Hundreds of thousands of Americans now earn money renting out vacation properties through Airbnb and other platforms. Many do it as a side hustle to increase their income, but a small and growing number are turning Airbnb hosting into a full-time job – and earning six-figure incomes through doing so. The opportunity to make more than you do now and build up a money-making property portfolio is intriguing. But what does it take to become a full-time Airbnb entrepreneur?
How to start an Airbnb business
It takes time and planning to launch and grow an Airbnb business. These steps will get you started.
1. Check if it’s legal.
You first need to research and understand local laws that apply to short-term rental properties in your area. Most authorities allow them but require you to apply for a permit first. Some forbid it altogether. Many cities and states require hosts to register or get a license before advertising their property or taking bookings.
If you rent the property you want to offer as a vacation rental, you’ll need permission from your landlord to list it on Airbnb. If you own the property and you’re still paying off your home loan, you’ll need the approval of your mortgage provider. Be aware that some mortgage providers will say no and others may require you to switch to a different type of mortgage that may cost you more.
FYI: If you’re eyeing a multifamily building for your Airbnb property, be sure to check for any applicable housing association rules.
2. Do the math.
Whether you can make a decent amount of money by hosting Airbnb guests depends on how much you charge per night and how often your property will be rented out. Both are likely to vary greatly depending on where you’re based. For example, AllTheRooms found that the average price per night ranged in 2021 from just $101 a night in North Dakota to $287 a night in Arizona. Occupancy rates also differ significantly. In one of the outlet’s prior studies, the occupancy rate in the worst-performing U.S. state, Michigan, was 37.2% in 2021 and 65.4% in the best, Hawaii.
Airbnb has its own earnings estimation tool showing the average earnings per night, the average nights booked out in the month and the average earnings of hosts in your area. You’ll have to subtract mortgage payments, cleaning costs and Airbnb fees from the projected earnings to determine if you’ll be able to make enough from one rental to quit your day job. If the math doesn’t work, calculate how many vacation rentals you would need to make your desired income. Remember to keep in mind cash flow too. In seasonal markets, you make all your money at specific points of the year. You’ll then need to hang onto that cash to pay all your bills when it’s quiet and people aren’t renting from you as much.
3. Know what your potential tenants really want.
Before you list any properties, make sure you know what your target audience is looking for and that you can supply it. A city-center property will probably appeal to younger couples or business travelers. A lodge in the woods by a lake will be attractive to a completely different demographic.
The property you’re renting out and its location will determine your typical customer. Look at similar properties in your area that get great guest reviews to understand what your target demographic wants. Consider everything from the type of furnishings you provide to the proximity of nearby attractions and amenities.
Tip: Always strive to get good customer reviews from your guests. That’ll give others the confidence to book your rental.
4. Plan how you’ll scale.
To become a full-time Airbnb entrepreneur, you’ll almost certainly need to grow beyond offering just one property for rent. It may take three or even 10 rentals, depending on how often you can rent out your properties and for how much, to become financially secure.
Growing your property portfolio is not easy. Every new addition you purchase requires a major upfront financial commitment. Most lenders want a down payment of 20% on a new vacation rental, and they may ask for twice as much depending on your credit score. You also need available cash to renovate and furnish additional rentals to the standards guests expect.
Fortunately, there are other ways to earn money from Airbnb, including:
- Airbnb Arbitrage: Top off your income by subletting other Airbnb hosts’ properties via the Arbitrage program.
- Vacation rental management: If you have a property management license, you can charge other hosts for managing their guests and taking care of maintenance, repairs and cleaning.
5. Form a legal entity.
You’ll need to form a legal entity to carry out business as an Airbnb host, especially as your portfolio grows. Save money on taxes by operating through a business structure like an LLC. It’s also a better way to protect your privacy in case a predatory customer decides that they want to tell you to your face why they’re mad or threaten you in other ways. Also, in the case of a lawsuit, only the LLC’s assets are at risk, not yours.
Did you know? There are a lot of steps you need to take to open a business, even if that business is just an Airbnb rental. You’ll still need a taxpayer identification number, for example.
6. Get your taxes in order and hire an accountant.
Tax laws vary from state to state, and so will your obligation. What you pay in taxes will also depend on whether you rent an entire property out or just a single room. Many cities and states charge short-term occupancy taxes that you have to collect and pay to them.
You will need to keep meticulous records of all income and expenditures. Take the time to hire the right accountant for your business, ideally one experienced in dealing with landlords. You may also want to invest in the best accounting software.
7. Open a business bank account.
Your accountant will probably advise you to open a separate business checking account, which is a good move. Treating your Airbnb business money and personal money separately makes bookkeeping easier. For example, it’s more straightforward to identify all the startup costs you incur if they’re all paid from a standalone business account; you can then offset many of them against the taxes on your profit. It also trains you as an entrepreneur not to think that you can take money out of the business account as you please for personal expenses.
8. Get insured.
Make sure it’s your LLC that takes out buildings and contents insurance policies on the property and not you personally. You’ll also need a commercial general liability insurance policy. Also consider business income insurance to cover periods when the property can’t be rented in the event of, for example, fire damage. [Check out our recommendations for the best liability insurance providers.]
Bottom line: There are risks to being an Airbnb host. But to see if it’s right for you and raise some cash, you could try going the Airbnb Arbitrage route to start.
The benefits of starting an Airbnb business
According to Airbnb, in 2021, the income for a typical Airbnb host rose to $13,800, up 85% from 2019. But those who embark on this endeavor full time stand to make a lot more if they follow the steps outlined above. Of course, there are plenty of other benefits to starting an Airbnb business, including the advantages highlighted below.
- Gain new skills. You’ll learn how to manage a property portfolio, create ads that win new bookings and master a new type of customer service. These are valuable and transferable skills.
- Build recurring income. Each new property you add to your portfolio increases the rent you bring in every month.
- Save money on taxes. You can offset costs such as mortgage interest, insurance, professional fees and property taxes to reduce your tax bill.
- Spread investment risks. It’s always wise to diversify your investments across different asset classes to reduce exposure to volatility. Real estate investment is largely considered a wise bet.
- Get back your valuable time. Running a growing Airbnb business is challenging, but as you get better at it, you’ll see improved efficiency. You may even be able to hand over the day-to-day responsibilities to hired staff so you can have the freedom and financial independence to spend your time as you want.
Is Airbnb right for you?
If you’re a people person, Airbnb could be a great choice for a business that doesn’t require the typical 9-to-5 commitment. People save up for and look forward to vacations. They want and expect their hosts to give them the best possible experience. If you “get”people and you’ll do whatever is needed to make them happy, you’ll find being an Airbnb landlord enjoyable and personally rewarding.
You’ll also need to be organized. Not double-booking guests, making sure the cleaning staff is in and out on time and staying on top of the paperwork – that’s just the start of it. If organization doesn’t come naturally to you, you’ll need to get outside help. This will eat into your profits, particularly if you have just one rental or a small collection of properties. However, with the right planning, becoming a full-time Airbnb entrepreneur may be just the gig for you.