Airbnb business allows individuals to utilize a portion or all of their home as a short term rental property. This venture is facilitated on the Airbnb site, where clients such as business travelers or vacationers get connected to an Airbnb host who provides them with a place to lodge for short or longer periods.
Airbnb, a vacation rental platform started in 2007, has witnessed rapid growth with over 4 million global hosts for short term rentals. The short term rental properties registered under it have also provided lodging for over one billion patrons since its inception. This platform has generated a positive cash flow for those who want to make extra money or go into it as a full-time business.
Are you looking to venture into the Airbnb business? This article explores how to start an Airbnb and make maximum profits. Read to the end!
How Do Airbnb Businesses Function
In the vacation rental business, clients such as foreign business travelers or folks on vacation looking for a home-like destination to lodge book an accommodation listed on the Airbnb website for any number of nights. Each individual involved in Airbnb hosting sets a rate per night which the clients pay when making vacation rental bookings.
Guests can now travel to the destination after making the reservation and payment. Upon arrival, hosts for each Airbnb property might decide to meet them physically or set up remote check-in and check-out information.
The goal is to provide your clients with top-notch services that ensure customer satisfaction. Satisfied clients go on to write positive reviews, which will attract others to your rental property. A negative review will tank your reputation and should be avoided.
However, Airbnb hosts can submit reviews for guests that will either encourage or deter other hosts from taking such clients to any other vacation rental property.
Perks to Owning an Airbnb Rental Business
- Generate Airbnb income. In the US, individuals who own an Airbnb investment property made annual average earnings of $24,886 in 2020. It’ll probably go higher as more people travel now that the COVID-19 pandemic travel restrictions have been relaxed
- You can list for free, although Airbnb charges a fee for each guest
- People want a more relaxing home feel when they travel, so the preference for an Airbnb rental property over hotels and motels will drive your earnings forward
- You get covered for about $1 million in damages by the Airbnb host guarantee
Essential Things to Know Before Starting a Vacation Home Rental
Dabbling into a business without getting acquainted with different key factors that could make or mar it is a disastrous move. Dealing with vacation rentals is no different from other businesses in this regard. Therefore, before we explore how to start an Airbnb business, let’s first look at some key things.
Rules and Regulations
Rules and regulations create order and ensure a smooth flowing process. There are certain rules to note before delving into vacation home rentals.
For instance, you can’t own an Airbnb business in some places. Furthermore, some Airbnb rental properties, such as condos and apartments, have rules stipulated by the Homeowners Association (HOA) in charge of their maintenance.
On the other hand, it’s best to lay down rules to guide the conduct of your guests as they utilize your rental space. For instance, regulating check-in and check-out time is essential to a smooth business run.
Therefore, it’s important to look up the rules that apply to you and other small business owners and also look for a guide to set rules that will govern your guests.
Adequate maintenance keeps positive reviews coming and the clientele growing. Therefore, paying attention to maintaining your rental space is imperative. It’d be best if you met all the stipulated local building code conditions, ensured an adequate number of smoke/carbon monoxide detectors, and invited an inspection team to look before commencing.
If handling the maintenance is too much for you, there are property management companies you can hire, but that will add to your ongoing expenses.
Setting a Price
To get this right, you’ll have to check what other Airbnb rental listings around you charge. Prices are set per night; in some cases, weekday prices differ from weekends. Don’t forget to include a security deposit. However, your business location and the outstanding features of your vacation rental factor into the price.
Starting an Airbnb Business
At this point, we will look at how to start an Airbnb in detail. There are steps any real estate investor hoping to start an Airbnb and be successful at it has to pay attention to and follow religiously.
Essentially, they’re not difficult to grasp; however, a flimsy disposition towards implementing them can ruin this small business even before it takes off.
Develop a Budget
Before setting out to start an Airbnb business, sit down and draw a budget to have a clear picture of what you can afford. Top on the list is the short term rental property cost, which usually includes mortgage, taxes, homeowners insurance, and utility.
The other aspects to consider are what it’ll cost to optimally furnish the rental space, enlist cleaning services, restock amenities like coffee, towel, bed linen, etcetera, and handle other routine housing operations. Also worthy of note is the three percent renter service fee Airbnb charges per guest.
A clear-cut budget helps determine if you have the necessary finance at your disposal or presents the need to explore other financing options.
Determine Your Rental Market
To set up a profitable business, deciding on a particular market to serve is pivotal. Owning an investment property in a place with local attractions that draw tourists all-year round often guarantees huge earnings.
Activities like sports, music concerts, and vacations tend to drive individuals to flock to a place. This development makes owning a rental property there quite profitable.
Furthermore, locations with a booming economy spotting tons of business hubs make for a good real estate market. Travelers coming for seminars or business trips form a major part of the clientele for local businesses.
Therefore, it’d be best to prioritize deciding on a suitable market.
Give an Appropriate Name to Your Airbnb Business
Naming your business can be quite challenging, as there’s usually a horde of Airbnb businesses at certain locations in the US real estate market. Finding a name that isn’t already taken or unique can be a mountainous task. Hence, you need to brainstorm widely and be creative to find a unique name that hasn’t been used.
Selecting an appropriate name that will make you stand out among competitors involves researching what names are prominently used.
For instance, it is common to see “Beach Escape” attached to some short term rental properties business in an area. You can work around this by adding a personal touch to create a name that’s catchy and easy for clients to recall when making recommendations.
Furthermore, go through state’s business records, federal and state trademark records, and social media platforms, and check for web domain availability to avoid problems.
Hatch Out an Airbnb Business Plan
You’ll need an Airbnb business plan to have a successful run. This business plan should contain the business goals, methods to achieve them, and a specific time frame to achieve these goals.
Other things that need to reflect in your business plan are the business nature, your organization’s background information, the financial projections, and strategies to implement to achieve your set goals.
A business plan is one way to give your Airbnb business a sense of direction.
Create a Legal Business Entity
At this point, you create a business structure. Different options exist to get this done. You can opt for a sole proprietorship, partnership, corporation, or a limited liability company (LLC).
Forming a limited liability company is mostly encouraged as it protects your assets and you from being liable if your Airbnb business gets sued. Individuals with multiple Airbnb properties can put them under the same LLC canopy.
As an individual, you can form an LLC while paying the minimum state fees or hire an LLC services platform at an additional cost.
Apply for Permits and Licenses
Certain locations don’t permit the use of the property for short term rental. Therefore, you need to situate your Airbnb business where it’s permitted.
To do this, register your business to obtain a business license from the local county agency responsible for collecting hotel tax. This permit is usually called a TOT certificate, Lodgers tax license, or land use permit.
Register for Taxes
Having formed a legal entity, one more thing on how to start an Airbnb is registering for taxes. You’ll need to pay real estate taxes. Furthermore, the appropriate body will collect sales tax and occupancy or hotel tax from hosts. Sales tax is calculated monthly but you can pay them monthly or quarterly.
To register for the tax, start with applying for an Employer Identification Number (EIN). Your business structure determines your business tax model.
Tax filing at the end of the year can be quite arduous. It’s pertinent to keep track of all the costs incurred to make the tax filing process less time-consuming. Consulting a tax advisor with short term rentals as a specialty area eases the process further.
Acquire Business Insurance
Acquiring business insurance sets the tone for a lawful and safe business operation. A homeowners insurance will cover your rental property on days it’s not lodged. Airbnb offers a $1 million damages insurance policy as we mentioned before. In the event of a covered loss, you won’t end up losing your business or sourcing for funds to fix it.
In some instances, the Airbnb insurance policy may not be able to cover some losses, so you might require vacation rental insurance. It comes with an extra cost of about $2000 to $3000 per annum in the United States, depending on your business location.
You might also want workers’ compensation insurance if you hire people to clean the property.
Create a Business Bank Account
Creating a business bank account is an excellent way to keep your money besides your business earnings and expenditure. With a bank account solely dedicated to the business, business accounting becomes easier, and filing for taxes will be less complicated.
Also, endeavor to get a separate business credit card to charge your business expenses appropriately.
Select a Location and Search for a Great Investment Property
In selecting a location, look out for a cool neighborhood. Clients tend to love that. Ensure the property has easy access and features to entice your chosen market.
Investment property search is a crucial part of starting an Airbnb business. You can do this independently, or you might want to consult a real estate agent. These agents use multiple sources of Airbnb rental listings to conduct an in-depth property search to help find you a good fit within your budget.
Another advantage is that they’ll supply you with a rental property analysis that will show if a particular property presents a good investment opportunity.
Assess the Return on Investment on Airbnb Rentals
Before purchasing vacation home rentals, savvy real estate investors analyze the rate of return it will yield in the long run. The result determines if you’d buy the rental property or not. It’s important to have a rental property analysis done on the properties you’re considering to compare properties before making any decision.
On the assessment, you can look for startup costs, projected monthly occupancy rate, Airbnb capitalization rate, Airbnb cash on cash return, and Airbnb income.
Deliberate on How to Finance the Property
Various options exist to secure finance for people interested in real estate investing. Options to consider include cash-out refinance, reverse mortgage, home equity mortgage, traditional vacation rental financing, and other financing options.
Purchase and Furnish Your Property for Guests
Having done due diligence on location selection, property search, and return on investment analysis, you’re set to buy a short term rental property. Unless you’re an experienced real estate investor, it’d be best to hire an excellent real estate agent due to the complex process.
The real estate agent will assist in negotiating properly for the best possible price and close the deal promptly. Involving a realtor won’t increase the closing fees as the seller pays agent fees in the US real estate market instead of the buyer.
When furnishing the property, you need to be meticulous in providing a full range of supplies to ensure your guests have a great time. Your reviews depend on it. Not only do you need to do a deep cleaning and finish neatly every repair work, but acquiring the right amenities is essential.
Your rental space shouldn’t be missing primary amenities like bathroom supplies, kitchen utensils, top-grade mattresses, and the finest bed linen.
Besides these, there’s still room to go the extra mile. Providing amenities like a hot tub, workstation, board games, WiFi boosters, etcetera will land you awesome reviews and a bustling Airbnb business.
Select an Appropriate Short Term Rental Platform
There are different short term rental platforms to share your home. Airbnb is an example. Other ones include VRBO and Booking.com. Every business first-timer should explore these sites and decide on the one most favorable for them.
There are salient things to look out for in them, like the presence of a listing fee or if the listing is free while you pay per booking. The amount or percentage they charge is also important. More so, it’d help if you enquired what you’ll get in return from them after these payments.
Create Your Airbnb Listing
Now we are around the final steps to starting an Airbnb business. Here’s where you list your property on the rental platform or platforms of your choice. It requires using high-quality photos of your property highlighting the best features that make it an outstanding vacation rental property to market it to your target market.
In addition to these pictures, ensure to include an honest but wholesome description of your property, underscoring the features, experiences to expect, and local attractions that might drive guests to come.
Price is an important part of your Airbnb listing. Set daily rates that aren’t far from the average rates in the location. Making your rate a little bit lower at first could serve as a business trick to score clients quickly. Once the clients have a nice time on your property, they’ll write good reviews that drive traffic to your vacation rental property.
While you’re at the listing, you could raise further points like whether you’ll allow pets and if bringing one along will come at an extra cost for the guest.
Promote Your Business Aggressively
No business does exceedingly well without a measure of promotion. The Airbnb business isn’t an exception. There are wonderful promotional packages you can explore to grow your venture exponentially while enriching your pocket.
Render Services That Fetch Positive Reviews
Word of mouth still works as a marketing tool. Positive reviews left by guests serve to bring other guests. Don’t assume that nobody reads them because you’ll be wrong.
Create a Business Website
With the advancement we have seen in technology lately, creating a business website is no longer an uphill task. On the website, you can post pictures and other interesting details or posts about your Airbnb business.
Leverage on Social Media
There are several social media platforms you can leverage to promote your business. Explore Facebook, Instagram, LinkedIn, and Twitter. Create social media accounts and engage actively on your business pages on these platforms to market your business while attaching links to direct potential clients properly. However, note that these social media platforms don’t assume the place of a business website.
Set Up a Business Phone System
Doing this gives your potential clients an express avenue to find and contact you with questions that could result in your next booking. It also gives your Airbnb business a legitimate appearance.
Suppose you’re searching for a suitable way to separate your personal life from your business life; don’t hesitate to set one up as soon as you have the business up and running.
Venturing into an Airbnb business is a profitable business move. It can either provide you with extra cash or be a major source of income when you go into it as a full-time business. We highlighted earlier that the average annual earnings from Airbnb hosting in the USA were above $20,000 in 2020, and they’ll probably get higher.
The process of starting one may seem like a lot, but it’s not rocket science. If you commit to the steps diligently, you’ll reap tremendous results. Suppose you want to buy a property to start your Airbnb business, ensure you ask the right questions to avoid ending up with the wrong house.
Are you looking for where to buy the best property for your Airbnb business? You don’t have to do it alone. By enlisting a reputable real estate agency like Homes by Ardor, you stand the chance of getting the right property at the best possible price.
Contact us through our website https://homesbyardor.com/ for all the assistance you need to acquire a vacation rental home and kick-start your Airbnb business.
Kris Reid is the CEO of Ardor SEO, a company that helps real estate professionals get more leads and customers to predictably grow their business.
Over the years, Kris acquired extensive knowledge of SEO and its practical applications in various industries, with the main focus on real estate.
In 2021 Ardor launched the Icons of Real Estate Podcast to share proven strategies from the top producing icon agents with the real estate community.
After obtaining the real estate license in 2022, Kris joined eXp Realty and launched Homes by Ardor, the platform that was built to be the fastest way to buy or sell a house. Homes by Ardor also provides leads for its partner companies and realtors.