How To Start An Airbnb Business
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An Airbnb business is a business that owns one or more properties that are rented out through short-term vacation rental sites. To start an Airbnb business, you’ll need to buy a property, configure the property for short-term rentals and promote the listing. Read on to learn what you need to run a successful operation.
Why should you invest in an Airbnb business?
Airbnb offers short-term rental properties to travelers looking for places to stay. It makes the rental process convenient for hosts and guests alike. Whether you’re renting out a spare bedroom in your house or a beachfront property on the other side of town, being an Airbnb host provides an excellent opportunity to earn money.
Some good reasons to start your own Airbnb business include:
- Earning a recurring income
- Saving money on taxes
- Getting experience starting your own business
- Diversifying your investments
- Gaining free time
How to get started with your Airbnb business
Whether you want to add a source of income to your day job or become a full-time Airbnb entrepreneur, you’ll need to get some things in order. From scouting locations to listing your property on the Airbnb website, there are many things to consider before you begin. Follow these steps to start an Airbnb business:
1. Consider and research locations
Location is one of the main selling points in the Airbnb business. If you already own a property you plan to rent out, you may not have much control over the location of your future Airbnb. However, if you’re looking for an investment property, consider what your guests will want to see and do when they visit your area. If they're coming for business, they may want a place downtown. Tourists exploring a national park may want to stay in a nearby cabin.
The property itself can also affect the success of your business, so thoroughly research the real estate markets in your area. Note the neighborhood crime rate and access to public transportation. Choosing a site near grocery stores, entertainment centers and parks could draw more customers. Also make sure there are no rules against having a property for short-term rental in the area.
Remember, some locations will get more bookings during certain seasons. Even if you’re lucky enough to purchase a vacation rental with a warm tropical climate year-round, there may be a storm season that draws fewer guests. Take time to research your options and find the most suitable location for your Airbnb.
2. Take a look at other sites nearby
Once you choose a location, take a look at the competition. The Airbnb website lists nearby rental properties. Explore these properties to see their nightly rates and what amenities they offer. Make a list of things your short-term rental may be missing and what you can do to improve it.
3. Budget appropriately and know your investing options
Purchasing real estate is one of the best long-term investments available, but not everyone has the budget for buying an Airbnb property. If you want to start an Airbnb business and have limited funds, you may want to try Airbnb rental arbitrage.
This business model involves leasing a property from a landlord long-term and renting it out as short-term rentals. However, for this to be an option, you’ll need to ensure that the lease with your landlord allows for subleasing, and that any applicable association, such as a home owners association, allows it as well.
You may also be able to find a real estate partner willing to purchase an Airbnb property while you cover the business responsibilities. This kind of partnership is a great way to gain experience in running an Airbnb and can help you save money to buy your own Airbnb property down the road.
4. Make a business plan and purchase property
Running an Airbnb may seem simple, but creating a business plan is vital to the success of your investment. Before purchasing a rental space, list your startup costs. Some expenses you may need to prepare for include:
- Furniture
- Appliances
- Kitchen supplies
- Sheets and towels
- Utilities
- Wifi
- Cleaning services
- Repairs
- Mortgage payments
- Inspections
- Airbnb host fees
- Insurance
- Taxes
Once you estimate your expenses, you can figure out how much you need to charge per night. Use your estimated nightly rate to determine how many rentals you’ll need per month or per year to turn a profit and adjust your rates accordingly.
An Airbnb business can be very profitable if done well. The average Airbnb property in the U.S. brings in over $41,000 per year. You’ll need to keep careful track of the revenue coming in and expenses going out. Consider the following:
- What are your realistic financial projections?
- How much do you plan to spend on services, upgrades, maintenance and amenities?
- How much energy and time do you want to invest in your business?
Finish your business plan and move on to buying your property. You’ll usually need up to 25% of the purchase price as a downpayment, plus closing costs. However, you may be able to find a better deal if you use one of the best mortgage lenders.
5. Determine your property management strategy
There are different ways to be a successful Airbnb host, so you’ll need to decide which strategy is right for you. First, determine when and how often you will host guests. Also decide if you’ll do everything yourself or hire a property manager or other service provider to assist you.
Some duties you may need to delegate include maintenance, laundry, cleaning or even responding to messages from guests. If you want to be more hands-off, hire one of the best property management companies to help. You can also automate some messaging responsibilities by scheduling or using Airbnb’s Quick Replies feature.
Regardless of your management strategy, you’ll need to develop a list of rules for guests. Some rules may be dictated by a homeowners association or condo board, while others may be specific to your property. Rules may include:
- Number of guests
- Pet restrictions
- Smoking restrictions
- Check-in and check-out times
- Eating areas
- Quiet times
A comprehensive list of house rules will ensure guests understand what behavior is acceptable on your property.
6. Create a name
Creating an exceptional name for your property will draw potential customers’ attention and lead them to your listing. Likewise, a catchy name will be easier for guests to remember and recommend to others. Consider the experience your guests will have if they book with you, and devote some time to finding a name that represents that experience.
7. Create an LLC
Before listing your property, create a legal entity representing your business. A limited liability company (LLC) allows you to create a bank account for your business and separate your personal and business finances. If a customer suffers a serious injury while on your property and files a lawsuit against you, an LLC will also protect your personal finances and assets.
8. Know who you’re marketing to
Airbnb guests can include everyone from couples and families on vacation to solo backpackers, remote workers or business travelers. Decide what kind of guests you want to attract and consider them as you set up your property.
Fortunately, you won’t need to spend much time or money marketing your rental using a platform like Airbnb. Your property will show up on its website for anyone looking for comparable accommodations in your area.
9. Ensure accessibility with your site
Make sure your property is accessible for guests with disabilities. Some things, such as stairs or narrow doorways, may be difficult to change. Do what you can to ensure pathways are well-lit and parking is accessible — or that accessible drop-off locations are available nearby. Having step-free entryways to rooms and showers instead of tubs may determine whether someone stays at your Airbnb or a competitor’s. If there’s anything that a guest with a disability may find prohibitive that you can't change, make sure you are clear about the limitations in your listing.
10. Understand what taxes need to be paid
You’ll need to pay taxes on your Airbnb income, just like you would with any other business. Depending on your location, Airbnb may automatically collect occupancy and sales tax. You’ll need to keep track of your income and expenses to report to the Internal Revenue Service (IRS). If your Airbnb generated over $20,000 in gross transactions or 200 transactions during 2022 or $600 in total gross transactions for 2023, you must submit Form 1099-K to the IRS.
Some business expenses will be tax deductible. These deductions may include mortgage or rent payments, property insurance and money spent on repairs, cleaning services and the utilities guests use.
Understanding what kind of taxes you owe and what deductions are available can make or break your business. You may want to purchase the accounting software or employ a tax specialist or accountant to ensure you track your expenses and file your taxes correctly.
11. Get zoning regulations and business licensing in order
Depending on your Airbnb’s location, your business may require licenses, certifications or permits to operate a short-term rental property. Check local zoning regulations to make sure short-term rentals are allowed in your area, and ensure your business abides by all other laws and requirements.
You may also need special types of insurance. While homeowners insurance will cover certain damage to your property, business insurance can cover liability and other risks associated with renting the space. You may also want to purchase worker’s compensation insurance if you hire employees.
12. Open a business bank account
Opening a business bank account is easy once you register your business entity with the IRS and receive an Employee Identification Number (EIN). Whether you employ an accountant or do everything yourself, selecting one of the best business checking accounts can make it easier to file taxes and keep your accounts in order.
13. Prepare your space for potential guests
Once you’ve settled the business side of running an Airbnb, it’s time to prepare your property for guests. Your interior decoration will influence the kind of guests that book your space, so plan your decor to attract your ideal guest. Research similar properties nearby to see what your preferred guest likes. Also check public reviews on other listings and note what guests like and don’t like about their Airbnb experiences.
Finally, stock your property with all the appropriate amenities. The rental should be comfortable and clean when guests arrive. If you plan to upgrade your property, don’t overdo it at the start. Take some time to gather feedback from guests and obtain profits to reinvest in your business.
14. Take high-resolution photos
Photos are your opportunity to show off your property, so they should be high quality and marketable. Highlight your Airbnb’s best features, such as great views, balcony, fireplace or spacious kitchen. Your photos should be honest and not mislead your guests, or you’ll receive negative public reviews. Hiring a professional photographer may be a good investment if you’re willing to spend extra money.
15. Post your active listing and make sure it’s optimized
When your Airbnb is ready to go, create a free listing on the Airbnb site. Emphasize your property’s unique features, amenities, nearby attractions and anything else that makes it stand out from other listings. Add your pictures and property name to grab attention. You want your space to be as attractive as possible without exaggerating or lying.
Once your business is up and running, some guests will leave reviews. Use this feedback to improve your space and get more positive reviews. The more five-star reviews on your page, the more attractive it is to potential customers.
What challenges do Airbnb owners face?
Being an Airbnb owner comes with a lot of responsibilities. Owning any property means there are maintenance emergencies that may need to be fixed, no matter the time of day. You may also have disgruntled guests who feel the house doesn’t meet their expectations.
As with any business, you’ll encounter challenges — especially at the beginning. However, there are steps you can take to better plan for emergencies. Consider adding a co-host to help manage some of those responsibilities, especially if you have multiple properties. You can add up to three co-hosts to your Airbnb listing. Also continue to update your rules and procedures as you book more guests and gain experience.
What are the keys to success when running an Airbnb?
Effective Airbnb hosting comes down to caring for your guests. Making things convenient for guests will typically earn you great reviews and recommendations. As your Airbnb business grows, you can scale it and acquire more properties. Some ways to please your customers and get five-star reviews include:
- Responding quickly to messages from guests
- Alerting guests about problems as soon as they happen
- Being clear about your guidelines, such as if your Airbnb is pet-friendly
- Keeping up with maintenance
- Making sure your property is prepared and clean for guests upon check-in.
- Organizing your business finances for tax purposes
Summary of how to start an Airbnb business
Starting an Airbnb business doesn’t require previous business experience, but renting your property on Airbnb is best if you enjoy hospitality and helping people. Unless you already own a property, investing in an Airbnb will cost a lot initially. However, if you have a good business plan and provide your guests high-quality stays, you’ll be on your way to running a successful Airbnb business.