For homeowners, offering their house on Airbnb seems like a win-win. According to recent data from Smart Asset, people who listed properties on the site make an average of $20,000 a year; however, research from Earnest puts that number closer to $11,000 per year.
Who isn’t tempted to make a few extra dollars, especially on an investment that’s just sitting there? But wait! Don’t schedule that HGTV-quality photo shoot just yet. There are important things to know about Airbnb before you start hosting.
1. Expect Upfront Costs
While it’s easy to daydream about the future income stream headed your way, don’t forget about the initial start-up costs of a short-term rental. Before hosting, you’ll need to furnish all the rooms with new or mostly new items, which puts the cost around $1,500 per bedroom and $2,500 for the rest of the house.
Other start-up costs include:
- Fast Wi-Fi
- Subscriptions to streaming services
- Consumables, such as toilet paper, soap and paper towels
- Kitchen and pantry basics
- Keyless entry system
2. Understand the Laws
Before you host on Airbnb, make sure you’re up to speed with local laws and regulations. Many cities require specific licenses or regulations to operate a short-term lease. These might include registering as a bed and breakfast or filling out paperwork to inform the city you’re renting out your space. Also, if you live in a community with a homeowner association or co-op, make sure peer-to-peer rentals aren’t in violation of the association’s policies.
3. Know the Etiquette
Airbnb has standards that they encourage all hosts to adhere to. While these aren’t enforceable nor subject to penalties, they can — and will — impact your success as an Airbnb host. These cover everything from cleanliness to how fast you respond to reservation inquiries.
4. Report Rental Income
If you’re earning a profit from renting out your home, you should be aware that the income is subject to income tax. However, there’s good news — you can take deductions. Any costs that go to the rental property can be written off on your taxes; just make sure to document all costs and keep receipts.
Deductible expenditures include:
- Hosting fees
- Home depreciation
- Coffee and snacks for guests
- Extra linens for guests
5. Consider the Future of Your Home
As a homeowner, you might wish to refinance your mortgage loan at some point, a move that offers big benefits in terms of reducing the interest rate or providing cash for renovations or upgrades.
And while hosting on Airbnb wouldn’t stop you from pursuing this option, it could impact the interest rate for which you can qualify. For example, not all lenders accept Airbnb-generated income. This means that your additional revenue wouldn’t count toward your total annual income, resulting in a higher mortgage rate. To make sure you’re educated on this impact beforehand, it’s worth reviewing Airbnb’s mortgage partners to know who would be willing to take your additional revenue into account.
6. Manage Your Time
Know that becoming an Airbnb host requires the time to effectively manage your space. In between renters, the property needs to be cleaned to professional standards, a process that can take hours. Additionally, you should consider how much time you’ll need to answer phone and email inquiries, manage reservations, schedule repairs and handle questions from current guests. So how much work is it to host an Airbnb? Plan for anywhere from 8-10 hours a week.
7. Protect Your Investment
While Airbnb offers liability insurance that covers up to $1 million, there are restrictions to the coverage, which can pose a challenge when submitting claims. It’s wise to protect your home with insurance coverage that manages the level of risk you’re comfortable with.
Check with your Farm Bureau agent to discuss your existing coverage. If it doesn’t include short-term rentals, discuss additional coverage to your policy that will keep you and your home protected should you choose to host on Airbnb.