sell their properties due to the hardships of the past year.
In your quest for a “great deal,” you may want to consider the effect your business will have on the local community. Is your profit worth pushing local residents out of potential housing opportunities? Especially when you’re not personally invested in the local community?
Some Airbnb hosts will turn to alternative platforms that try to accommodate these concerns in their business structure. One example is Fairbnb, though you can only use this platform if you are local to your Fairbnb rental property.
Research Local Laws and Regulations for Airbnb Hosts
Even if you don’t have any ethical concerns about Airbnb hosting, you’ll want to research local laws and regulations. Many cities have taken the ethical concerns on themselves, codifying them into law.
For example, in San Francisco you must live in your Airbnb rental. You can book it for 90 cumulative days per year while you’re away, or host guests in your home throughout the year while you’re present.
Cities and municipalities across the country have started instituting similar rules. Be sure to do your research beforehand to make sure this is something you’re actually allowed to do.
Identify Potential Investment Properties
Now that you’ve narrowed down where you’d like to start your Airbnb business, you need to pick a specific unit. The most traditional way to do this is by purchasing an investment property.
As you compare potential Airbnb properties, think about what amenities you’d like access to while traveling. Wi-Fi is likely a must. In many markets, air conditioning will be a mandatory requirement for some guests. Parking, access to public transit and the size of the unit are also good criteria to consider.
As you search for a great deal, bear in mind that real estate markets around the country are a little out of control right now. Many potential buyers are making concessions like skipping inspections or appraisals in order to put in a competitive bid.
You should not do this. You want to make sure the property is up to code, and that there are no major surprise repairs to pay for in the first few years of ownership. Unknown variables have the potential to turn your rental space into a money pit, which is not a smart investment for a side hustle.
Become an Airbnb Host Without Owning Any Property
Depending on rules set by landlords and cities, you don’t actually have to own property to be an Airbnb host. Technically, you can rent a unit and then sublet it as a short-term rental on Airbnb. This can be a great workaround if you don’t want to take on the risks of homeownership, or if first and last month’s rent are a way more achievable savings goal than a 20% downpayment.
You will want to be up front and honest with the landlord about why you’re interested in renting. If a landlord or HOA isn’t on board, it can all get shut down in an instant, leaving you holding the bag on the rent for the remainder of the lease.
Making Your Airbnb Business Legitimate
There are many reasons to turn your Airbnb business into an LLC or other legal business entity. LLCs do provide some limited liability protection to you as a business owner.
But if you’re turning a rented property into an Airbnb, the LLC designation serves another purpose. It shows potential landlords that you’re a serious business owner. It gives them more confidence that you’ll pay rent on time, regardless whether you’re fully booked during any given month. With this designation, landlords may be more likely to take you on as a “tenant.”
Calculating Your Return on Investment
Before you sign on any dotted lines or commit to any Airbnb properties, you’ll want to figure out your return on investment. If it’s large enough, you may have a successful business on your hands.
Here are some of the calculations you’ll need to get there.
Figure Out Your Airbnb Costs
Your Airbnb business isn’t going to be 100% profit. And the actual real estate won’t be your only investment. You’ll need to figure out the costs you’ll incur along the way before you can assume this will put money in your pocket. Some common operating expenses to consider include:
Airbnb Hosting Fees
To find your hosting fee, add the price of your listing, cleaning fees and additional guest fees. Then multiply by 0.03. This is the chunk of revenue Airbnb will take as a hosting fee in most situations. If you’re running an Airbnb in Italy, use a Super Strict cancellation policy or are an Airbnb Plus host, your hosting fee could be higher.
Cleaning Fees
You get to pick the cleaning fees charged to potential guests. This amount should cover any costs you incur when you hire cleaning services. If you’re deep-scrubbing the place yourself, this fee will compensate you for your time and the cost of cleaning products.
Some hosts will use the cleaning fees not only to cover their cleaning service, but also to get higher effective nightly rates on their Airbnb rental. For example, if you wanted to charge $75/night, but similar listings in your area were only going for $65, you might bake that extra $10 into your cleaning fees.
This may get more people to click on your listing. Some may even decide to book after undergoing the time-consuming process of hemming and hawing over which property to book.
But there’s a downside. When they see the cleaning fee knocks the price up $10/night right before they book, you’re already starting their customer experience off on the wrong foot. Even if they book with you, their initial experience is a disappointment, which may not bode well for your reviews.
Property Maintenance Expenses
Unless you luck into an absolutely perfect property, you’re likely going to spend at least a little money cleaning your place up before listing it. Maybe a fresh coat of paint. Updated lighting fixtures. Some new blinds.
On top of the initial fixes, your property will need to be maintained. If a pipe bursts and you own the property, you’ll need money set aside to fix the problem. If the property has a yard, you’ll either need to dedicate time to it or pay a third-party landscaping service to maintain it for you.
Home Furnishings
You’ll also need home furnishings like couches, a bed, and pots and pans. Providing toiletries and towels is good practice. As is including a coffee station and maybe even some snacks.
Professional Photography
You don’t technically need a professional photographer as an Airbnb owner. But first impressions are important. The prettier your place looks in the listing, the more likely it is to book. Investing in high-quality photos can be worth the expense.
Legal and Professional Expenses
If you decide to set up an LLC, it’s generally a smart idea to enlist the help of both a lawyer and a CPA. In addition to needing their services when you set up your Airbnb business, you may need to call on them annually around tax time or whenever your state requires you to renew your business license.
Because local laws are constantly changing for short-term rentals, a lawyer is a good person to have in your corner whether you set up an LLC or not. They can help you ensure you’re up to code on the latest statutes and advise you whether continuing in your business or selling out is the better move given the current legal climate in your locale.
Taxes
Whether you set up an LLC or not, you will need to pay taxes as an Airbnb owner. First, you’ll need to pay property taxes according to your locality.
Many states or localities will also charge lodging tax, which often range from 7% to 18% of your income depending on where you’re located. These taxes are also referred to as Transient Occupancy Taxes (TOTs) in some regions.
You’ll also need to pay taxes on your profit. This is another reason it can be helpful to have an accountant on speed dial. They can advise you on the best ways to optimize your tax situation given your individual expenses, ownership status and local laws.
Business Bank Account
As a legit legal entity, you’ll want to keep your personal and business finances separate. This means you’ll need to open a business bank account. Shop around for the account that best meets your needs, taking note of any fees.
Insurance
Airbnb does cover hosts with a significant amount of no-cost liability and property insurance for periods when you have guests.
Under the Airbnb Host Guarantee, hosts have free coverage up to $1M, covering damage to your Airbnb unit and belongings caused by a guest. It also covers any damages caused by a guest’s assistance animal.
Airbnb’s Host Protection Insurance is a liability policy that also covers you up to $1M. This free-to-hosts policy covers you for accidental bodily injury to your Airbnb guests or others while they are in your rental. It also provides liability protection for guest’s or other’s property while they’re staying in your Airbnb, and any liability for damages your guests may cause to common areas in your Airbnb’s building or neighborhood.
This insurance is extensive, but you may want to talk to your lawyer about any other additional insurance policies that they think are a good idea given state and local laws. Examples might include business insurance, renter’s insurance or homeowners insurance.
Examine Your Time Budget
Becoming an Airbnb host is a super popular side hustle. But that doesn’t mean it’s right for everyone.
On top of the costs of your initial investment, property maintenance and taxes, you’ll also have to invest some time. If you’re not available to respond to guest inquiries within 24 hours or to help guests with any problems that may arise during their stay, it’s probably not the best idea to start an Airbnb.
However, if you pay someone in the area who could take care of guest services and day-to-day management of the property, you could delegate these responsibilities and free up more of your time.
Professional Airbnb property management contractors and even entire Airbnb property management companies exist if you want to hire out help. But if you have a friend or family member in the area, having someone you already trust looking out for your guests can be ideal. They may even be less expensive.
Research Comparable Airbnb Listings in Your Area
The next step is to look up competitive pricing for Airbnb listings in the area. For example, a 2-bedroom Airbnb in Philly averaged about $180/night in the summer of 2021. A similar-sized rental in Los Angeles averaged about $331/night.
Don’t just look at averages, though. Look at properties in similar neighborhoods in similar condition. Also be sure to consider any amenities. The more a property stands out as exceptional, the higher you can raise your price.
You’ll also want to be sure to check the numbers throughout the year. For example, if summer is peak tourist season in your Airbnb locale, that’s when the rates will be highest. If you use that rate to project out for the entire year, you’re likely to be sorely disappointed — and possibly in debt — come winter.
When demand is lower, there could be months when you’re pulling in $0. You need to be financially prepared for that possibility.
NOTE: Airbnb does provide a calculator that guesstimates your potential monthly earnings. The number it gives you is based on a 50% occupancy rate given your Airbnb’s size and location. It’s a decent blunt tool, but you’ll want to take a deeper dive into your own market research before you invest any serious money.
Calculate the ROI of Your Airbnb Business
You’ve figured out all your costs. Gotten a ballpark figure on how much you should charge. Now it’s time to actually calculate your potential return on investment (ROI).
To do so, you’re going to use a formula that looks something like this:
What you expect to make over the course of a year on your Airbnb listing – The costs of running your business throughout the year = Total annual revenue from your Airbnb business.
Then, you have to ask yourself, “Is this amount of profit worth the amount of time I’d have to invest into my Airbnb side hustle?”
The answer to that question is going to be different for everyone. As will the math.
How Much Money Do Airbnb Hosts Make?
Some Airbnb hosts run six-figure businesses. A lot will depend on your investment property, though. To get to the six-figure level, you’ll likely need multiple properties. The locality will affect your listing, too, both through market demand and through any local laws or regulations surrounding Airbnb rentals.
If you’re just starting out with one property, don’t quit your day job just yet.
Listing Your Airbnb Property the Right Way to Attract Guests
Now that you have a property and have determined that starting your own Airbnb business is worth it to you, it’s time to list your Airbnb.
Prepare Your Airbnb Rental Properties for Listing
First, you’ll want to prepare your Airbnb property for listing. This is where the fresh coat of paint, furnishings and any property maintenance come in.
Once you’ve got the place looking nice, you’ll call in your photographer. You’ll then be able to use their images to list and promote your property on Airbnb.
Take Advantage of Airbnb’s New-Listing Promotion
Airbnb has always advantaged new listings in its algorithm. This gives new hosts an opportunity to build a reputation. When the listing is no longer “new,” generally after about 30 to 90 days, you’ll lose this advantage and fewer people will see your listing. This makes the first 30 to 90 days a vital period for building positive reviews and a good reputation.
Last year, Airbnb added a new feature called the “new listing promotion.” This feature can get even more eyes on your property when it’s brand new. As long as you’re not using the “Smart Pricing” feature and have “Instant Booking” enabled, you can claim this feature during the onboarding process.
When you agree to participate in this promotion, you’re agreeing to offer your property’s first guests a 20% discount on their booking. Airbnb will promote your new listing to potential guests, getting it in front of more eyes. This discount and promotion will last for the first three bookings or the first 90 days — whichever comes first.
The faster you can book guests at your Airbnb, the faster you can build a positive reputation. That reputation will be key for ranking higher in the algorithm after your Airbnb listing loses its “new” status.
Taking Extra Good Care of Your First Airbnb Guests
Because your first few guests will decide the initial reputation of your Airbnb property, you’ll want to give them an absolutely great customer service experience.
Make sure you’re attentive to all their needs. That you’ll be 100% available to them during their stay. Provide local maps, public transit schedules and any information on fun or useful local attractions. Offer to pick them up from the airport or train station. Ensure that the check-in and check-out process are more than fairly easy. Make sure coffee and snacks are readily available, and that your place is sparkling clean.
In other words, do everything you can to prove you’re a great host.
If you can deliver an experience that exceeds their expectations, they are likely to leave you a great review. Preferably a five-star review. The more five-star reviews you can rack up while your property is new, the more likely it is that you’ll have a successful Airbnb business.
Delivering customer satisfaction does not mean hovering. Allow your guests to take the lead on the amount of interaction you provide.
Improving Your Host Rating
If you’re not getting as high of a rating as you’d like, look to make improvements to these important factors, which are common areas of complaint:
- Cleanliness
- Amenities
- Communication
- Smooth check-in/check-out process
It’s also important to be honest and accurate in your listing description. If you’re offering a budget place to stay, your guest won’t necessarily expect top-of-the-line amenities. Not having them doesn’t mean they won’t give you a five-star rating — unless you give them the impression that you’re offering top-of-the-line amenities, full-well knowing you’re not.
A good rule to follow is underpromise and overdeliver.
NOTE: Avoid canceling reservations if at all possible. If you cancel the reservation as the host, you may have to pay a fee of $50-$100. You’re also likely to get a negative review from the guest you canceled on, and you may make yourself ineligible for Superhost status. If you cancel more than three times in a year, Airbnb can remove your listing altogether.
Accommodating Remote Workers
The pandemic had a huge impact on the travel industry. Airbnb noticed a trend and decided to capitalize on it.
That trend was that more people were booking longer stays. In the first quarter of 2021, nearly a quarter of bookings were for 28 days or more.
There are a few driving factors behind this trend. The first is that more access to remote work options have made people more mobile than ever. If they want to travel for a month or more, they can do as they please as long as there’s a good Wi-Fi connection.
Many Americans have also seriously considered permanent relocation since the beginning of the pandemic. With remote work allowing them to go anywhere, some have been using this time to make long visits to potential new hometowns. They’re allowing themselves to experience a place before settling down.
Will these longer-term rental trends continue into the future? Honestly, we don’t have a crystal ball.
But Airbnb is banking on it.
It has added the “I’m Flexible” and “Flexible Destination” features to help these guests find long-term rentals when their schedule or itinerary is flexible, as is the case with many remote workers who are booking longer stays.
If you’re hosting longer stays, you’ll have less anxiety about vacancies and incur lower costs over a longer period of time. That’s because you won’t necessarily be cleaning your Airbnb rental every weekend when you have one consistent guest staying for a month or more.
You can make the most of this by ensuring your rental is in a city that allows longer-term stays, and making sure you have broad availability on your booking calendar. It also helps to know that properties that offer weekly or monthly booking discounts get more bookings.
Making Sure You’re COVID Compliant
During the pandemic, Airbnb has enhanced rules for cleaning. These rules mean you’ll want to be extra sure you take care of things like ventilation and sanitizing your Airbnb properties after you clean but before your guest arrives.
In addition to enhanced cleaning rules, there are also pandemic rules about host interactions with guests. Airbnb is encouraging contactless check-ins during this time. If you must meet with guests, you must wear a mask and maintain a six-foot distance.
Generally speaking, if you have COVID-19 or a recent exposure, you’re not allowed to travel or host on Airbnb. There are special cancellation policies in place right now to accommodate this circumstance, and there are some cases where you’ll be allowed to rent out your Airbnb for quarantine and isolation stays.
Is Starting an Airbnb Business Worth It?
If you’re investing in or renting property, you’re taking on significant financial risk by starting an Airbnb business. That being said, being an Airbnb host is a side hustle that has plenty of room for significant profit.
It could even turn into a full-time job. If you can handle the financial risks and are looking to accumulate more properties than just the one, this can be a good side hustle or even full-fledged, successful Airbnb business.
But if you’re not in a position to float months where your business turns zero profit, or would be in financial ruin if local laws surrounding short-term rentals became suddenly more restrictive, you may want to consider keeping things low-key by just renting an extra room in your home for some additional income.
You could also start a different business altogether. Ideally one with lower startup costs.
Pittsburgh-based writer Brynne Conroy is the founder of the Femme Frugality blog and the author of “The Feminist Financial Handbook.” She is a regular contributor to The Penny Hoarder. Some content from former staff writer Carson Kohler is included in this report.
