Are you looking to earn an extra rental income or simply own a second home? Continue reading to learn how to rent your house on Airbnb.
Airbnb has grown astronomically since its launch in 2008. The site currently has over 6 million active listings from over 4 million hosts located in over 100,000 cities across the world.
Table of Contents
- Understand the Local Market
- Understand Local Airbnb Laws and Regulations
- Understand Airbnb Taxes
- Obtain Airbnb Rental Property Insurance
- Create an Airbnb Business Plan
- Establish Whether You’ll Be an Active Investor
- Understand Airbnb’s Mechanism
- Do the Math
More and more people are jumping on board and renting out a house on Airbnb, thanks to the high-income potential. If you are looking for a way to make money in real estate, renting out an Airbnb investment property could be a good idea.
But there are a few things you need to know before welcoming your first guests. We put together this guide to help you learn how to rent your house on Airbnb and what you need to know before investing.
1. Understand the Local Market
Carrying out in-depth research should be the first step when looking to rent out your house on Airbnb. You want to understand your current competition and whether the market receives enough guests to sustain your Airbnb business.
There are many ways to research your local market. Here is a simple breakdown to help you get started:
Analyze Your Location
When starting an Airbnb business in a particular area, first seek to understand the market dynamics and demographics.
- Are there any nearby attractions that could assure you of an above-average occupancy rate all year round?
- What type of people regularly visit your area? Is it tourists, sports people, students, or business professionals?
- How will you tailor the experience to appeal to that market?
- Does the location appeal to young travelers and couples or elderly couples and families?
- Is the environment conducive for remote workers or students carrying out research?
Answering these questions will help you define what you and your location have to offer to your guests. They will also help you understand who your ideal guests will be.
Besides, you will also understand what facilities and utilities, such as Wi-Fi, coffee maker, free parking, air conditioning, and washer and dryer, you should provide for your guests.
Accessibility and Amenities
On top of the basics, find out how accessible your location is. Unless they’re looking for a hideout, most people won’t want to book an Airbnb rental 20 miles from highways.
Other than the location-specific accessibility, think about your property’s accessibility. How far away from the highway is your property? Do you need to install ramps to allow wheelchair users to access your Airbnb rental?
If you’re targeting remote workers, do you have a desk and chair that your guests can use as a workstation? Do you have charging ports that are compatible with laptop chargers? Is your Wi-Fi strong enough for virtual meetings?
Simply think about the different people you want to attract and see what you can offer to help you stand out from your competitors.
Analyze Your Competitors
Don’t forget your competitors when analyzing your market. Look at nearby rental comps to get an idea of how short-term rentals are doing locally. These include other Airbnb rentals, hotel rooms, motels, or month-to-month leases.
What do your competitors offer that you don’t? What could you offer to fill in the gaps and stand out?
And analyzing your competitors shouldn’t be all about identifying their weaknesses. You can look at the number of bookings they receive monthly or annually to ascertain whether the market is large enough to accommodate another Airbnb rental.
How much monthly Airbnb rental income do they make? What occupancy rates do they enjoy? Which months of the year do they enjoy more bookings compared to others?
Doing this will go a long way in helping you have realistic income and booking rate expectations.
The process of learning how to rent your house on Airbnb includes looking at comparable properties. Mashvisor’s Property Finder lets you see rental comps in your chosen location for easier comparisons and wiser investment decisions.
2. Understand Local Airbnb Laws and Regulations
As mentioned, Airbnb rentals have gained much popularity in the past few years. To understand the extent to which these properties have become popular, you must first look at what factors have led to the rise in popularity.
First, Airbnb rentals became an excellent accommodation alternative to hotel rooms. Guests loved having access to a whole house and didn’t have to check out at specific times. Besides, Airbnb nightly rates were quite competitive.
Secondly, the COVID-19 pandemic in 2020 brought along many devastating effects. But that wasn’t the case for the Airbnb rental industry. Since many people were locked at home and governments restricted international travel, domestic travel became popular.
With so many people traveling domestically, they needed alternative accommodation. Airbnb rental hosts began experiencing an increase in bookings.
Another effect of the pandemic was an increase in remote work. Many people were working at home, and some wanted a change in the environment. The solution for such professionals was booking long-term stays on Airbnb in their desired locations.
These are some of the reasons why Airbnb rentals became popular. How does this relate to how to rent your house on Airbnb and the laws and regulations?
With the rise of the industry, many local authorities wanted to stop their cities from driving out the residents and turning them into tourist cities. Besides, neighborhood authorities wanted assurance of their security with the many guests coming in and out.
This is where Airbnb laws and regulations came in.
Airbnb Ordinances
Airbnb laws and regulations vary according to your location and the type of property you own. It’s important to understand what rules and regulations apply to you before becoming an Airbnb host. Besides, you don’t want to run into legal trouble in the future.
Some cities have banned Airbnb rental properties outright. Others have strict limitations on the number of nights you can rent out your property as a short term rental in a year. Some cities limit the number of guests you can have on your property at any particular time. In others, you can only rent out your property as an Airbnb if you live on the said property.
For example, you can’t rent out a home as an Airbnb rental in Los Angeles unless it’s your primary home. Even then, you can’t do so for more than 120 days in a year. In New York City, you can only rent out a section of your home as a short term rental, and you must be present during the guests’ stay.
Ask yourself the following questions when researching the local Airbnb laws and regulations:
- Do you need to register your Airbnb business?
- What licenses and permits do you need?
- How often must you renew the licenses and permits?
- Are there any HOA rules and regulations you must comply with?
- Are you required to install any safety equipment, such as smoke alarms and fire extinguishers?
Keep in mind that some locations are constantly changing their Airbnb laws and regulations. Find out whether there are any current bills that might affect your Airbnb business if passed.
3. Understand Airbnb Taxes
Just like Airbnb laws and regulations, Airbnb hosts are subject to local Airbnb taxes. You may be required to collect municipal tax or Value Added Tax (VAT) from your guests, depending on your location. In other areas, the law might require you to collect and remit occupancy tax.
If you’re required to collect any tax from your guests, it’s important to notify them before making a reservation so they can establish how much they need to pay.
Types of Airbnb Taxes
In general, here are the most common types of taxes you might be required to pay:
- Income Tax– Airbnb income is a taxable income that a host must report in their tax return. In the US, the law requires Airbnb hosts to report their Airbnb income on their federal income tax returns. Hosts in some states are also required to file state income tax returns.
- Occupancy Tax– Many states in the US levy an occupancy tax or Transient Occupancy Tax (TOT) on short term rental properties. The required rate and requirements for collection and remitting vary based on the location. Some cities require the host to register with the local tax authority and collect the tax from guests. Others require Airbnb to collect and remit the tax on behalf of the host.
- Sales Tax– Some states also require Airbnb hosts to remit sales tax from their rental income. This tax is based on the total amount paid by the guest, including the cleaning fee and any other additional charges.
Airbnb hosts must adhere to their local Airbnb tax obligations. Failure to do so might lead to penalties, fines, or legal issues. Talk to a tax professional or attorney to stay up to date with your Airbnb tax obligations.
Also, be sure you keep accurate records of all your Airbnb rental income, including the dates, guests’ names, and any fees paid to Airbnb. Deduct all expenses associated with the Airbnb rental property, including insurance, mortgage payments, and maintenance and repairs.
Accurate and up-to-date records will help you correctly file your tax returns and claim any eligible tax deductions when filing your taxes.
4. Obtain Airbnb Rental Property Insurance
The cost of owning an Airbnb rental property isn’t only limited to housing expenses. You must consider what might happen if a guest is harmed while staying on your property. What if theft occurs? What do you do if rowdy guests damage the property?
Property insurance is one of the most important aspects of home ownership. It’s important to help you cover costs in case of many risks associated with property ownership. These risks include damages, theft, and even natural calamities, such as floods, earthquakes, and fires.
Regarding Airbnb property insurance, you might have to obtain a special insurance cover. This is because most standard insurance covers don’t provide protection for properties being rented out, even if the rental is short term.
From a business perspective, this makes sense. When an insurance provider covers your home, they assume you and your family only use it. They don’t imagine the property is being used for business purposes unless you tell them.
Airbnb offers a host guarantee for some situations. But this may not be enough to cover some losses. Besides, there are many holes in this type of coverage that can only be filled by getting Airbnb insurance.
For example, Airbnb’s insurance doesn’t cover theft. Your only option is to deduct the cost of the stolen item from the security deposit.
Some landlord insurance companies in the US offer custom coverage policies for Airbnb property owners. Their policies provide protection against theft, damage, medical coverage, and liability claims.
Getting the Right Insurance Coverage for Your Airbnb Rental
Keep in mind that not all property insurance companies provide the same level of insurance protection for your Airbnb rental property. And just because an insurer claims they cover Airbnb rentals doesn’t mean they offer comprehensive coverage.
To ensure you obtain the right insurance coverage, choose an insurance provider that explicitly covers Airbnb rentals.
One common misunderstanding with insurance brokers and agents is that a home-sharing endorsement added to a property owner’s insurance policy is sufficient for Airbnb rental coverage. But this is far from the truth.
Home-sharing endorsements are only valid from properties considered primary homes. In short, it won’t work on non-owner-occupied properties.
A comprehensive Airbnb rental property insurance policy should cover the following:
- Building Insurance– Your insurance coverage should protect you from any damages from fire, wind, hail, or other risks unless expressly excluded.
- Contents Insurance– All the personal contents in your Airbnb rental property, such as decor, furniture, electronics, linens, and more, should be covered by your insurance policy. Don’t overlook theft and vandalism since most insurance providers exclude them.
- Business Income Insurance– Your insurance provider should be able to chip in when your Airbnb rental cannot get bookings due to covered insurance perils, such as broken pipes. Water damage is a typical insurance claim from Airbnb hosts since it can damage everything and take time to repair.
- Liability Insurance– Your insurance should protect you from guests’ injury or property damage for which you could be liable. The most common type of liability insurance is slip and fall. Get an insurer who provides liability insurance with significant occurrence limits, say a minimum of $1,000,000 per occurrence.
5. Create an Airbnb Business Plan
Like any other business, you need a business plan to succeed in the Airbnb rental industry. As the adage goes, failing to plan is planning to fail. Draw up a plan, regardless of how small you’re starting, and map out the nitty-gritty of your business.
How do you write a strategic business plan to set you up for success when learning how to rent your house on Airbnb?
The trick lies in keeping it light. Don’t fall for the temptation to write a 100-page plan. Simply start with a one-page plan you can keep customizing and updating as your business grows.
Noting key factors specific to your Airbnb business, such as location, financials, and more, is vital to helping you in the planning process. Keeping things brief and viable will also help you with your Airbnb’s rental management.
Let’s break down some of the critical things you need to include in your Airbnb business plan.
Why Are You Starting an Airbnb Business?
What is motivating you to start your short term rental business? Are you passionate about providing a rich and unique experience to your guests? Are you willing to dive headfirst into fully-fledged Airbnb rental property management?
Take note of why you want to start your business and why it matters. Wrap it in your value proposition to show how you’ll deliver value to your guests and stand out from your competition.
For example, the preference for remote work from both professionals and employers can be your motivation to provide an enticing oasis where professionals can carry out their daily tasks.
Maybe seasonal events and sports activities are happening in your city, and you spot this as an opportunity to provide accommodation for the many visitors.
Or perhaps you’re an avid traveler who goes on trips often for long periods and would love to own a vacation home that you can rent out when not using it.
As a beginner, you don’t need to jot down every single detail right away. Having an idea of your value is a great way to start.
How Will You Promote Your Airbnb Rental?
One crucial aspect of an Airbnb business’s success is how you choose to market your rental. It’s important to define what marketing strategies and channels you’ll use to promote your Airbnb rental when creating your business plan.
Outline what sales channels and marketing activities you’ll use to attract more bookings. How will you position the property? What stay benefits, specialties, and perks will you showcase? Why is your market worth visiting?
Besides listing your property on short term rental sites, such as Airbnb and Vrbo, you can have dedicated pages for your listing on Facebook and Instagram. Post high-quality pictures of your listing and catchy captions to get your target audience’s attention. Don’t forget to use relevant hashtags to boost visibility.
On top of that, think of partnering with local businesses to elevate your guests’ experience. For example, you have fresh flowers from the local market for your guests, blankets, and towels from a local boutique or discounts from a local restaurant.
The key is to think like a potential guest. What things would attract you to your desired short-term rental? Keep things friendly, simple, and intuitive.
Where Do You See Your Business in One Year?
While we recommend you keep things simple at the beginning, don’t forget that your business is also growing. You’ll have to update and tweak your business plan from time to time.
Set milestones for the next business year. They can be related to the booking rate, revenue, additions to your property, business automation, or anything else you feel will boost your business to succeed.
Also, note down who will be involved. Is it just you, or will you hire a property manager and take a back seat? Will you partner with other Airbnb hosts?
Milestones are important since they tell you whether you’re still on track. If you note that you’re not hitting your milestones, it’s time to restrategize or change them.
6. Establish Whether You’ll Be an Active Investor
One of the most underrated aspects of Airbnb property investment is the amount of admin tasks and labor needed to manage the rental successfully.
Just to name a few, here are some tasks you’re expected to know when learning how to rent your house on Airbnb:
- Sync your calendars to avoid double bookings
- Coordinate check-ins and check-outs
- Ensure your guests are having a great experience during their stay
- Follow up on their feedback
- Monitor finances
- Schedule maintenance and cleaning
- Restock supplies for the next guests, and so on.
Managing all these tasks can be a bit overwhelming, especially for beginners. Your guests expect top-notch services since they’re choosing you over hotel rooms. On your end, you also need those 5-star reviews.
It takes a lot of work and dedication to become a ‘Superhost.’ Superhosts are ranked higher than their competitors.
If you have a full-time job or are focused on other engagements, you might want to outsource these tasks to a professional Airbnb property manager or management agency. It will allow you to take a step back, focus on other personal businesses, and earn a passive income from your Airbnb.
These companies understand the market dynamics and everything it takes to successfully manage an Airbnb rental. They will handle the marketing side, deal with all aspects of listing your home on Airbnb and other sites, sync your calendars, analyze your cash flow, booking rates, and revenue, offer top-notch guest communication, and coordinate cleaning, maintenance, and repairs.
Airbnb property management companies charge a percentage of the rent collected on a per-booking or monthly basis. But this is a worthy investment once you weigh the time and effort needed to manage the rental versus outsourcing these tasks to a professional company.
7. Understand Airbnb’s Mechanism
You need to have a clear understanding of how Airbnb works. Educate yourself on how the platform operates and what’s required of you to start listing your property.
While the information is typically available on Airbnb, you could also access it by joining Host groups on Facebook, LinkedIn, and other forums. This would benefit you greatly when learning how other hosts operate, common issues they face, and potential solutions. It is extremely helpful when you’re starting.
An Overview of the Airbnb Renting Process
Renting out your home on Airbnb begins with creating an account on Airbnb.com. Once you’ve signed up, you will be required to indicate what kind of space you are listing. You will see many options, from a boutique hotel to a house to an apartment or bed and breakfast.
After selecting the space you are listing, you can narrow it down to a more specific property type. For example, your property could be a townhouse, cabin, farm stay, hut, or lighthouse.
The next step is to indicate whether you will be renting out just a room or the entire place. You will also be required to indicate if you are listing on Airbnb as an individual or as part of a company.
Finally, you will be required to add more information about the Airbnb rental listing, such as the number of bathrooms, bedrooms, bed configurations, and how many guests are permitted.
Once you’ve entered all the basic details about your Airbnb investment property, add quality images to accompany your description. A listing with professional photos is more likely to attract guests than one with poor images. Be sure to capture all the rooms and important features of the rental property. When taking photos, make sure the space is clutter-free and well-lit.
Pricing your Airbnb is the next step, which involves considering several factors. Follow our guide on dynamic pricing to see how to do it correctly.
8. Do the Math
The final step when learning how to rent your house on Airbnb is estimating your Airbnb returns.
Every Airbnb investor expects to make handsome profits from their investment. While Airbnb rentals have a higher profit potential compared to conventional long term rental properties, you want to be sure how much monthly rental income and return on investment you can expect.
Also, keep in mind that Airbnb rentals have higher startup and overhead costs. Airbnb rental property owners have to furnish their properties. Sometimes, they hire an interior designer to make their home more appealing.
With long term rentals, the tenant is responsible for cleaning and maintenance since they consider the property their home. This isn’t the case with Airbnb properties, where the landlord has to shoulder these responsibilities.
Besides, you’re also paying for amenities that guests expect as the bare minimum, such as 24/7 Wi-Fi, air conditioning, cable TV, hot showers, clean drinking water, and so on.
You must factor these costs to determine how much cash flow you’ll be left with every month. A positive cash flow property is worth your time and money.
But how do you calculate the expected rental income and costs accurately?
Airbnb Calculator
Calculating the expected Airbnb rental income and expenses can be an uphill task. You need to collect various metrics, organize them, and use various formulas to compute your ROI and revenue. Doing this manually can highly compromise the accuracy and reliability of your outcome.
It is why you need to use tools you can rely on. This is where Mashvisor’s Airbnb Calculator comes in.
An Airbnb Calculator is a special type of rental property calculator that helps short term rental investors determine how much rental income, expenses, and return on investment they can expect from their investment properties.
You need this tool since it helps you accurately perform market and property analyses. Remember, you can’t boost your property’s return on investment if the market itself doesn’t have the right conditions for Airbnb investment.
Our Airbnb Calculator helps you to reduce 3-month’s work into just 15 minutes. It gives both beginner and experienced investors an equal footing in the industry.
This tool provides you with the following important metrics:
- Property price
- Estimated Airbnb monthly rental income
- Airbnb startup and recurring expenses
- Airbnb occupancy rate
- Airbnb cap rate
- Airbnb cash on cash return
- Airbnb cash flow
The best thing about this calculator is that it provides these metrics for both short and long term rental strategies. This way, you can conduct a quick side-by-side comparison and see which rental strategy best suits your investment goals.
On top of that, this tool is interactive. If your research shows that a certain metric could be different, you can adjust it on the calculator and see how that would affect your returns.
Sign up on Mashvisor today to access the Airbnb Calculator, start your 7-day free trial, and enjoy a 15% discount.
Conclusion
Becoming an Airbnb rental property host has gained a lot of popularity in the past few years due to the high potential rental income compared to long term rental properties.
If you’re looking for a guide on how to rent your house on Airbnb, start by analyzing your market. Ensure you understand your location’s Airbnb laws and regulations to avoid any legal issues.
After that, create an Airbnb business plan to help you stay on track. Also, ensure you understand Airbnb requirements before listing your property on the platform.
Most importantly, ensure you use the right tools to walk with you through your Airbnb investment journey. Mashvisor is your best friend when it comes to real estate investment tools.
Book your demo today to see what our tools can do for you.