Have you been thinking about making some extra money using Airbnb?
According to the site Travel and Leisure, the median Airbnb host earns a median of $500 per month. But the actual range can vary drastically from as little as $200 per month to as high as $10,000 per month. With such a drastic discrepancy between the high and low end, how can you really tell if it will be worth your time or investment?
In this post, we’re going to walk through the details of the revenue and expenses you might expect to make and find out just how much money you can make with Airbnb.
Renting Out One Bedroom
As a starting point, I thought it would be interesting to investigate how much money I might make if I were to rent out the guest room in our house that no one ever uses (except our cat). We have the details below.
- Cost per night. After looking around on Airbnb at comparable listings in my area, I noticed that spare bedrooms go for cheap. The average nightly rate is approximately $35. If I multiply this nightly rate times 30 days, and then multiply it again by the average Airbnb occupancy rate of 55.6%, that works out to $583.80 per month.
- Cleaning. Nearly 99% of the listings I read charged a small cleaning fee. I decided to arbitrarily set mine at $30. Realistically, that would be all profit since if its just one room in my house I would probably do the cleaning myself as opposed to hiring someone else to do it for me. If we assume 4 turnovers per month (1 per week), that means I would also earn $120 in cleaning fees.
- Airbnb host fee. As a new host, Airbnb would charge me the maximum fee of 5%. Multiplying their fee by the income the guests will pay, Airbnb would take $29.19 for their cut.
- Additional insurance. With strangers renting a room at my house, it would most certainly be in my best interest to purchase some additional insurance just to be safe. Let’s assume this costs an extra $50 per month.
- Consumables. Extra bodies in the house are going to demand additional items like toilet paper, paper towels, coffee filters, etc. Let’s reasonably estimate this is just another $25 per month.
- Income taxes. Don’t forget – anytime you earn any extra income, you have to report it to the IRS, generally using a Schedule C. When you do this, you will also pay a 15.3% self-employment tax on the net earnings. In my case, this would subtract $91.74 from my monthly bottom line.
Putting all of that together, I calculate I would make $507.87 in profit each month for listing our spare bedroom on Airbnb.
That’s not too shabby! But can we do better? What if we rented out the whole house? …
Renting Out A Whole House
To make our second case study as realistic as possible, let’s start by NOT assuming it’s my actual house that we’re going to rent out. Why? Because obviously my family and I need a place to live.
Instead, we’ll say that I own a second comparable property that we’ll use for the Airbnb. That way it can be advertised throughout the year. But in doing so, we’ll need to also consider some additional expenses.
- Cost per night. In my area, the average nightly rate for a four-bedroom house goes for approximately $95 per night. Again, multiplying this rate times 30 days and the average Airbnb occupancy rate, we could expect to generate $1,584.60 per month.
- Cleaning. Listings of my caliber were charging approximately $75 for the cleaning fee. If we again assume 4 turnovers per month, then this would be $300 of revenue for cleaning.
- Home Equity. Similar to a rental property, one often forgotten benefit is the fact that every time your tenants pay you rent and you pay your mortgage, you’re building equity in your property. With Airbnb, the scenario will be exactly the same. For this figure, I’ll reasonably assume that every payment adds about $300 worth of equity back in my pocket.
- Airbnb host fee. Applying the 5% Airbnb hosting fee, Airbnb would take $79.23 for their cut.
- Mortgage and Property Taxes. Again, remember that this is an extra property, and I would more than likely still be paying a mortgage. Let’s reasonably estimate $1,000 per month.
- Additional insurance. Similar to a landlord, I would need special insurance policies to protect the tenants, the property, and my assets. Let’s assume this costs an extra $100 per month.
- Housecleaners. To make our experience as hands-off as possible, let’s assume we pay someone $60 to clean the place every time the guest leaves. With 4 turnovers, that will cost us $240 for the month for this service.
- Gas / Electricity. As a standalone property, we can expect a bill for gas and electricity. Easily another $150 per month.
- Internet / Cable. Let’s not forget our guests are going to need some Wi-Fi and TV channels to watch. Another $120 per month.
- Consumables. Just like in the single room scenario, we’ll need extra toilet paper and consumables. Let’s increase our assumption to $50 per month for supplies.
- Income taxes. Again, since our Airbnb is basically a business, we’ll need to report it to the IRS and pay taxes. However, most of these expenses can be subtracted from our revenue which will significantly decrease the amount of taxes we’ll owe. This comes to just $22.24 per month.
So, after all of that, what’s our bottom line? $423.13 in profit each month. Again, not too bad!
However, in this second case study, there’s one huge advantage that we need to make a point of …
Who says you have to have just one property listed on Airbnb? What if you did everything we just did in this case study but with ten properties instead?
Just like rentals, the people who seem to really be making a killing at it usually use multiple properties (or properties with multiple spaces like an apartment) to generate as much revenue as possible. The key is to set up your Airbnb to be as hands-off and automatic as possible.
If we run with that strategy, then this means we could be making as much as $4,231.28 per month. That’s more than likely why the range we shared at the beginning of the post is so high. Those Airbnb hosts probably have multiple properties listed at once for a mixture of multiple income streams.
Other Case Studies
So how close do our estimates come to reality? Browsing around the web, we’re apparently not too far off.
Paula Pant from the popular personal finance site Afford Anything ran her own Airbnb experiment to see if she would make more money than doing a traditional monthly lease to renters. After going through a very detailed breakdown of her experiences, the end result was that her Airbnb would rent for $1,653 per month, which was $553 more than what she was making under the traditional tenant system.
In another example from CNBC, a woman named Sally Miller lists her home for as much as $500 a night. While the entire family is away on vacation, this can generate as much as $3,000 of income.
Final Thoughts: How Much Can You Make With Airbnb
Obviously the numbers will vary greatly depending on where and what your property is. However, in each of these cases, one thing is for certain – There’s definitely good money to be made! So whether you want to be an Airbnb host or possibly even start your own Airbnb business, it may definitely be worth it.