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  • Peter Ettro

How To Make Money With Air BnB

Have you been considering jumping into the Airbnb party to make a little extra cash? Chances are, someone you know is making some serious cash by renting out their mother-in-law’s unit, vacation house, or even spare bedroom.

Airbnb and similar platforms have been making a steady and impressive rise over the past few of years, and if you’re not already, now is the time to start making some extra income. But where should you start? With the increasing number of platforms, such as AirBNB, HomeAway, VRBO, and Portland’s own Vacasa, how do you know what sells best? We’re here to help you make sense of it all and start generating revenue with short-term rentals.

Rentalpreneurs

This micro-economy has given rise to a new type of entrepreneur over the past few years. These platforms have allowed “rentalpreneurs” to turn their residences into revenue-generating assets while on vacation or during popular tourism events that take place in their city. This new breed of real estate entrepreneur is snatching up millions of dollars of real estate for the purpose of listing it on Airbnb.

Join The Party

If you are planning to jump into the Airbnb party, there are some important questions to consider before purchasing property for short-term rentals. This guide will help you understand how Airbnb works and walk through the main considerations, such as selecting property in the appropriate location, working out a property management plan and contracting out services where necessary, furnishing your new unit, accounting for increased taxable income, and considering some of the long-term liabilities such as property upkeep.

Location, Duh

When considering a location to purchase as an Airbnb property, you must go back to the basics of the Airbnb model. Why do travelers use Airbnb? What niche does Airbnb serve?

Short term rental platforms are disrupting two distinct markets: traditional Bed and Breakfast businesses and the hotel industry, each of which we will address uniquely.

Bed and Breakfast

Bed and Breakfast businesses serve the “home away from home” destination vacationers. This market traditionally serves middle- to upper-class couples and families that want to take a break from their normal urban lifestyle by visiting a nature or historical destinations, such as national parks, notable geographic features, secluded or popular beaches, etc. These B&Bs are typically located nearby a tourist attraction with a significant annual draw, and they are usually seasonal. If you are looking to rent out your vacation home through Airbnb, you should consider the nearby tourist attractions and research what the annual draw is, what other B&B or Airbnb locations are nearby, and what the seasonal schedule is like.

Hotel Industry

The Hotel Industry serves a wide array of travelers, primarily weekend vacationers and business travelers. Weekend vacationers are usually traveling from a smaller nearby city and want a weekend in the “big city” to explore the nightlife, attend notable museums, or hop around the tourist attractions. Business travelers are traditionally selecting a location based on proximity to the business or financial district. They are looking for a balance of luxury, economy, and proximity. When considering where to acquire property in your city, the primary driver should be its proximity to popular destinations, such as the business districts, nightlife hubs, and tourist destinations.

When I am scouting new properties for Airbnb rentals, I take full advantage of big-data tools, such as AirDNA, InsideAirbnb, and Mashvisor. I highly recommend you use these tools as well.

Asset Class

Okay, so now you have selected a part of town that you feel confident will draw a consistent flow of destination vacationers and travelers. How do you select which type of property to acquire? Research has proven that vacationers will pay a significantly higher Airbnb price per night for properties where they have their own private unit or the entire house, as opposed to renting out a spare bedroom in a house. Travelers want their privacy, and they don’t want to worry about a “landlord” seeing what they’re doing.

The Airbnb trend has made a significant impact in real estate development and given rise to the creation of Accessory Dwelling Units (ADUs). Real estate developers are now building ADUs into their properties to give them a competitive edge when their properties go to market.. If your goal is to acquire property and only list it on Airbnb and similar platforms, pay attention to how easy or difficult it would be to separate it into multiple ADUs. If you also want to live there, how much would it cost to build a separate entrance and make the unit “sealed off” from the rest of the property?

Airbnb Management

Airbnb has developed a suite of technology-based tools that ease the property management components of operating short-term rental properties. However, not all components of management can be addressed with web applications. When you stay at a hotel, there is an entire management and maintenance staff that operates behind the scenes, and you need to be able to efficiently do their job at your property (without burning out). These management requirements range all the way from making sure there are fresh linens when your tenant arrives to making sure all of the appliances are in working order. Your job will be to create a ‘wash, rinse, repeat’ process that you, or someone else, performs between each occupancy. Cleaning the property should take no more than 3 hours between tenants. Having a streamlined process will help minimize vacancy rates and maximize peace of mind. Some larger items, such as appliance maintenance, should take place on a much more regular schedule than it typically would in your own home. Make sure to stock up on central air filters, toiletry products, and other consumables to minimize your time running around time and shopping for these products. To fully maximize your time, consider purchasing these products online in bulk and having them delivered to your residence, or your property manager’s residence/facility.

Ancillary Services

Managing an Airbnb unit can sometimes seem like a fulltime job, and that’s why several ancillary or support services have popped up over the past several years. These services address a market niche of Airbnb rental automation. For my personal Airbnb properties, I use Everbooked to make sure I’m getting the maximum daily rental amounts, Guesty to manage my booking, tenant communication (before, during, and after their stays), and logistics coordination, and Handy as my cleaning service. By outsourcing all of these services, I gain peace of mind and truly automated income. Other services, such as PriceLabs, Pillow, and MetroButler provide similar services. To see a more extensive list of ancillary service providers, check out this List of the Best Airbnb Host Services created by AirBNBSecrets.

Furnishings

Have you ever looked through Airbnb and seen an apartment with truly hideous furniture? The beds are just mattresses on the ground, there is an old futon from someone’s college days in the middle of the room, and beat up tables holding floral lamps you’re pretty sure you saw at your grandma’s garage sale? No one wants to pay for lodging in such disarray. What truly makes a guest’s stay enjoyable is the atmosphere when they first walk into the unit. You need to be able to ‘wow’ them at first glance. Spend a little extra cash on the nicer furniture, it will pay off. By investing into your property you will earn higher Airbnb guest reviews and higher revenue through Airbnb’s platform. Whether you prefer Ikea or thrift stores, be sure to furnish your unit in a way that will impress your tenants.

Liability

Okay, so you might be sold on the idea of running an Airbnb property, and hopefully this article has given you a good idea of what steps you need to take prior to jumping into the world of rentalpreneurism. Before you call your family looking for seed capital, make sure to look into the permitting, licensing, inspection, and regulatory requirements of the city you decide to host in. Some cities are much more friendly to rentalpreneurs than others, and that can make all of the difference. Each city has the option to impose a special occupancy tax on short-term rentals within their boundaries, and this can have a significant impact on your cashflow. To date, I haven’t found a comprehensive city-by-city database of regulations and requirements. However, this article by Airbnb will help you start the research process:What Regulations Apply to My City? If you operate an Airbnb unit in Portland, Oregon like myself, this article will be your lifeline in making sure you adhere to the proper regulations imposed by the city.

Financial Management

Before you take the plunge and purchase a property to list on Airbnb, be sure to have a comprehensive conversation with your accountant about the tax implications of generating income through short-term rentals. The specifics of tax-liability on short-term rentals is an entirely different topic, but understand there are significant tax implications that you need to consider. If your accountant isn’t well versed on financial and tax planning for Airbnb hosts, send them this Airbnb Tax Deductions Checklistassembled by Hurdlr to get the process started. Even if your accountant is an Airbnb wizard, I still recommend downloading the Hurdlr Airbnb app for your phone, available for both iPhone and Android.

Wrapping Up

If you have made it this far, treat yourself to a cookie. I’ve just laid out a lot of information for you to consider, and I hope this guide will act as a reference that you can continually find value in. The process of running an Airbnb property is difficult and time consuming, but several services have emerged to make this process easier. Aligning all of the variables prior to jumping in will ensure that the process is smooth and profitable.

Would you like to learn more about making money with Airbnb? My company, Ettro Capital Management, is hosting an event focused on this topic. Click the button below for more details.

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