If you’re looking to make some serious money with Airbnb, then maybe what you need to do is figure out how you can turn it into a full-time business.
Lots of entrepreneurs claim to be making a killing with Airbnb. But, they’re not doing it by offering a spare bedroom from their house or leasing their place while they’re on vacation. They’re making smart business decisions about what kinds of properties they should own and market on Airbnb.
If that sounds like something that you’d like to do, then here’s how you can get started with your own Airbnb business.
What Kind Of Properties Will You Offer For Your Airbnb Business?
The first question you need to ask yourself is what kind of properties you want your Airbnb business to consist of? For example, you could make a business out of listing:
- A single-family home (similar to what you would purchase as a rental property)
- A vacation home (such as a cabin or condo near the water)
- An apartment with multiple rooms that you will specifically use for rental arbitrage (think of ones near a college campus that could be divided and subleased to separate guests)
- A multi-unit property (such as a duplex or apartment complex)
As part of your investigation, start collecting data for each scenario that you’re interested in as follows:
- Prices. How much would the space cost you? You can use popular sites like Zillow or Trulia to start browsing through listings. You can also check out the best times to buy a house if you’re looking to offer that kind of property.
- Comps. What are spaces similar to the one you’re looking to purchase going for on Airbnb or other rental sites such as HomeAway or VRBO?
Remember that location will also likely play a big role in this investigation. You may find more demand for your business if you’re near a bigger city, college campus, or vacation destination.
Investigate The Local Laws
Another thing you’ll want to do while you’re researching property types is to investigate the local laws and make sure no regulations are prohibiting you from being an Airbnb host. For example, cities like Los Angeles, New York, and Las Vegas have made Airbnb’s illegal. Better to know this now then after you make a down payment.
Start An Airbnb Business: Make A Business Case
For your business to be sustainable, it’s got to turn a profit. Before making any purchases, the next step will be to prepare a business case and determine the ROI (return on investment).
How much money will you need up-front to purchase your desired property? As a simple example, let’s say you plan to buy a single-family home valued at $100,000 with a 20% down payment of $20,000. Therefore, your initial investment is $20,000.
Forecast the annual revenue for each of the following items:
- Cost per night. Take the average going nightly rate for your property and multiply it out for one year. Because your property most likely won’t be occupied 100% of the time, you can then multiply this figure by the average Airbnb occupancy rate of 55.6%,
- Cleaning fee. Almost every Airbnb listing also charges a cleaning fee. Assume the space will be cleaned at turn-over approximately every week.
- Property equity. Every time the mortgage is paid for your property, you will build equity. This should be considered as a revenue in your business case.
Estimate the annual cost of each of your expenses:
- Airbnb host fee. Airbnb takes a 3-5% hosting fee.
- Mortgage and Property Taxes. Your monthly payment for the mortgage of your business property plus any property taxes you’ll owe.
- Additional insurance. Airbnb covers every booking with $1 million USD in property damage protection and another $1 million USD in insurance against accidents. You’ll probably also need renter’s insurance or protection against theft or personal liability.
- Housecleaners. You’ll want to hire someone to professionally clean the property at every turn-over.
- Gas / Electricity / Utility bills. You’ll have to pay to make sure basic functions at the property work.
- Internet / Cable bills. Your guests are going to want Wi-Fi.
- Parking. If applicable.
- Consumables. As a host, you’ll be expected to provide essential items like toilet paper, paper towels, laundry soap, etc.
- 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.
Now the moment of truth. Calculate your ROI as follows:
[Revenue – Expenses] / Initial Investment = Profit / Initial Investment
For our example, let’s say our numbers work out to be:
[$12,000 – $7,000] / $20,000 = $5,000 / $20,000 = 0.25 or 25%
As a business, we want a reasonable, positive ROI of approximately 15 to 30% (according to the site Small Business Rising). In our example, since our ROI is 25%, then we’d be okay to move ahead. Practically speaking, an ROI of 25% means that we should expect to make our initial investment back in 4 years.
If your ROI isn’t quite in that range, then you’re going to want to re-examine your assumptions and look for ways to lower your costs. If it’s negative, then you may want to abandon that option altogether.
Promote Your Airbnb Business
If your business case is a go, then its time to move forward. After you buy your property and register with Airbnb, you’ll want to do the following:
- Create an irresistible listing. Stand out to the millions of travelers who browse through Airbnb every single day. Give yours an awesome headline write an alluring but honest description. If you want your listing to really be incredible or if you have multiple listings to keep track of, you may want to outsource this task to a professional.
- Have great photos. Its unanimously agreed in the Airbnb community that great photos are crucial to your business success. Therefore, take lots of amazing photos and share them on your listing. Go as far as to have your property professionally staged and photographed for maximum effect.
- Set the right price. It’s completely up to you what you want to charge. Or if you prefer, you can rely on Airbnb’s Smart Pricing tool to automatically adjust your price based on local demand.
- Go for “Superhost” status. Do everything you can to earn a 5-star rating from your guests. Communicate often, be transparent and flexible, and don’t cancel unexpectantly.
Multiply Your Profits With Scalability
What’s the best way to increase your profits? Simple … add more units!
Just like the classic rental property model, the more units you have, the more listings you’ll have and revenue you’ll potentially generate throughout the year. This is something called scalability. Just imagine what your business would be like if you held not one but ten properties at the same time.
But how does a business manage or afford multiple properties? The key is to make each of your units as hands-off and automated as possible. That’s why for even simple tasks like the cleaning service you’ll want to hire it out rather than do the work yourself.
If you can successfully automate as many of the processes and tasks associated with each property as much as possible, then your business can be scaled, and your new Airbnb business will thrive!