Financial Breakdown: Becoming an Airbnb Host

As the owner of a vacation property, you’re probably only using the space for a few weeks or months throughout the year. If your property is sitting vacant for long periods of time, you should consider becoming an Airbnb host. This way you can make the most of your rental property and earn an extra income without having to do a ton of work.

Even if you already rent your property through other means, you can still become an Airbnb host to give yourself additional options. Airbnb has one of the largest user bases of any vacation rental platform, so you’re maximizing your exposure to new customers by becoming a host. While Airbnb gives you a great opportunity to earn more money, there are also costs associated with becoming a host.

Here is a financial breakdown of becoming an Airbnb host, including some of the costs, as well as tips and tricks to help you make money by renting your property.

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The Costs of Becoming an Airbnb Host

It’s completely free to become an Airbnb host. There is no charge to create an account and no charge to list your property for rental. You will only be charged once you actually start booking reservations. However, in order to make the most out of your finances as a host, it’s important to be aware of the costs.

These are some of the expenses associated with becoming an Airbnb host:

Taxes

This one is tricky because taxes can vary greatly depending on where you live. So it’s important to do your own research on taxes for your city and state. However, there are some universal instructions for federal taxes. If you only rent out your property for 14 days or less per year, you don’t have to pay taxes on rental income. But if you rent out your property for more than 14 days, you’ll have to pay taxes on the income and file a Schedule E along with your tax return. You may also need to fill out additional tax forms if you rent out your property often. IRS Form 1099-K is required for any host that earns more than $20,000 on their property and has more than 200 reservations during the calendar year.

Fees

Since there is no charge to list your rental property, this is how Airbnb makes money on your bookings. Basically, there are two service fee options: 1) shared host and guest fees or 2) host-only fees. The first is the standard setting for Airbnb hosts. Shared hosts and guest fees place more of the expense on the guest-”hosts are usually only charged 3% on the booking subtotal. However, the host fee can be higher if you are an Airbnb Plus host or your listing has a Super Strict cancellation policy. On the other hand, host-only fees are significantly higher. The benefit of this option is that hosts have more control over what the guest will pay. However, the host-only fee ranges between 14-20% since they are covering all of the service costs.

Appropriate Insurance

Most domestic insurance carriers consider short-term renting to be a “commercial activity,” which isn’t covered by traditional homeowners policies. When you entrust your property to a paying short-term rental guest, giving them the keys to your house, insurance contracts begin to break down and big gaps in coverage occur.

Common gaps would be damage caused by a guest such as fire, vandalism, theft, lost business income, bed bugs, and a plethora of liability concerns surrounding the potential injury to a guest.

Cities recognize the same concern and are struggling to find common ground regulation for the local vacation rental market. Many communities have passed ordinances and laws which all have some type of insurance requirement (for example: Las Vegas, Nashville, and Washington D.C.). For details on more cities view our Short-Term Rental Regulations Map. Finding the best policy to comply with city requirements can be difficult. Ultimately, hosts need a solid short-term rental insurance policy that meets city ordinances and responds to risks common to these rentals.

How to Make Money as an Airbnb Host

Making money as an Airbnb host is all about price and availability. Obviously, the more days and nights that you rent out your property, the more money that you’ll make. And your price point will determine how much you profit from each stay. However, it can be tricky to weigh one versus the other.

If you have a high price point, you will be making more money per stay, but you may not have as many guests interested. If you have a lower price point, you could get more bookings, but you may be undercharging them. In order to determine your Airbnb pricing strategy, you need to do market research and calculate your potential booking schedule, amongst other things.

Once you become an Airbnb host, it’s important to keep track of your finances. Not only should you be monitoring how much rental income you’re bringing in, but also how much you’re spending on upkeep. As the owner of the property, you’ll need to spend money on houseware, toiletries, cleaning services, etc. (Note: you can opt to have cleaning services charged to the guest, but this could drive away potential customers).

In order to properly monitor your earnings and profit margin from Airbnb, you should consider setting up a separate bank account. By using an account with instant notifications, you can easily keep track of every time you receive a new payment from Airbnb. In fact, some people prefer to use separate banking accounts so much that they actually have a different account for every single property they own.

With the right financial strategy and rental property, there is a lot of money to be made by becoming an Airbnb host. There’s a reason why Airbnb is one of the most popular rental platforms. They have a huge user base that will give you plenty of opportunities to book guests. If your rental property is going unused for large portions of the year, consider becoming an Airbnb host to earn additional income and make your property work for you.

Verify Your Short-Term Rental Insurance

Interested in a policy to protect you and your business from property and liability claims? Proper Insurance is the nation’s leading short-term vacation rental insurance provider, with the most comprehensive policy on the market. We protect homes in all 50 states with unmatched coverage for your property, revenue, and business liability, customized to include guest-caused theft/damage, liquor liability, amenity liability (bikes, kayaks, hot tub, etc.), bed bugs, squatters, and more. 

Proper’s policy covers vacation homes, townhouses, condos, duplexes, cabins, cottages, apartments, and more. With expert vacation rental underwriters, we can tailor a policy specific to your short-term rental property.