AirBnb is a company that didn’t get off to a great start in the sharing economy industry. Much like rideshare programs Uber and Lyft, AirBnb (or Air Bed & Breakfast as it was originally known) looked to disrupt the short-stay rental market that was being dominated by hotels and travel sites. The company was founded way back in 2008, but the few iterations didn’t do so well.
After a few changes in approach, and the change in people’s minds everywhere, Forbes estimated the company’s value at $38 in May 2018. AirBnb is now a serious player in the short-stay rental market, and one investors should pay serious attention to.
What is Airbnb?
AirBnb operates just like other popular travel sites such as Expedia and Travelocity. The company doesn’t own any of the properties that are listed on its site. Instead, it simply acts as a listing service, connecting people who are looking for a short-term place to stay with property owners who are looking to rent out their home, condo, apartment or other dwelling.
AirBnb properties are similar to traditional bed & breakfasts, as they are mostly privately-owned residences that are being rented to guests.
How Does Airbnb Work?
AirBnb calls the people who list properties for rent hosts. As a host, you have three different options for listing your property for rent on the site. First, you can rent out space in your home – either the entire home or part of the home. Second, you can host experiences in your region. Third, you can be a neighborhood co-host and host for other people in your neighborhood.
Signing up to be a host on AirBnb is simple. You just go to their webpage, click the link to “become a host” and fill out all the appropriate information. You then create a listing for your property, much like you would on another rental site or real estate listing site. Once your listing is live, visitors will be able to browse your property and book it based on an available dates calendar.
How Does Airbnb Make Money?
AirBnb makes money by charging guest service fees to both the renter and the host. This service fee that the company charges to the renter varies based on the subtotal of the rental itself, but traditionally ends up being between 6 percent and 12 percent. For hosts, AirBnb charges a guest service fee of about 3 percent of the total.
How Much Does Airbnb Charge Hosts?
AirBnb states on its website that it charges hosts about 3 percent as a service fee for listing their homes with them. These fees might be higher for hosts who have a “Super Strict” cancellation policy, according to the company. The fee is calculated based on the booking subtotal, which is the nightly rate plus the cleaning fee and any additional guest fees, minus AirBnb fees and taxes. This host service fee is automatically deducted from the host’s payout.
This is a fee that you will need to calculate as part of your monthly costs. For cash flow purposes, you will need to ensure you are factoring in this service fee along with all the normal monthly costs of operating a real estate investment property.
When Does Airbnb Pay?
AirBnb typically pays hosts about 24 hours after the guest’s scheduled time of check in. That payment will then get automatically sent to whatever payout method you selected when you signed up for the site. If you are renting your property to a guest who is staying for 28 or more nights, the payout will be released on a monthly basis.
The company does say that it could hold payouts for new hosts for up to 30 days after the first reservation for your property is confirmed. Also, if you have selected to have a minimum payout when you signed up for an account, that money won’t be released to you until your balance has reached that minimum.
How to Calculate Airbnb Weekly Rent Calculator?
One of the most effective ways of calculating how much you should charge in rent on AirBnb is to browse around their website. The first thing you should do is create the basics of your rental listing on the site. You don’t have to complete the listing just yet; you only have to enter in the basic information. Once you do that, AirBnb will provide an estimated weekly return calculation.
You shouldn’t just accept that as what you should charge, however. The next step you should take is to research that estimated return by searching AirBnb for properties in your region. Simply go to the site’s homepage and search properties that are similar to yours in your location, and then analyze how much they are charging per night, per week and/or per month. This will give you a good measuring stick for how much you should charge for your property.
Of course, you may be able to charge more or less for your property based on the specific factors and amenities of your property, or if there is a big event happening in your area on a particular date, for example. You can also check out what the average rents are in certain regions throughout the country on other online resources.
The first inclination for many investors is to invest in property in their own neighborhood, but this might not give you the best returns. The calculation comes down to simple math – what is your return on investment based on the price you paid for the home plus monthly expenses compared to the average monthly rent you bring in?
How Much Money Can You Make on Airbnb?
How much money you can make on AirBnb is not as simple as calculating your rental income on a long-term rental property. Most renters on AirBnb are not looking to rent for a long period of time, and as such, you will have to factor a vacancy rate into your calculations. Just because you are listing your property at a certain price doesn’t mean it will be occupied every night.
For long-term rentals, it would be wise to factor in a vacancy rate of 6-8 percent. For shorter-term rentals on sites such as AirBnb, though, it may be smart to go with a vacancy rate of double that, at least at the beginning, just to play it safe. Once you have figured out the average demand for your property – taking into account seasonality of your area – then you will have a better idea of what your consistent vacancy rate should be.
In addition, you will have to factor in the costs that you will incur from listing with AirBnb. To be safe, you should deduct 3 percent from the weekly rent you charge since that’s what the company charges its hosts. Finally, you will also need to factor in the ongoing costs you will have as a host. You will have all the traditional costs that most landlords do, such as general upkeep of the property and repairs, but you will also need to factor in other costs, such as professional cleaning after each guest departs.
Rental rates and return on investment can vary greatly for AirBnb properties across the country. That’s why it’s important you do your research first before investing in a property to list on the site. The most important thing as an investor in the real estate rental market is cash flow for your rental. If you have positive cash flow, you’ll also be able to benefit from building equity in your property and reaping the rewards of its appreciation over time.
How to Report Airbnb Income on Tax Return?
Rental income you receive through AirBnb must be reported on your taxes if you rent your house out for more than 14 days in the year and you also use the home yourself for at least 14 days or at least 10 percent of the total days you rent it. If you are a serious host, AirBnb will withhold income tax from your earnings and provide you with Form 1099-K, but only if you earn more than $20,000 and have 200 or more reservations in a year.
Like any other business, you will have the ability to deduct what are considered “ordinary and necessary” expenses that are related to your AirBnb rental. This includes buying new towels, painting and any other repairs. You can also deduct home expenses such as property taxes and mortgage interest, but you must appropriate only a portion of that if you rent out a room in your home and not the entire home. You can deduct the AirBnb service fee as a business expense as well.
AirBnb collects any state or local occupancy taxes, if they apply to your location, so you won’t have to worry about that. Finally, you may have to pay self-employment taxes as well if you are self-employed.
AirBnb could provide you with an excellent opportunity to earn income through your rental property. The site has built a significant amount of traffic, which you can benefit from without having to do any work other than listing your property. Most of the rentals you will obtain through the site will only be short term, which doesn’t provide as much stability as a long-term tenant, but the trade-off for that is the potential to earn much higher per-night rates.
For those who are more interested in the stability of long-term rentals, it’s important to discover which markets would be prime for investment opportunity. By using HomeUnion®’s RENTestimate tool, you can search properties by price valuation, rent valuation and even get an expense estimate to help you make an informed decision for investing in the real estate rental market.