What You Need To Know Before You Airbnb Your Home

by Jennifer McMurraySeptember 11, 2018

For many years, if you were traveling somewhere, you simply booked a room at a hotel chain. However, times have changed. Travelers now search out the unique, the eclectic, and the experience that is offered through vacation rental sites like Airbnb and VRBO. This growing trend has offered tremendous opportunity for homeowners and investors. In fact, one in three travelers now chooses private vacation rentals over hotel chains making the income potential appealing for homeowners.

Each night, there are approximately two million guests choosing to stay at an Airbnb – that excludes the data for other rental sites. Homeowners have quickly discovered the growth potential and have started renting out spare bedrooms, guest houses, and investment properties. The supplemental income has allowed homeowners to pay off debt, build-up nest eggs, and save for the future.

But is it as easy as it sounds? It may seem as simple as setting up a bed, snapping some pictures and listing your property on a vacation rental site, but there is some fine print you should be aware of before you list your home.

Your Home Insurance May Not Cover Your Home

Utilizing your primary residence as a vacation rental changes the purpose of your home according to many home insurance companies. As a host myself, I discovered that my current home insurance would not cover my property if I utilized it as a vacation rental. There are insurance companies, however, that cater to Airbnb/VRBO hosts and even offer competitive rates.

It’s important to check with your insurance company before you ever list your property. If they do not cover your home as a vacation rental, it’s important to have adequate coverage in place prior to ever listing your home.

Your City Or Neighborhood May Not Allow Vacation Rentals

There are several cities that continue to fight the trend of vacation rentals, in particular, San Francisco has levied strict guidelines against hosts. In addition, some neighborhoods, especially those with POA or HOA guidelines, have created bylaws that limit how often a host can have guests at the property. As a potential host, it’s essential that you check your local guidelines as well as any neighborhood covenants that might restrict your ability to utilize your home as a vacation rental.

You May Be Required to Collect Taxes

The revenue from your vacation rental is probably subject to local or state taxes. Airbnb & VRBO have created agreements with several states and cities to collect & remit taxes on behalf of the host; however, there are still many places where such an agreement is not in place yet. If an agreement is not in place, the host is required to collect and remit the taxes.

In addition to state and local taxes, the income you receive as a host is subject to income tax as well. For Airbnb, any host that generates $20,000 in gross earnings and 200+ bookings, they will generate a 1099 for the host’s income taxes.

You Will Have Initial & Long-Term Costs

The good news is that it is free to list your property on the major vacation rental sites. However, there are several initial and long-term costs associated with vacation rentals. Initially, you may have the upfront costs of furnishing the home for the guests. While there are ways to minimize this cost, the décor and amenities are a large aspect of the review process by guests, so they should be of high quality & design. Since high-quality photography is essential in converting inquiries to bookings, it’s encouraged to have phenomenal photos which may include hiring a photographer to create images ideal for marketing.

The long-term costs include utilities, maintenance, supplies, and commissions. Unlike long-term lease rentals, the host is responsible for all of the utilities—including internet and possible cable or satellite. In addition, any routine maintenance or repairs like AC repair, leaking faucet, etc., are all part of the ongoing costs associated with a rental property. There are several supplies that must be replenished for guests including paper products, coffee, cleaning supplies, soaps/shampoo, etc. Finally, each hosting site charges a commission on each booking you receive.

Is It Still Worth It?

It certainly can be. Before you begin the adventure of vacation rental hosting, it’s essential that you evaluate the numbers- including potential profits, commissions, taxes, and fees. Some locations are in higher demand and may be easier financially. While Airbnb & VRBO both offer rough potential earning statistics, websites such as AirDna offer for a fee an in-depth analysis and provide a clear picture of potential earnings.

Another thing to understand before you list your property is that unlike long-term rentals, Airbnb hosting is a hospitality industry. As the competition grows among hosts, hosts are upping their game in providing stellar accommodations and unique experiences. Hosts are expected to be available, accommodating, and understanding to guests. This may require additional time, energy, and money on the part of the host.

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About The Author
Jennifer McMurray
Jennifer is an accidental house flipper turned Realtor and real estate investor. She is the voice behind the blog, Bachelorette Pad Flip. Over five years, Jennifer paid off $70,000 in student loan debt through real estate investing. She's passionate about the power of real estate. She's also passionate about southern cooking, good architecture, and thrift store treasure hunting. She calls Northwest Arkansas home with her cat Smokey, but she has a deep love affair with South Florida.

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