Countless Americans have realized Airbnb’s potential to help them create generational wealth and earn semi-passive income through a robust property portfolio. For some, running a successful Airbnb business is more of a side hustle, where they list a spare room to earn some extra income. Others have rental property portfolios that earn them thousands of dollars in income every month, enabling them to acquire more properties to expand their rental business. It’s not that difficult to learn how to start an Airbnb business so that you can also take advantage of this incredible opportunity.
Why Start an Airbnb Business
Starting an Airbnb business can help you generate more income compared to conventional rentals, even if you just have a spare room. Since you’re able to charge per night, your Airbnb property will be more profitable compared to a long-term tenant. For example, if the demand for accommodation in your city increases due to a festival or sporting event, you could charge much higher nightly rates.
There’s always an element of risk with long-term tenants. They could miss payments or create conditions that require you to launch costly eviction proceedings. Airbnb bookings are prepaid, and the money is held safely by Airbnb until the guest checks out, so there’s no risk of you not getting paid. Airbnb reservations are also covered through AirCover insurance, that all stays are covered under when booked through the app.
Once you scale, Airbnb can be a hands-off business for you as a property owner. You can hire a property manager to look after bookings and property maintenance after a guest checks out, enabling you to focus on further expanding your Airbnb property portfolio.
How Much Does It Cost to Start an Airbnb?
Your biggest cost for launching a successful Airbnb business will be purchasing or leasing a property. Remodeling and repairs may also be necessary since you’ll be competing with other listings. You want to provide guests with a reason to pick your property over another.
This may require a new paint job, updated fittings and furnishings, new appliances and more. Pest control and other measures may be required to make the property suitable for rental. Internet and cable subscriptions will also be a recurring expense.
Once your Airbnb is set up for guests, you’ll also want to to hire a professional photographer to take photos of the interior as well as the surrounding area of your Airbnb.
How Much Can You Earn From an Airbnb Business?
An Airbnb host makes $924 a month on average but remember that several factors influence how much you can make. These include the property type, nightly rental rates, average occupancy, reviews and how effectively you can market your Airbnb listing. Properties with more good reviews tend to get more bookings, so your earnings will increase gradually.
You can also increase your profits by offering additional services such as transportation, welcome gifts, or experiences.
12 Steps to Start an Airbnb Business?
Starting an Airbnb business requires more than just listing a spare room or property and hoping to get a booking. A bit of due diligence before jumping in will go a long way in helping you create a successful Airbnb business.
Always start by checking the local zoning regulations, as some authorities don’t allow short-term rentals. Check the property lease to make sure it doesn’t have any restrictions that would prevent you from listing it. You may be required to register or obtain a license in some cities or states as well.
Look at other listings and their locations to get a sense of the average rental rates. Consider what services and amenities they offer as you’d need to match or exceed that to remain competitive. Evaluate whether enough demand exists that your Airbnb property will have enough turnover to meet expenses and generate profit.
Develop a Business Plan
A solid business plan is your foundation to start a successful Airbnb business. It should be a comprehensive document based on a thorough assessment of the market. Include detailed descriptions of your listings and information about the services and amenities offered.
It will also define the legal framework of the business, short-term and long-term goals, a financial plan and a marketing strategy. The business plan will be your roadmap to expanding your rental business from a spare room on Airbnb to a robust property portfolio.
Set Your Pricing
Carefully consider the market rate for similar properties in the area, demand for accommodation and the type of guests likely to make a booking. It’s easy to get tempted by the higher rates charged by established listings, but it’s unlikely that your property will be able to get bookings at that rate initially. Be mindful when deciding on what to charge as a new listing. You can set a minimum number of nights that guests must stay to offset that.
Factor Airbnb’s standard 3% booking subtotal fee into your pricing. It can be higher if you have a very strict cancellation policy or are an Airbnb Plus host. Account for the costs of supplies, cleaning and maintenance costs required for guest turnover. Once your listing has matured and earned great reviews, you can rely on Airbnb’s metrics to raise prices gradually.
Decide on Your Business Structure
Selecting the right business entity before launching is important because your tax and other liabilities will be based on the structure chosen. Operating as a registered entity will also provide you with more flexibility when you want to expand the business.
A sole proprietorship is an unincorporated business entity with a single owner. It’s the easiest business entity to establish and run. Many new business owners choose this before transitioning to a Limited Liability Company (LLC) or corporation once the business expands. A major drawback of sole proprietorships is that there’s no liability protection for the owner, so they remain liable, with exposure to their personal assets, for the debts and taxes of the business.
A general partnership is similar to a sole proprietorship with the only difference being that it includes two or more individuals that share the assets, responsibilities and profits. It’s great if multiple people want to get their joint business started quickly. The partners are personally on the hook for all liabilities of the business, and their personal assets remain exposed.
A limited partnership includes two or more partners, and they choose a general partner who manages and runs the business. The others remain limited partners with no role in managing the business. It’s a simpler entity for people looking to invest in a business while reducing their exposure. The general partner has unlimited liability, including personal asset exposure, whereas limited partners are only liable up to their investment amount. There are minimal reporting requirements for limited partnerships, but some states do require them to be registered.
Limited Liability Company
Most business owners consider an LLC for Airbnb as the most appropriate structure. It’s preferable because of the simple reporting and tax requirements. It also shields members from personal responsibility for any of the debts and liabilities of the business. An LLC needs to be registered with the state, and the cost varies. One disadvantage is that LLCs can’t exist in perpetuity and can be dissolved upon the member’s bankruptcy or death.
A corporation is an entirely separate legal entity from its owners with the status of a “legal person,” meaning they can own assets, borrow money, enter contracts and more in their own capacity. Owners have no personal exposure to the corporation’s liabilities. One significant advantage is that corporations can raise investment through the sale of shares. However, corporations also have strict reporting and compliance requirements.
Register Your Business
What’s required to register your Airbnb business depends on the type of entity you’ve chosen. Sole proprietorships are relatively simpler as they don’t even need an Employer Identification Number (EIN) if they don’t have employees or pay excise taxes. The owner can just use their Social Security number. For LLCs, you’ll need to file articles of organization with the state and pay the fee.
Registration will also be required at the federal level to obtain an EIN. You can do that after you apply for an LLC online. Articles of incorporation need to be filed for a corporation in addition to other documents that require disclosure from directors.
Apply for Licenses and Permits
Some states and cities require Airbnb operators to have a license for the purposes of tax collection on short-term rentals. It’s generally called a Lodgers Tax License. Many states in the U.S. also require Airbnb hosts to register for permits. For example, hosts in Los Angeles need to get a permit and are also required to post the permit number on their Airbnb listing. Always check the prevailing regulations in your area before proceeding.
The funding for your Airbnb business can come from bank loans, crowdfunding or investments from friends and family. Banks will typically provide financing if your business plan makes sense to them. The startup capital will help you acquire rental space to list on the platform. If you already have space to list, raise funds from other sources for renovations to make your Airbnb listing more competitive.
While Airbnb’s AirCover will cover your expenses if damage occurs during a guest stay, they do not cover damage outside of an Airbnb contract.
Accidents could occur on the property, and, to protect yourself from that liability in case a guest gets injured, ensure adequate liability coverage. You may also need workers’ compensation insurance if you’re planning on hiring people to clean the property. If you want to remain flexible to the idea of renting out the property full-time as opposed to keeping it on Airbnb, you may have to buy additional coverage for the loss of income.
Hire Someone to Help You Manage the Business
Consider hiring a property manager to help you with guest inquiries and managing bookings. They can also be on call for guests to ensure their safety and comfort. Guests will appreciate the service they receive and will likely leave a positive review and also recommend your Airbnb to others, helping you get more bookings.
Prepare Your Airbnb
Before guests arrive, here are a few steps you should take to prepare the property:
- Get it cleaned and stocked with necessities such as towels, toilet paper, etc.
- Create an information pack with local tips and recommendations
- If your property has a kitchen, provide cooking utensils
- Use a smart lock to let guests check in easily
- Offer conveniences such as tea and coffee
List Your Property on Airbnb
Create a great listing for your property on Airbnb. Provide plenty of details about the property such as its size, the number of bedrooms and bathrooms, the amenities offered and the location. Guests make their decision primarily based on photos, so ensure that you have high-quality photos of your rental space in the listing. Also clarify any house rules so that guests are aware what rules they need to follow.
Market Your Business on Social Media
Create a page for your Airbnb rental business on social media platforms like Facebook, Instagram and Twitter to highlight and promote the various listings. Share pictures and descriptions of the property to raise awareness.
You can also use these platforms to highlight any offers or discounts that guests can take advantage of. This can be a great way to build relationships with guests, answer their questions and provide them with customer service.
Airbnb Has the Potential to Increase your Passive Income Exponentially
Once your Airbnb business takes off, you can leverage the positive cash flow to further expand your property portfolio and exponentially increase your passive income. However, to achieve that, you need to exercise prudent financial management.
You must have absolute transparency on the money coming in and going out of the business. This information will help you be more efficient and increase your profit margins. Use doola Bookkeeping to track cash flow accurately, create monthly reports and easily close books at the end of the year for tax season to effortlessly manage your Airbnb business.
Is running an Airbnb profitable?
An Airbnb listing that’s able to bring in a steady stream of bookings has a higher chance of being profitable, particularly if the average nightly rate is high enough for the owner to meet their expenses and extract profit from it.
Do you need a license to run Airbnb?
Most cities and states require Airbnb business owners to obtain a license or a permit before they can start offering short-term rentals. Always check the zoning regulations in your area before listing a rental space on Airbnb.
Is owning an Airbnb profitable?
Airbnb can be profitable if you have a good business plan and a listing that’s competitive and has positive reviews. With enough bookings, it should be able to turn a profit and provide you with positive cash flow.
What is the 90-day Airbnb rule?
The 90-day Airbnb rule is that a property can’t be rented on Airbnb as a short-term rental for over 90 days of occupied nights per year. The limit applies to both consecutive 90 days and 90 days spread across the entire year.
Is Airbnb income taxable?
Airbnb income is taxable and must be reported. How those taxes are filed depends on the entity chosen for your Airbnb business. For example, sole proprietors will report and pay taxes on Airbnb income on their personal income taxes.