Dreaming of buying a quaint cottage or a chic apartment and turning it into a thriving Airbnb?
The idea of owning a short-term vacation rental can be enticing, but how profitable can it really be? This guide will take you through everything you need to consider before purchasing your Airbnb property and how to make a profit as an Airbnb owner and host.
Airbnb Ownership: Key Things to Consider
1. What are your goals?
Before you start looking for homes and calling your bank, make sure you know exactly what you're signing up for.
What are your intentions for your Airbnb? Are you only interested in making money year-round or are you looking to rent out the property for some of the time and use the home yourself at others? Will this be your primary source of income or is this just a way to pay off your mortgage?
2. Is owning an Airbnb profitable?
An Airbnb short-term rental can be more profitable than renting out your property on a long-term basis.
You set your prices and Airbnb nightly rates are usually higher than for longer rentals. According to AllTheRooms, an Airbnb host in the U.S. earned an annual average of $44,235 in 2021.
But running an Airbnb short-term rental takes a lot more work and can be more expensive, with frequent cleanings, inventory restocking and more maintenance. Revenue is not profit and your income will be determined by the difference in turnover vs expenses.
3. What’s your Airbnb market?
Assess the demand and revenue potential for vacation rentals in your market.
Is it a destination that draws travelers year-round or is it more seasonal with high peaks in the Summer and Winter and steep drop-offs in between? How does this match your own goals? If you want to spend your holidays at your new home you’ll miss out on a huge chunk of your profit.
Look at the location of the property. Is it situated in an urban center with ready access to public transport and taxis or is it in a rural area that is difficult to get to? Is the neighborhood you are considering safe? Are there lots of attractions and activities nearby for your guests to enjoy?
4. Rules, regulations and bylaws
You can’t run an Airbnb if the city or state won’t allow it.
Look into local laws and regulations to see how they define a short-term rental and the compliances they require. Does the property adhere to building codes for vacation rentals? Is it located in an area that is zoned for short-term rentals? How long does it take to get a license to operate an Airbnb?
5. Initial investments
When considering your capital outlay don’t only think of the cost of the property.
You are going to have to invest in high-quality furnishings and appliances from the get-go to attract guests and make a profit. If you are looking to market your property as a luxury vacation rental you may even have to spring for an interior designer.
Non-essential amenities, from hot tubs and fireplaces to smart locks and swimming pools are a big draw and will help your Airbnb listing stand out.
6. Insurance
You will need more than homeowner’s insurance when you run a short-term rental.
Invest in a short-term rental insurance policy that covers the specifics of your situation. Airbnb does have AirCover, an insurance program, but it can be restrictive and the claims process can be challenging.
7. Time costs
The time you invest in your Airbnb venture is just as important as your financial investment.
How much time can you devote to making your Airbnb business a success? Will you run the Airbnb yourself or are you looking to hire a property manager or property management company?
If you want to run it yourself, make sure you have considered just how much time it will require of you. Investing in property management software like Hostaway that also offers automations can considerably reduce the time and effort you need to put in, but you will still be responsible for high-level functions like strategy and financial planning.
If you are looking to hire a third-party, whether that is a person or a company, you will be handing over control of your home and business so make sure you do your research and find a good fit.
8. Irregular income
Even if you rent your Airbnb property year-round and have successfully optimized occupancy, you will have to deal with the fact that your income will not be consistent.
Even non-seasonal markets have periods of peak demand, so the profit you bring in will change from month to month. This can be difficult at first if you are transitioning from a salaried job but as long as you are making a profit that makes you smile, it is just a fact of doing business.
Your Guide to Becoming a Profitable Airbnb Host
Develop a business plan
Outline every aspect of the business creation and operation process. Indicate your short- and long-term goals, as well as potential setbacks and obstacles.
6 Steps to an Effective Business Plan
1. Evaluate your competition
What amenities do they offer? What is their pricing structure? How do they stand out?
2. Identify your USPs
What makes your property appealing that your competitors can’t match?
Is it the amenities? The location? The additional experiences or the level of service?
3. Develop your marketing strategy
How do you plan to grow your Airbnb business?
How many platforms do you want to list it on? Will you allow direct bookings? How much are you willing to spend to promote your listing?
4. Management structure
Will you run your Airbnb yourself or will you get a co-host? If you are bringing in a partner, how much control and overview of the Airbnb business will you have? Make sure you have a written agreement in place including a clause to get out of the contract if your property manager or management company continues to not meet your KPIs.
5. Operations plan
How you execute your daily activities will be determined by your operations plan.
List out all the tasks and how you plan to manage them. For example, will you hire cleaners or will you clean the Airbnb property yourself. If you are outsourcing it, are you considering individual cleaners or a turnover service like Breezeway or Turno?
6. Comprehensive financial plan
Outline your investments, ongoing expenses and revenue projections for the next 365 days at least. What steps will you take to meet your targets? How will you fill in gap days and increase conversion?
If you need help with revenue management or pricing strategies, consider a service like Rented or a dynamic pricing tool, respectively.
Create an Airbnb listing that attracts and converts
Your Airbnb listing will determine how visible your property is to guests, whether they choose to click on it and finally, their decision to book, or not.
Your title and thumbnail image has to make travelers click. You can be creative but not too much. You want to summarize the appeal of your property in a single photo and title.
Use your listing description effectively. Describe the experience that guests can look forward to when they stay at your property. Be very clear on the amenities you offer and use keywords so you rank high in search.
Use at least 25 photos. Basically, walk travelers through your entire property, from when they enter to where they can sleep and what they can do both inside and outside it.
Be compelling but don’t exaggerate. You could end up losing out when a guest complains you lied about your offerings.
The Bottom Line: Success Takes Time
Buying an Airbnb property can be a profitable venture that also earns you the long-term investment of owning a residence. But making it work takes a lot of work, even before you buy it. Do your research, find the right property and operational structure for you and invest in an all-in-one Airbnb management software like Hostaway, and you can be on your way to becoming a successful Airbnb entrepreneur.
