In late 2013, my wife and I finally achieved a large chunk of our American dream. We purchased our first home together. We had spent about two years watching the MLS listings daily, walking through over 75 homes and making a handful of offers, all without finding the property that we would call home. Finally, we found the perfect situation. We purchased a short sale in a neighborhood that we had been keeping our eye on for a long time. It was the right size, the right style and had everything that we needed. It also had one more thing that was the final deciding factor on making this the perfect home for us. It included a guest unit attached to the house – a 400 square foot studio with it’s own entrance and parking space. The opportunity to use our largest expense as a source of income was extremely exciting for us. After spending about one year with short-term leases to a couple of friends who were in between apartments, we decided to check out becoming an Airbnb host as an option.
We started renting our home out to travelers using Airbnb early in 2015 and it has been one of the best decisions that we have ever made. In the future, I will write a number of posts about the various nuances of renting on Airbnb including how much we make, how we handle maintenance, how we optimize our listing and some of the legal matters associated with it, but for now, I’ll give a quick overview of how Airbnb works and provide a review our experience with it.
What is Airbnb?
Airbnb, short for air bed and breakfast, is a peer-to-peer service that allows people to rent out a property or a portion of a property (such as a room in your house) to a person who is looking to stay in your location. Airbnb operates in 190 countries and currently has over 1.5 million rental listings. The main benefits for renters of Airbnb properties is that they have access to a much wider variety of places to stay, the ability to experience a city like a local and in many cases, a far easier and more enjoyable experience than the traditional hotel booking process. Guests pay for their rental through the Airbnb website or application, then deal directly with the lister of the property for all of the logistics. The benefits for you are that, obviously you can rent your home to other people, offset the cost of a mortgage and in many cases, make more money than you typically would if you were entering a long term lease with a renter.
How does renting on Airbnb work?
As a home owner (or in many cases, a renter), you can list your property on Airbnb and allow travelers to find, book and stay at your property. Once you have created and populated your Airbnb listing as well as set your pricing and calendar, it will start to appear on the site for people to see when they search for places to rent in your area. They can view your listing and check availability. If they choose to rent your place, they will pay Airbnb and your place will be booked. Airbnb does not handle any of the communication beyond that, other than giving them their itinerary for checking in. You are responsible for getting the keys to them and informing them of any instructions that you have for staying at your property. After the first night of their stay is over, Airbnb will pay you your rental fee, minus any fees directly into your bank account. You can rent your property to as many people as you would like as long as you have it marked as available on the site.
How much money can you make?
This is a question that I get asked very often. How much you make on Airbnb will vary widely depending on what your property is like (square footage, amenities, cleanliness), the price that you choose to list it for, the location of the property and the competition in your market for similar rentals. You can make anywhere from $20 per night for a simple studio apartment in a less busy destination to thousands of dollars per night for a vacation rental in a desirable beach or ski city.
How do you know what to set your Airbnb rental price at?
When choosing how to price your Airbnb rental, you should review the competition in your area to see what other, similar properties are renting for. You should also think about seasonality of your rental and how tourism in your area trends at different times. For instance, I live in Arizona, which is pretty quiet in the summers (120 degrees anyone?) but gets very busy when MLB Spring Training or other major events are in town. I keep an eye out for these things and adjust my pricing accordingly. For our studio apartment that is attached to our house, I have charged as low as $30 per night and as high as $169 per night and everywhere in between.
How much does it cost to list as an Airbnb host?
When I started to list with Airbnb, I was actually pretty shocked at how low the fees were compared to the rental rates that I was going to collect. Airbnb takes a host service fee out of the payment that they receive from the renter which is 3% of the subtotal (total cost of reservation before taxes and fees such as cleaning). Depending on where you live, you may also be charged a Value Added Tax (VAT), but this did not apply to my particular rental. There are no additional annual or subscription fees like you would have with a service like VRBO. So, on my listing, which averages about $74 per night, I am giving Airbnb less than $3 of that in fees to cover the awesome platform and audience that they provide me. This is a steal. I would gladly pay far more to be able to make the money that I make on Airbnb.
Airbnb also charges a guest service fee of between 6-12% of the subtotal for the stay. This, however, is a fee that you will never see as the host as it is added on top of the cost of your listing and assessed to the renter at the time that they book. For instance, if you list your property for $100 per night, you will pay the $3 fee to Airbnb and receive $97, but the guest will actually be paying closer to $106-$112 for your listing.
What are occupancy rates with Airbnb?
There is really no standard for how often an Airbnb listing will be rented. Occupancy rates will depend almost entirely on a few factors. These include:
- Seasonality and demand (mentioned above)
- The quality of your property
- The quality of your listing
- Your reviews and guest comments
When I say availability, this seems obvious, but there can be a strategy here. Take this scenario for example…you have Dave, who wants to rent your place for three weeks while he is on business travel. But, you have already rented to Sharon, who is staying for one night on a Wednesday. This takes away Dave’s entire three week stay. This is where you get into some of the strategy and optimization for renting on Airbnb, which I’ll talk about in future posts. You are able to adjust the minimum stay in different ways (full weekends only, etc.) so at times, it could be worth exploring these options.
As far as the occupancy rates that I have experienced, it has depended very heavily on the time of year. I have had our guest suite booked as many as 30 nights in a month and as little as 6. The key is to recognize the times that you think you may be less occupied and take measures to make it more attractive to potential renters during those times to fill in the gaps.
How to start renting as an Airbnb host
To start as an Airbnb host, you can go to their website (aff) and register as a host. When you register, you will need to provide your basic personal information, set up a bank account for them to pay you and start to build your listing. When you create your listing, you will need the following information:
- Basic information (property type, room type, number of guests allowed, number of beds and baths, type of bed, etc.)
- A listing name and description – make sure that you write a great summary and title. This is your chance to sell potential renters on staying at your listing. Tell them all of the great benefits, nearby attractions, amenities and advantages of staying here. At the same time, be sure not to over embellish your listing, as you will be rated on this later and those ratings will be important for future guests.
- Photos – this is another great chance to sell potential renters on your place. It is worth making sure that you have good lighting, a good camera and the right angles to capture the essence and advantages of your listing. Airbnb also offers professional photography for free, which I would highly recommend taking advantage of.
- Home safety checklist and instructions
- Business Amenities – this is a good checklist for you to review if you want to attract business travelers. If you don’t currently have these amenities in your space, it is worth evaluating the cost of the amenities versus the return that they might provide in additional rental income.
- Check in and check out times
- Cancellation policy
- House rules
Once you have entered all of that information, you are ready to push your listing live and it will be ready to rent immediately. Then, you sit back and enjoy the start of your career as a professional bed and breakfast landlord.
In Part 2 about Airbnb, I will talk about the pros and cons of renting your property on Airbnb as well as tips for getting the most out of it.