If you’ve ever considered ways to generate some supplemental income, you may have pondered the possibility of renting your home on Airbnb.
The company started in 2007 when its two co-founders advertised a night on an air mattress and breakfast in the morning (“Air Bed & Breakfast”) to attendees of a design conference in San Francisco. Now, the company is worth more than $30 billion.
How to make money on Airbnb: Things to consider before renting
If you’re paying a mortgage for our outright own a single-family home, you should be fine renting it out. If you’re paying for a condo, apartment or town home, there may be some occupancy rules that prohibit such transactions. It’s up to you to do your homework so that you don’t run afoul of the law.
In many cases, local authorities have turned against Airbnb. Some municipalities have banned people from renting out their homes.
Money expert Clark Howard says, “The tremendous success of these platforms is what’s led to these strong reactions and the attempts to shut down your ability to earn some cash or have it be the principal reason why you have a place, and you just gotta know that that could happen to you.”
Also, it’s a good idea to find out what other homes in your area are renting for. This requires not only browsing similar listings on Airbnb but a general knowledge of local real estate prices. You’ll also want to check what effect Airbnbing your home will have on your insurance premium.
How much can you make on Airbnb?
There are some property owners that make six figures annually on Airbnb — but they’re typically investors with second and third homes. People who rent their primary residences can add thousands of dollars a year to their wallets, but it takes time, preparation and realistic expectations.
Before you sign up, it’s a good idea to know what fees are associated with your payout. Airbnb calculates your payout as your nightly rate minus the host service fee, which is generally 3%.
Along with their homes, hosts can charge for “experiences,” which are Airbnb describes as “excursions or other activities designed and led by local hosts.”
Airbnb also usually charges hosts who offer an experience a 20% fee, largely based on the experience. They’re only available in certain cities as of now, but the list is expanding.
Consider how renting will affect your taxes
When it comes to renting your space, many first-timers don’t know about the 14-day rule allowed by the IRS. This provision, sometimes called the “Master’s exception,” named after the Master’s golf tournament in Augusta, Georgia, means you don’t have to pay tax on the income you earn from renting out your home. The key is that the renters can’t stay longer than 14 days a year and you must live there at least 14 days of the year.
Keep tabs on your spending
No matter how much money you spend on sprucing up, cleaning and overall improving your dwelling, keep good records. Come tax time, you’ll want to be able to document every expense that’s deductible.
Once you feel comfortable about having someone stay in your home, it’s time to find some guests! The first thing you want to do is take photos of your home so that they will show well on the Airbnb site and app.
Take gorgeous photos of your home
The importance of taking great pictures of your home’s exterior and interior is such that a whole photography cottage industry has popped up and Airbnb supports it. People have made careers out of just taking photos of rental properties.
If you plan on doing the photography yourself, some photo tips you’ll want to consider include always brightening the photo and shooting corners to show more space.
List your home on Airbnb
Ready to make money renting your home? Go to Airbnb.com, log in and list your home. When you do, you may get a few questions from interested parties. Make sure you answer in a timely fashion. They’re probably gauging several places at once, and being the first one to get back to them may make the difference between $$$ in your pocket or not.
If your abode stays on the site awhile without any takers, that’s OK. Many hosts don’t get any guests until it’s vacation season or a really large event takes place in their town. But once you get some inquiries, that’s your cue to inquire a little yourself.
Try to find out as much about the guest as possible
If someone hits you up about renting your home, you can approve or deny the request. But before you make your decision, it’s good to know why they want to rent your home. Read any reviews on the prospective guest’s previous Airbnb stays so that you can make an informed decision.
In many cases, individuals, friends or families may be on vacation and looking to explore a new city. In other cases, you may be able to surmise that they’re planning on throwing a huge party — one that could get them and you in huge trouble!
Once you decide to accept the guest, the next order of business is making sure your home is safe and clean.
Expertly clean your home
While it’s true that you may be able to take a mop or vacuum cleaner and make your floors look brand-new, when it comes to cleaning, there are nooks and crannies that you’ll likely need professional help with.
Cleaniness, along with safety, is probably the highest value that an Airbnb home can possess— and it’s easy to brush it off (excuse the pun). If you don’t have a few days to devote to it, consider hiring a professional cleaner or maid service to give your pad the stellar shine it deserves.
If you choose to forgo the DIY route, sites like Tidy.com and TurnoverBnb are primed to clean short-term rentals.
Make sure your home is well stocked
No, you don’t have to provide food, but regular toiletries and basic cleaning supplies should be stored in a common area for easy access. If your guests need some paper towels because of a spill, they shouldn’t have to be tempted to use a bed sheet.
Create some house rules
The best Airbnb transactions take place when there are clear expectations on both sides. Guests expect clean and safe homes that they can be comfortable in. Before your guests arrive, send them house rules that they must abide by (we’ve also seen them posted on the fridge). These should not only be things that are important for you (no house guests allowed), but also respectful nods to your neighbors (no skinny dipping in the hot tub) and city ordinances (no loud music after 9 p.m.).
While many hosts may never see or meet their guests, you can really score some points for hospitality if you make time to greet your visitors and perhaps answer their questions.
Financial blogger Paula Pant, who wrote for Clark.com about her experience renting her place on Airbnb, said she viewed the transaction as providing a service.
“As an AirBnB host, I see my role as that of a hotel concierge,” Pant wrote. “I offer complimentary bottles of water, give directions and offer restaurant suggestions. I supply my guests with an abundance of fresh, fluffy bath towels, matching plates and mugs, wine glasses and a few coffee table books.” Again, keep good records of these expenses for when tax time rolls around.
What to do if there are disputes
As with anything, disagreements sometimes happen. Airbnb usually errs on the side of the homeowner when it comes to disputes, so make sure you keep as many records as you can. That includes photos of your place from before guests arrive and after they leave.
If your guests want to start correspondence outside of the Airbnb app, politely tell them that you’d rather communicate inside the platform. That way, Airbnb has documentation in case there is a disagreement over the rental terms.
Keep a record of expenses — you can deduct them
The Internal Revenue Service allows you to deduct normal supplies you buy to keep your Airbnb business going. That means you can get your money back for things like light bulbs, paper towels and cloth towels. If you provide food in the pantry for your guests or an expensive bottle of wine, it’s all deductible as part of your rental.
Deduct the service fee from your earnings
As for Airbnb’s service fee, you can deduct that amount from your earnings on your 1099. If you rented out your home for at least 14 days in the year, you should receive a 1099.
Make sure you file a W-9
Airbnb and other homesharing companies must withhold 28% (your specific tax rate may be lower) of your rental income if you don’t provide them with a W-9 form.