Recently all three of Airbnb’s founders — Brian Chesky, Nathan Blecharczyk and Joe Gebbia — landed spots on the Forbes billionaires list. Yet they’re not the only ones making money from this platform. In fact, some Airbnb hosts consistently capture six-figure incomes.
One man decided to rent his home during periods when he was traveling. He quickly realized the income opportunity and went on to acquire four different properties, and today he earns over $100,000 from Airbnb every year.
This is just one story, but there are many others that show how both the occasional Airbnb host and those using it as a business (as described above) successfully leverage this tool. But if you haven’t used Airbnb before, what should you expect if you decide to become a host? Here’s a complete guide to making money on Airbnb.
What is Airbnb?
Airbnb is an online marketplace that allows people to rent homes or single rooms to guests. Just like hotels, guests are charged a fee, which typically also includes a deposit, cleaning fee, pet fee (if you allow pets), and other optional costs.
Guests use Airbnb for a variety of reasons. Sometimes it costs less than staying in a hotel, or they simply want access to interesting accommodations that aren’t otherwise available. For example, you can stay at this tropical tree house in Hawaii for less than the cost of staying at most resorts.
But it’s not all about cost for some guests. The company’s website says, “Live there. Book unique homes and experience a city like a local.” For many guests, it’s about having an experience that most hotels can’t provide.
The platform is popular with hosts because it allows them to easily earn a profit renting their space. Plus, as described above, some people are using Airbnb to create a full-time business.
Recently, Fast Company highlighted such a story, which featured a host named Bradley. He rents six different properties in the San Francisco area and reports profits of $2,000 per unit — which adds up to $12,000 each month. This host’s earnings are significant, and they give you an idea of the large opportunity available through Airbnb. But where should you start?
How Does Airbnb Work?
Setting up an account and listing your property on Airbnb is easy. Start by clicking the button at the top right titled “Become a Host.”
Once you click this button, tell Airbnb what you want to offer for rent. You can choose from the following options.
An entire place. This is great if you have an investment property and you want to rent it out as a vacation unit. For example, below is an example of a unit where guests can rent the whole place. It shows how many bedrooms and beds there are and how many guests the unit can accommodate.
This host charges a fee of $149 per night. Occupancy rates vary based on the location, but let’s say you have an occupancy rate of 64 percent (which is on par with the national average). That would yield earnings (prior to any expenses) of $34,806 annually.
A private room. Maybe your child just left for college, and his or her room is empty (except for holiday breaks, of course). If so, renting the room through Airbnb may be a great option. In fact, it could even net enough to pay your child’s college tuition bills! Here’s an example. This is a private room with ocean views at a rate of $125 per night.
At an occupancy rate of 64 percent, annual earnings (prior to any expenses that you must pay) would be about $29,200.
A shared room. And finally, let’s talk about a shared room. What does that look like? Check out this bunk, where the host charges $30 a night and supplies desk space and an Internet connection along with use of the communal spaces.
At a rate of $30 per night with an occupancy rate of 64 percent, this would yield earnings of $7,008 prior to any expenses.
Once you decide what type of space you’ll offer, select a price for that offering (more on this in a minute), fill out a description and upload photos so guests can get a sense of what the space is like.
Plus, you get to set house rules for the listing.
For example, for that communal space listed above for $30 a night, the host includes rules such as:
- Be courteous to other guests. No talking loudly or playing music past 11 p.m. Sunday through Thursday.
- Clean up after yourself.
- Keep your space (especially the desk space) clean, as other guests may need to share it.
The list of rules may grow or change as you start hosting, but it’s a good idea to start with a few basic requests.
Once you’ve filled out all the required details, you’re good to go! The listing goes live and you can start taking reservations online. Once a guest books a reservation, you receive a confirmation and message from the guest. Then you can communicate with the guest directly to answer any questions about booking.
So now you know how to create a listing and connect with guests — but how do you get paid? Decades ago, listing a vacation home for rent required you to take personal checks, but today Airbnb makes this process more streamlined.
First of all, you should know there is a host service fee, which is 3 percent of the subtotal (prior to fees and taxes). But here’s the good news — this fee covers the cost of processing payments. The company also charges a guest service fee, which helps cover the costs of running Airbnb. This fee is typically 6 to 12 percent of the reservation total, but it can be higher or lower based on the reservation. Also, depending on the laws in your area, VAT may be charged on top of service fees.
For payment, you decide which options you want to offer. It’s important to note that off-line or cash payments are a violation of the company’s terms of service, and accepting them may result in your being prohibited from using the site in the future. So make sure that guests pay through the site. Here’s a quick breakdown of the payment options you can offer guests.
Major credit cards. Guests can pay through Visa, MasterCard, Amex, Discover and JCB.
ACH transfers. Airbnb deducts guest fees directly from the guest’s account and wire transfers the funds to your account. Set this up through the Airbnb platform, which requires your bank account routing number and account number. When setting this up, Airbnb does a $1 test transfer to ensure the payment method works correctly. It takes about five business days to get ACH transfer set up, so start early.
International wire transfer. Are you living outside the country? If so, you can set up an international wire transfer. However, there may be restrictions on the amount of funds that can be deposited, so check this out prior to offering this payment method.
PayPal. This option is simple for the host and the guest. Set up a PayPal account, which allows Airbnb to facilitate transferring money from the guest’s account to yours.
Once you’ve set up your payment options, you may be wondering “When do I get paid?” Airbnb releases your payout 24 hours after the guest’s scheduled check-in time. The amount of time it takes for money to reach your account varies based on the payment method. For guests who stay 28 days, payouts for that reservation are released on a monthly basis.
Airbnb Pricing: Getting it right to maximize earnings
When you create a listing, Airbnb will include a suggested price based on similar listings in your areas. Airbnb recommends starting below the suggested rate if you have never offered a listing through Airbnb before. Why? When guests stay at your home, they provide a review. Listings with a high number of favorable reviews can command higher prices. Starting out, you need to get people in the door, show them how awesome your place is and start building that stellar online reputation. That is the first goal.
Once you’ve established a history with Airbnb and have positive reviews, look at adjusting your pricing. You can spend additional time researching comparable properties. Consider looking at what’s happening on other platforms, such as checking out properties on VRBO (more on this in a minute). Then adjust your pricing slightly higher. What happens? Track your results and monthly occupancy rate.
For example, let’s say that Airbnb recommends that you charge $135 per night for your property. But you’re new, so you decide to charge $100 a night. Right away you get large numbers of bookings, and your occupancy rate is at 90 percent, which is $32,850 annually. But over time, your guests leave rave reviews and you’ve achieved a five-star rating. What would happen if you increased your rate to $160 per night? Would the occupancy rate decrease?
To experiment, you increase the rate, and the occupancy rate does decrease slightly, to 80 percent, but with annual earnings of $46,720 — which is a $13,870 increase! Plus, with a lower occupancy rate you may see minor decreases in variable monthly costs, such as electricity usage, yet overall earnings are higher.
So the best strategy for pricing is to test and measure. Maybe you’ll price too high and occupancy rates will decrease — that’s okay. Experiment until you strike that perfect balance.
Plus, you may want to look at offering package deals. For example, if you have an occupancy rate of 60 percent, maybe you want to offer reasonable package deals during the off season to drive up occupancy rates and profits. Consider offering price breaks for off seasons and to guests planning extended stays.
Airbnb Host Perks
If you’ve never listed a house or room through Airbnb, it might seem risky. What happens if a person rents your house and causes excessive damage? Sure, you charged a deposit, but it doesn’t come close to covering the damages. Now what happens?
For situations like these, the benefit of using Airbnb versus working with a potential guest directly is that the company offers a $1 million host guarantee for every booking. On Airbnb’s website, it says the following.
“We’re committed to creating a safe and trusted community around the world. Though property damage is rare, we understand you may need protection. The Host Guarantee will reimburse eligible hosts for damages up to $1,000,000.”
But what’s protected? The company provides a detailed list on its Host Guarantee terms page. But here’s a sampling of what is not covered:
- Cash and securities
- Personal liability
- Shared or common areas
Also, certain types of property — such as artwork, jewelry and other collectibles — may have limited coverage. Airbnb wants people to remove these items prior to renting out the space.
The company also offers “Host Protection Insurance” at no cost to those using the company’s platform. Basically, it provides primary liability coverage for up to $1 million in the event that a third party claims bodily injury or property damage. The company provides examples here of what’s covered and what’s not covered. For more information and helpful tips, check out our blog post Airbnb Host Tips!
Choosing the Right Airbnb Investment Property
Maybe you aren’t considering renting out your existing home but instead are thinking about purchasing a property for the sole purpose of renting it out on Airbnb. If so, here are a few tips for selecting that perfect short-term investment property.
- Regulations. Each city has its own set of regulations that apply to short-term rentals. Check out RoomScore, which rates cities by Airbnb friendliness. For example, a city may have a high hotel occupancy tax or other taxes that could drive down profits.
- Location. First, look at the most profitable places to own rental property. For example, Forbes compiles a list of the hottest cities in which to own rental properties; Provo-Orem, Utah; Austin-Round Rock, Texas; and Orlando, Florida, all topped the list recently.
- Weight of all potential costs. Consider possibilities such as the following: Does the city have high energy costs, or does the property have steep HOAs and other costs that may negatively affect profits? If so, factor these into your investment decision.
- Risks. Each property has a different set of risks and payoffs. For example, do you need a high occupancy rate for cash flow? If so, it may be wise to purchase in an area that demands a lower per-night rate but consistently has higher occupancy rates. Assess the potential risks and rewards.
Once you post your Airbnb listing, it’s important to make sure that it gets found. Here are a few tips to ramp up its performance and get more guests through the door:
- Focus on stellar reviews. One of the easiest ways to get ranked higher on Airbnb search results is to get great reviews. It can almost guarantee you more bookings and higher ranking in search results. After a guest’s stay, show him or her a great review and ask whether he or she would mind rating you.
- Earn elite status. Earning the title of “super host” gives you a position as a favorite of the site and therefore makes it easier to reach more potential guests. Earn this status by completing at least 10 reservations per year, having a 90 percent or higher response rate, securing at least 80 percent five-star or higher reviews and rarely canceling your reservations. Check out full details here.
- Promote listings through social media. Create a post with your profile or property. Extra links can help your search rankings inside and outside Airbnb.
Weighing the Options: Airbnb vs VRBO
Airbnb isn’t the only game in town for advertising and renting your space. There is also the popular VRBO, which has 794,000 listings. However, it’s important to weigh the benefits of each option.
VRBO offers a few different plans for pricing. For example, you can elect to have an annual subscription or pay-per-booking fee structure, which may provide some benefits. Check out the costs here.
Also, it’s important to note that VRBO does not charge guests a fee, which is appealing to guests, as their overall bill is lower.
Each platform also has different cancellation policies. For example, VRBO has an individual cancellation policy, where the host states the policy in the listing. The host might say, “No refunds on cancellations less than 30 days prior to arrival.”
In contrast, Airbnb’s business model has a tiered cancellation structure. Hosts can choose from flexible, moderate, strict and super strict.
For example, flexible allows for a full refund, excluding fees, one day prior to arrival, while strict provides a 50 percent refund, excluding fees, until one week prior to arrival.
Also, there is no rule that you can’t list your property on both platforms. Test them out and see which performs better. Then put all your efforts into the better-performing platform.
Moving Forward with Success
Airbnb is an amazing tool, one that helps turn your largest assets — your home or investment property — into additional cash flow. As with any new venture, however, it helps to start small.
Are you renting out a room? Take a single reservation and see how things go and whether it’s right for you. Communicate with your guests. What are they looking for when visiting your property? Do they want to “live like a local,” as the Airbnb site says?
If so, brainstorm ways to create a truly local experience. Renting your property through Airbnb is certainly about earning money, but it’s also about creating the experiences that your guests crave — yet can’t get from a big chain hotel. That’s key to your success.