When it first appeared, Airbnb was an innovative business model that disrupted the entire hotel industry in the years to come.
It prompted questions such as “What is Airbnb?” and many others for those who are unaware. The platform serves to connect people with places to stay around the world. It is powered by Airbnb hosts who provide their visitors with the opportunity to live like a local (at least, for a while).
Watch our video below to learn all you need to know about Airbnb and how to maximize the performance of your property listed on the platform:
With Airbnb’s innovative and disruptive business model, it continues to grow in popularity, even faster than we could’ve imagined. Today, it is the world’s biggest and fastest-growing travel platform, completely changing the travel paradigm. It meets the consumer’s desire to reduce travel costs and take part in the sharing economy.
For guests, the concept is pretty straightforward – you find a place you like and rent it from the homeowner for a period of time. However, there’s more than meets the eye. What is Airbnb actually, and what do real estate investors and owners need to know before they start hosting? Read on to find out.
What Is Airbnb?
Airbnb (or “Air Mattress Bed and Breakfast”) is basically an online marketplace that connects homeowners or guests looking for accommodation. In addition to places to stay, many renters now offer experiences, as well.
The Airbnb company doesn’t own properties offered on their site. But they offer a platform from which people can rent their spare rooms and properties to guests.
Going back to the question of what is Airbnb, the idea for the company (which was founded in 2008 in San Francisco) came across the founders’ minds when they couldn’t pay the rent for their apartment. To fix their problem, they converted their living room into a bedroom that could accommodate three people. They started renting it out and provided guests with homemade breakfast – that was the not-so-glorious birth of the concept of Airbnb.
Around that time, there was a major design conference happening in San Francisco. Since all hotel rooms were pretty much sold out, Airbnb’s founders decided to rent out more rooms to guests. The business wasn’t an instant success, but it gained traction a few years later, and voila, here you are, asking yourself, “What is Airbnb?” and here we are, preparing you for the Airbnb business.
How to Use Airbnb
Airbnb serves a different purpose for guests and hosts. Each should take note of a number of things to make the experience both a pleasant and a financially rewarding one.
Airbnb for Guests
How does an Airbnb work for guests? When it comes to using Airbnb as a guest, all you need to do is sign up, set up your account, find an accommodation you like, check the reviews, and book. It’s important to write something about yourself, use a nice profile image, and add a short note when booking (explain who you’re traveling with, what kind of person you are, and what you have planned for your travels).
Airbnb for Hosts
Many people nowadays decide to rent their premises or buy an investment property with the intention of renting it via Airbnb. There’s a decent income that can be earned through Airbnb rentals, and people manage to even make a full-time job out of it.
After signing up, you will need to list your property on the website. Next, you need to decide on the details of your rental, such as requirements for guests, schedule, prices, and so on. Mashvisor offers an Airbnb calculator that can help you make better real estate investment decisions and set up competitive pricing for your rentals. It provides crucial geo-specific Airbnb data, including Airbnb occupancy, rental income, rental expenses, cash flow, cash on cash return, cap rate, rental comp, and financing methods in neighborhoods and cities across the U.S.
Running numbers is one of the most important things to do when going into the Airbnb business, and our tool provides accurate and reliable analytics and data in a matter of minutes to make your job easier. How does an Airbnb work? The numbers won’t lie.
Once you decide to become an Airbnb host, securing rental income and advertising your rental might be easy. Still, there are a few things that you should consider securing before setting sail:
- Set realistic expectations about how much of your time your Airbnb business will take up
- Know what you might be liable for and understand rental taxes
- Research your competitors
- Let your neighbors know that your property is going to be rented
- Secure an adequate insurance
- Set house rules
- Calculate expenditure and income
- Ensure you have the appropriate amenities and facilities
- Make sure that the appliances are all in working order
- Take all measures to detect and prevent squatting
What Is Airbnb Plus?
For those wondering “What is Airbnb Plus” and what’s the difference between it and Superhost, here’s a quick explanation. Suppose you have a home that’s been verified in person by an authorized third-party inspector. Before becoming eligible to apply for Airbnb Plus, you must meet the following requirements:
- Have not canceled any reservations (except in certain extenuating circumstances);
- Maintained an average rating of (at least) 4.8 over the past year;
- Accepted at least 95% of booking requests over the past year; and,
- The property must be either a private room with a private bathroom or an entire place.
Once you’ve met the requirements above, you can apply for Airbnb Plus and have a third-party inspector visit your home to examine your property for hospitality, design, and style. If your house gets accepted, you will be provided with a professional photographer who will photograph your property, showcase it, and make sure that all photos are of quality resolution and look.
Once accepted, your property becomes a listing exclusive to Airbnb. In other words, you must agree that you won’t list it on any other platform.
The main difference between Airbnb Plus and Superhost is that the latter status is acquired by maintaining an average of 4.8 rating with no cancellations over the past year. You can be a Superhost even though you don’t operate an Airbnb Plus.
Also, be sure to check the eligibility to apply for Airbnb Plus certification in your area because it’s not available in all destinations.
6 Things to Know Before You Start Hosting
Now that we’ve covered questions like what is an Airbnb, how does Airbnb work, and how to use it, it’s time to deal with some essentials which every Airbnb host should know. We agreed that it’s a lucrative business and opportunity for people ready to put in the work to create a comfortable and safe listing for guests to rent. However, if you try to take shortcuts and don’t have the best interest of your guests in mind, it can also backfire.
Having a good sense of these crucial things will make your effort more fruitful and your path to success smoother.
1. Get All the Essentials for Your Rental Property
Nowadays, guests’ expectations have grown because there are more and more Airbnb hosts trying to compete for bookings. What used to be nice to have is now a must-have, and having certain amenities is key to delivering an outstanding experience.
For example, the choice of furniture can be divided into two categories: form and function. In order to make the right choice, you need to consider what kind of furniture pieces are important to your visitors. Amenities and furnishings can make a huge difference and are important for getting the best reviews.
What is Airbnb without a good night’s sleep? Remember, all sleep-related furniture pieces are pieces you don’t want to save money on. If your guests don’t get a good night’s sleep, your reviews will definitely go low. And you cannot remove a negative review from your Airbnb profile.
2. Set Realistic Time Commitment Expectations
What is Airbnb’s time commitment and how will it determine your ROI? Getting into the Airbnb business will eat up some of your time. If you’re not ready to get committed or can’t afford a property manager to do it for you, it won’t bring you much money.
Hosts are there to talk to potential guests, work on earning the best reviews, check guests in and out, and deal with unexpected problems. Evaluate how long it will take you to be a host on Airbnb and set the right expectations about the time commitment.
Beginner hosts often get stressed by the effort and time required to consistently deliver the best experience for their guests, especially those who start on their own. However, they learn how to save time and energy when they start using tools for automation, become more efficient, and get into their groove.
3. Be Informed of Local Airbnb Laws
We cannot stress enough how important it is to understand your local Airbnb laws. For example, Miami Beach, New York City, Santa Monica, Paris, and Barcelona have the strictest policies for hosting or renting on Airbnb. On the other hand, Portland, London, and Amsterdam are looser with requirements.
You typically need to register as an Airbnb host and obtain a permit or license before listing your property and accepting guests. Governments differ in enforcing home-rental laws, and Airbnb is continuously working with them to clarify the rules.
In some areas, Airbnb will take on the work of calculating, collecting, and remitting occupancy tax on your behalf. As a potential host, you should definitely take the time to review all the local laws before obtaining a permit. Take note that the occupancy tax is calculated differently in each tax jurisdiction.
4. Find the Right Customers
Not everyone visiting your area will love your place, even if you love it and believe it’s flawless. To secure maximum odds for success, you should think about positioning your listing to appeal to people who are most likely to book it. For example, business travelers are willing to pay more for accommodation. But they also want something closer to a city’s business district. If your listing is located in the suburb, there’s no point in targeting this audience.
5. Determine Your Cancellation Policy
What is an Airbnb cancellation policy? Cancellations are common, both for hosts and guests. As a host, offering a flexible cancellation policy means that your guests can cancel 24 hours before check-in and get a full refund. For you, this means losing revenue and scrambling to fill occupancy. On the other hand, opting for a strict cancellation policy means you’ll be responsible only for paying the cleaning fee. However, such a cancellation policy may turn down potential guests who want flexibility while traveling.
There are three main options when choosing your Airbnb cancellation policy (and a few additional tiers for long-term stays of 28 days or more):
- Flexible. Guests can cancel their accommodation at least 24 hours before their check-in and get a full refund. In case they cancel after that, you will be paid for each night of their stay, as well as for one additional night.
- Moderate. Guests can cancel at least five days before their check-in and get a full refund. In case they cancel less than five days before the date, you will be paid for each night they stay, one additional night, and receive another 50% for all unspent nights. However, you will be charged with the service fee and the first night.
- Firm. Guests must cancel at least 30 days before their check-in to receive a full refund. In case they cancel 7-30 days before the date, you will be paid half for all nights. If they cancel less than a week before the date, you will be paid in full for all nights.
- Strict. Guests must cancel within 48 hours of their booking, with the cancellation occurring at least two weeks before check-in, in order to receive a full refund. If they cancel between 7 and 14 days before their check-in, you will get 50% of the booking fee for all nights. If they cancel after that, you will be paid in full for all nights.
There are more policies, such as Long Term, Super Strict 30 Days, and Super Strict 60 Days. Read more about the cancellation policies here.
6. Nail Your Pricing and Know Your Fees
If you’ve decided to start renting out your Airbnb investment property in a city crowded with Airbnb hosts, you need to nail your pricing to stay competitive.
What is Airbnb pricing and how to set the right one? You can determine the right pricing with the Airbnb calculator that uses the most recent and accurate Airbnb data to help users calculate their property’s market value. It enables you to look at comparable Airbnb listings in your neighborhood or city. You can find all Airbnb-related data that shows how much your nearby competitors are charging for rent and how much money they earn by renting via Airbnb.
Besides Airbnb information, Mashvisor’s Property Finder can help you get informed on how to invest in real estate. It involves finding the right property, determining how much it will cost you to refurbish it, and calculating its cap rate.
Since you’re about to launch your business for the first time, it would be smart to lower your price below comparable properties to start building trust and credibility. Be sure to take local festivals, holidays, and other factors into account. During these periods, guests are often willing to pay more.
Regarding add-on fees, you must consider them when determining nightly rates. For example, we mentioned that Airbnb collects and remits local taxes on the hosts’ behalf. They are occupancy taxes and fees and can range from about 9-18% of your income. The fee is usually compared to hotel fees, and some hosts prefer to be transparent about it (by singling it out on their booking page). Others might decide to incorporate it into their nightly rate.
The fee most commonly displayed here is the cleaning fee. We suggest you conduct a few dummy bookings of similar listings around yours to find out how much your competitors charge for such add-on fees.
What is Airbnb? How does it work? We’ve discussed some essentials that cover your questions. But before you start doing anything, you should ask yourself what you want to get out of hosting. There are a few main types of Airbnb hosts: hosts who want to make an extra buck, those looking for a secondary source of income, and those who want to make a career out of it.
The more income you want, the more capital, work, planning, and risk you are going to take on. It will also dictate the nature, location, and size of your listings, as well as the real estate rental strategies and tools you will need to use.
From how to invest in real estate to rent on Airbnb to how much to charge for cleaning fees, Mashvisor is here to help. To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.