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How to Make Money with Airbnb and What Services to Sell
Although making money through Airbnb as an Airbnb host takes quite some time and effort, many people are joining the sharing economy, which includes Airbnb rentals. Managing multiple rentals is a full-time job and as a property owner, starting an Airbnb business is a great way to earn money. There are many ways to get involved in the short-term rental world from using a rental arbitrage model to becoming a real estate investor.
As of 2021, there are over 4 million Airbnb hosts. Launching an Airbnb rental property business looks promising from different perspectives and owning property isn’t critical anymore with the invention of rental arbitrage. If you want to generate extra income or become an entrepreneur, Airbnb and the vacation rental industry is a great way to accomplish all of this.
There is no secret recipe for an Airbnb host to maximize your profits, whether you own property or not, but there are some ground rules to follow. Find out how to establish a prosperous vacation rental business that will bring in a good income.
Is running an Airbnb profitable?
What additional services can I sell to make money on Airbnb?
How do you sell additional services to guests?
How to charge for extra services?
How does rental arbitrage fit into the picture?
Making money with Airbnb
1. Estimate your annual earnings
Before you list your property on Airbnb, it makes sense to estimate its income potential.
If you are deciding on where to buy an investment property, you need to find the most lucrative location. If you are renting out your accommodation, you should get an understanding of its earning potential to set the right price.
To perform a comprehensive analysis of your earning potential, you can use an Airbnb profit calculator. It analyzes the historic data and current trends helping you predict your return on investment. Here are the key metrics you should take into account:
- Cash flow: This is your Airbnb rental income excluding Airbnb charges and your monthly rental expenses. If you rent your property for $1500/month and pay $500 for monthly expenses, your positive cash flow will be $1000.
- Cap rate: This metric shows the rate of return your investment can generate. To calculate the cap rate, you should divide your Net Operating Income by Property Price.
Taking the example above, you should multiply your cash flow by 12 ($1000×12) to calculate the net operating income. Let’s assume that the property price is $140,000, so the cap rate will be 8%.
- Occupancy rate: This is the ratio showing the number of days your property is booked vs. vacant. Maintaining a high occupancy rate is vital for increasing your profits.
- Potential rental income: This is the estimated amount you can earn from renting out your property.
After you’ve estimated the earning opportunity of your rental, you can begin to look at other essential factors.
2. Calculate operational and additional expenses for your short-term rentals
To create a solid strategy for making money with short term rentals, you need to estimate your expenses.
Unlike a traditional rental, you’ll need to provide your guests with supplies, utensils, and pay for cleaning and maintenance.
Should you hire a property manager to handle your rentals, subtract these costs from your overall revenue as well. The average property management fees range between 20% and 40% of the monthly rental income. The cleaning costs can also affect your revenue especially if you are lucky to handle a sufficient number of guest turnovers.
To help account for this, consider introducing a cleaning fee for your guests. It will certainly help you save on cleanings and keep your property spotless.
You should also account for additional costs for repairs and maintenance. A good idea would be to request an Airbnb security deposit and get vacation rental insurance. This will help you not to go into the red in case of property damage or other accidents.
3. Be aware of legal issues and liabilities
Staying on the right side of the law is essential for ensuring your business will go a long way. Make sure you are aware of legal requirements in your location to start making money with vacation rentals. Local laws can derail a financial investment
Renting laws vary by city and some cities have strict rules and regulations regarding Airbnb. For example, in San Francisco, only permanent residents are allowed to become Airbnb hosts. You should live in your rental for at least 275 days a year and be present during your guests’ stay.
Whether you are establishing a side hustle for generating passive income or starting a full-time business, contact your local authorities. Here is a quick look at the legal aspects you should take into account before you start making money with the vacation rental industry:
Business license: some jurisdictions may require you to obtain a business license. Otherwise, your business will be considered illegal.
Taxation rules: In some locations, Airbnb collects the occupancy tax on your behalf. However, there are a lot of jurisdictions where you need to pay all the taxes yourself. They may not be explicitly described on Airbnb, so consult a local tax advisor to avoid penalties.
Zoning rules: There are certain rules that define the way you can use your home. These rules are detailed in a zoning code, planning code, or city ordinances.
4. Research your competitors
To position your listing, you should analyze your competitors first. This is essential for setting your nightly rate and crafting the right strategy to move forward. To find comparable properties, use Airbnb filters to narrow down your search.
You can find them by filtering the neighborhood, the number of rooms, and the amenities they provide. Check their calendars and estimate their average occupancy rate to assess their value proposition.
Another way to position your listing is to get marketing insights by using tools such as AirDNA and Mashvisor etc. These tools will help you to see the full picture and understand how much money your competitors make per month. On top of that, you can get actionable insights on occupancy rates, amenities, and trends in your market.
5. Come up with a unique selling proposition
After having researched your competitors, you’ll get an understanding of what their strong and weak attributes are. Using this data, you’ll be able to shape your offer to get ahead of the curve.
Positioning your rental as the cheapest one can give you an edge at the beginning. However, if thinking long-term, this strategy won’t help you maximize your earnings. If you want to make money with Airbnb, keep your price competitive and provide a unique guest experience.
Think about the amenities or services that your competitors don’t have. A few ideas include a smart lock for self-check-ins, a digital guide book, a hot tub, etc.
Make sure your property photos highlight your unique selling points and your description provides proper insight into your home.
Is running an Airbnb profitable?
There is no simple answer to this question as your profit will depend on a variety of factors. While some hosts manage to earn around $10,000 per month, some barely make a couple hundred. However, you can earn a substantial income, especially if you manage multiple properties in a popular tourist destination.
There are other factors that can influence your rental profit. They include seasonal trends, the type of property you have on offer, and the pricing strategy that you follow.
Airbnb vs. long-term rental
A short-term rental with a high occupancy rate can earn you more than a long-term lease. With your home on Airbnb, you can charge a higher nightly rate and change your pricing whenever you find it necessary.
For example, in Boston the average apartment rents for about $2,800 per month. This makes $33,600 gross income if you rent out your property for 12 months. In comparison, the average nightly rate for a short-term rental in Boston is $150.
Renting it out for 300 days will bring you $45,000 gross income. To maximize your profits, you can keep prices higher during peak season and special events.
Though you can make more money with an Airbnb, your income might be irregular depending on the seasonal trends. On the other hand, long-term rentals can generate a more steady income. It is best practice to do your research and consider all pros and cons before starting your own vacation rental business.
What additional services can I sell to make money on Airbnb?
Offering additional services for your guests is a great way to make extra money with Airbnb. Another advantage is that adding something extra can help you enhance the guest experience and stand out from your competition.
To help you get started, here are 8 ideas for additional services that you can offer:
1. Guided tours
Most tourists will likely end up paying for local guided tours once they arrive in your area. By offering tickets for a guided tour, you can help them achieve something that was probably on their to-do list. Set up a partnership with a local tour agency to offer your guests tickets with pleasant discounts.
2. Bicycle/Motorcycle rental
Make it easier for your guests to get around by providing bicycle or motorcycle rental as an additional service. The guests will likely need to rent some type of vehicle for the duration of their stay at your property. Offering bike or motorcycle rental is a popular option to make extra money on Airbnb for many hosts. It can significantly increase your earnings and help guests save time on searching for a rental service in your area.
3. Airport pickup/dropoff
Travelers will appreciate the fact that you are making it convenient for them to get to and from their flights. As an option, you can use a local transportation service to arrange rides and just collect a fee for the convenience. Make sure that it is reasonably priced, otherwise, guests will prefer to call Uber or another car service.
4. Extra cleaning
If guests stay longer than a week at your rental, cleaning once before they arrive won’t be enough. If you want to make more money on Airbnb, offer extra cleaning as an additional service. Discuss with your guests how often a cleaning service should come and clean up. Negotiate the price before they book, so they won’t get caught by surprise by extra fees after the checkout.
5. Tickets to events
If there is an exciting event taking place in your area, consider offering an event package for your guests. Offer tickets or passes and highlight them in your listing description and title to encourage travelers to book with you. This will help them avoid the hassle of searching for the tickets themselves. Guests will express their gratitude in five-star reviews and can even give you a shout out on social media.
6. Cooked meals (breakfasts, lunch, dinners)
Though leisure travelers tend to explore local restaurants, offering meals is an option that is greatly appreciated by business travelers. They are willing to pay more for convenience especially if you serve breakfast. If your location is popular among business travelers, consider adding this extra service to your listing.
7. Laundry and dry cleaning services
Offering laundry and dry cleaning services is a major bonus for business travelers.
Including hotel-like services at your place will encourage business travelers to select your rental over your competitors.
8. Decorate for a special occasion
Many people use Airbnb to travel to celebrate a special occasion. Whether it is an anniversary, birthday, or another event, you can help them celebrate it. To make more money with your Airbnb, you can offer decoration services. Guests will appreciate an opportunity not to worry about doing this themselves once they arrive.
How do you sell additional services to guests?
To get your guests interested in additional services, explain how they will save them time or money. Add the information about extra services to your listing and describe them in a catchy way to attract travelers’ attention.
For example, travelers to Venice will be amazed by the opportunity to take a gondola ride as part of the stay. If you live in a rural area, offering bicycle or motorcycle rental will allow guests to take delightful scenic trips.
Keep in mind that you need to be honest about how much your additional services are worth. Being overly promotional may drive your guests away from booking with you. If you want to make money on Airbnb, remember to always think about long-term profits ahead of short-term gains.
How to charge for extra services?
If you’re wondering how you can charge guests for additional services, here are several ways to do this:
1. Special Offer
If a guest sends an inquiry and requests one of your extra services, you can create a special offer on Airbnb. Using a special offer feature allows you to set a custom price for your guests. Send a special offer only when you are ready to confirm a reservation.
The cost of the additional services will then be included in the calculation of the guests’ total payment. Inform your guests that additional costs will be included in the total price at the checkout.
2. Alteration Request
You can create a special offer only for pending reservations. However, if your guest has already submitted a reservation request or confirmed a reservation, this feature won’t be available.
In this case, you’ll have to alter a reservation and update the total price.
When making an alteration request, make sure to specify the total price (including cleaning and other fees) in the amount box.
3. Resolution Request
A resolution request is the easiest way to charge guests for additional services. Go to the Resolution Center and choose “Request payment for extra services”. This option is available before, during, or after the guest’s reservation. Your total price will remain unmodified, helping your guests to avoid any confusion at the checkout.
How does rental arbitrage fit into the picture?
Owning property isn’t critical if you want to get into the Airbnb business.
Conclusion
Whether you are a part-time or full-time host or property manager, making money with Airbnb requires commitment and planning. Owning property is not the easiest task and things like a cleaning service (a specialist Airbnb cleaning service might be a good idea), property management, co-hosting and a self-check-in process can make your life easier.
The key to generating maximum profit lies in ensuring that your calendar is full while keeping your price competitive. You can do this in a myriad of ways including handling your own marketing or trusting property managers to take care of everything. Try to delight your guests by providing a unique experience and offer additional services to go the extra mile.
To keep your business under control, consider using automation. Vacation rental software like iGMS can literally put your business on autopilot. You can take advantage of the following features:
- Managing multiple accounts and listings on the top OTAs from a single interface
- Synchronizing reservations across multiple platforms to eliminate the risk of double bookings
- Organizing messages into a single feed with a unified inbox
- Creating and coordinating cleaning service tasks with live tracking to completion
- Creating your own direct booking website
- Managing direct bookings using a direct booking management toolkit
- Processing payments securely via integration with Stripe.
