Using a vacation rental as an Airbnb property for short-term rentals can be a great way to make extra income. It will take some time, plenty of research, and a financial commitment to run a successful Airbnb business. Still, if you do your due diligence and create a compelling Airbnb listing, you could find yourself running a very lucrative small business.
Maybe you’re looking to purchase a new place to use as an Airbnb property, or maybe you already have a rental property you’d like to convert into an Airbnb rental. You may even have a finished basement or garage apartment you want to use to start your Airbnb business, with plans for more vacation rentals once you start getting some cash flow.
Whatever your situation, it’s important to know the ins and outs of running your own Airbnb property to set yourself up for a successful business. A few of the factors you need to consider before becoming an Airbnb host include the kinds of guests you’re hoping to attract, the local laws and regulations regarding Airbnb vacation rentals in your area, and how you plan on running your hosting business.
Keep reading to learn about the steps you need to take to set up an Airbnb vacation rental, as well as some other points to consider before you start an Airbnb business. First, let’s take a quick look at what Airbnb is and how it works.
What is Airbnb?
In case you’re not already familiar with Airbnb, it’s a platform that connects vacation rental owners with people who are looking for short-term rentals. Airbnb properties range from full apartments, condos, and houses to private rooms, hotel rooms, and shared rooms. Guests can even rent an RV, a treehouse, or an entire island through Airbnb; the opportunities are endless!
Airbnb also provides a safe and secure space for guests and hosts to communicate and book rentals. Airbnb’s commitments also include the following:
- Verifying personal profiles and listings
- Offering smart messaging for hosts and guests to communicate
- Being a safe platform for collecting and transferring payments
Hosts who run an Airbnb business can list their vacation rental for free (although Airbnb fees are charged whenever someone books your property) and can also take advantage of Airbnb’s host protection. Known as AirCover for Hosts, this includes guest identity verification, reservation screening, $3 million in host damage protection, $1 million in host liability insurance, and a 24-hour safety line.
What is an Airbnb business?
An Airbnb business is simply a legal business entity that lists short-term vacation rentals on the Airbnb platform. If you want to run a business with your Airbnb property, you’ll want to make sure to get all the proper documentation, including a business license and business insurance (more on this below).
One option is to set up a limited liability company (LLC) as your legal business entity, as that will protect your personal assets should you run into any legal issues. You’ll also need to get an Employer Identification Number (EIN), a federal tax ID number that you’ll use instead of your Social Security number. You can use your EIN to set up your business and open a business bank account, which will keep your business finances separate from your personal accounts.
How to start an Airbnb business in 6 steps
Running your own Airbnb business isn’t as simple as setting up a listing for your house or room and waiting for the bookings to roll in. Before you begin, you’ll need to have a proper business plan in place. This includes deciding on the type of vacation rental you intend to offer, fully furnishing your property to attract as many guests (and five-star reviews) as possible, and even knowing if your local government allows Airbnb rentals in your area in the first place.
Here’s a step-by-step guide on how to start an Airbnb business and become a successful small business owner:
1. Research your desired area
Some cities have strict regulations on Airbnb properties or have even banned them entirely. Before you commit to an area for your Airbnb business, you’ll want to make sure you do your research to avoid legal trouble down the road.
“The first step is to conduct thorough research on the local regulations and zoning laws in the area where you plan to operate the Airbnb. Different cities and neighborhoods may have specific rules regarding short-term rentals, so it’s crucial to ensure that you’re in compliance to avoid any legal issues later on,” says Samantha Odo, a real estate sales representative and Montreal division manager at Precondo.
Even if short-term rentals are permitted, you may find that your area is so heavily regulated that it’s not well-suited for an Airbnb business. In that case, you may want to do some market research and explore other areas that may be more conducive to a successful Airbnb business. Your real estate agent should also be a good source of information on the local laws concerning short-term rental properties.
2. Search for a suitable Airbnb property
Note: If you already own a rental property that you want to use for your Airbnb business, you can skip this step (and congratulate yourself for being ahead of the game)!
Once you’ve decided on your general area, it’s time to start searching for an Airbnb property — always keeping in mind the property’s future potential, says Odo.
“Before purchasing a property for your Airbnb business, there are several key factors to consider and research. Firstly, you should analyze the local real estate market trends to determine whether property values are appreciating or declining. This information will help you make an informed decision about the potential for a return on investment.
“Next, you’ll need to find a property that is suitable for Airbnb hosting. This involves analyzing the location, amenities, and potential demand from travelers. It’s advisable to choose a property in a popular tourist area or a neighborhood with easy access to attractions and amenities.”
Before you become an Airbnb host, you’ll want to consider your budget and your capabilities. You’ll also want to carefully inspect the condition of a potential property — both personally and professionally. Is it move-in ready and easy to set up as a vacation rental as soon as you close on the deal? Does it need repairs and renovations — and if so, can you do all or most of the work yourself? The level of work a property needs will factor into your startup costs, so make sure you know the numbers before you invest!
3. Furnish your Airbnb property
Once you have a property, it’s time to get it ready for your guests! You’ll want to make it as comfortable and inviting as possible so that it stands out from other Airbnb units in your area. If you’ve stayed at multiple Airbnb properties in the past, you know that the best Airbnb hosts pull out all the stops for their guests. If you want to join their ranks, here are some examples of the household furnishings you’ll need to include in your rental:
- Beds and linens
- Tables and lamps
- Sofas and chairs
- Coffee table
- Dining table and chairs
- Window treatments
Don’t forget the kitchen and bathrooms too. At the minimum, you’ll need an assortment of towels, soap, toilet paper, and basic bathroom accessories, such as a toothbrush holder and a soap dish. If you want to take it up a notch, you can include some fancy toiletries or even some cozy robes to make your guests feel pampered.
The kitchen is one of the most important areas of any home, and this is true for an Airbnb property as well. While many guests won’t necessarily want to cook during their stay (although some certainly will), they may want to order in or have snacks on hand. It’s crucial to have at least the most essential kitchen items on hand, including the following:
- Plates and bowls
- Glasses and mugs
- Silverware and basic cooking utensils
- Corkscrew and can opener
- Cutting board
- Pots and pans
- Coffee maker
- Salt and pepper
Also consider some of the non-cooking items every kitchen needs, such as paper towels, trash bags, dish soap, sponges, and basic cleaning products. You may also want to provide free coffee, tea, bottles of water, and other non-alcoholic beverages.
Finally, you’ll need to make sure all of your utilities are working and that you have high-speed internet hooked up. Wi-Fi is non-negotiable these days, and because Airbnb is a competitive rental market, you could lose out on potential guests if you don’t offer this amenity.
4. Make your Airbnb business legal
As mentioned previously, you’ll want to register your Airbnb as a legal entity and have a full Airbnb business plan in place. This includes setting up your business structure, obtaining business insurance, and applying for a business license. In a nutshell, you generally want to ensure that you and your property are protected and that you’re following all the laws and regulations in your area (which will vary by state, city, and region).
You may want to start by contacting a local small business agency to find out the legal requirements in your area. It’s also a smart move to consult with a real estate attorney, as they can help you learn about your options, make decisions, and fill out and file all the necessary legal documents.
To start, you’ll need to decide how you want to structure your Airbnb business. Some common business structures include sole proprietorship, limited liability company (LLC), partnership, and corporation. Many Airbnb hosts choose to go with an LLC because it protects one’s personal assets from legal action. Another advantage is that you can easily add multiple properties to an LLC should you decide to expand your Airbnb business.
You’ll also need to think about taxes: you’re required to claim your income from your Airbnb business on your state and federal tax return. Also note that your city may require you to collect sales tax from guests, so you’ll need to know exactly how much the sales tax in your area is so you can add it to your vacation rental rates.
We get it; taxes are complicated. If you need help, consider reaching out to a tax professional about all the tax implications of your Airbnb business!
5. Set up your Airbnb listing
Now that you have all your legal ducks in a row, it’s finally time to create your Airbnb listing! This is what will attract guests to your vacation rental and fill up your booking calendar, so it’s vital that you create the best possible first impression.
“You’ll need to create a compelling listing with high-quality photos and a detailed description to attract potential guests,” Odo stresses.
Your pictures should showcase your property without misleading potential guests. Misrepresentation of your property can severely hurt your reviews, so make sure guests know exactly what they’re getting. High-quality photos are a worthwhile investment: a professional photographer will probably be able to capture the unique qualities of your space better than your smartphone camera can.
You’ll also want to describe your vacation rental in vivid detail. Don’t forget to list all of the amenities you offer, as well as your proximity to local attractions and the variety of dining and shopping options nearby.
“Understanding the target market for your Airbnb is vital; consider the type of travelers who visit the area and tailor your property’s features and amenities to their preferences,” says Odo.
The description should also include any potential drawbacks to the property. For example, if it’s located on a busy street or near an airport, you’ll want to be upfront about the potentially noisy environment to avoid complaints down the road. Airbnb takes complaints very seriously and will lower your ranking on the site if you get too many bad reviews, so it’s best to be as transparent as possible.
6. Manage your Airbnb business
“After purchasing a property for your Airbnb, your research and considerations should shift toward effective property management,” says Odo. This is important not only for the efficiency of your Airbnb business but also for the ease and comfort of your guests.
“Establish a system for guest check-in and check-out to ensure a smooth experience. Implement a reliable cleaning and maintenance routine to keep the property in excellent condition between guests. Responding promptly to guest inquiries and reviews is crucial for maintaining a positive reputation on the platform.”
Communication with your guests before, during, and after their stay is particularly important, as it also affects your ranking in the Airbnb community. Aim to respond to guests within the hour or sooner if you can manage it. If that isn’t possible, consider enlisting the help of a co-host who can also help answer any questions and quickly respond to requests from guests.
What else to consider before starting an Airbnb business
Every business venture has its benefits and drawbacks. Here are a few points you should consider before you start an Airbnb business:
Airbnb income potential
While there is potential in short-term rentals for plenty of extra income, it’s important to be aware that, depending on the location and nature of your vacation rental, you’ll typically have busier and slower times throughout the year — and your rental rates should reflect that, suggests Odo.
“Regularly review your pricing strategy to remain competitive within the market while also accounting for seasonal fluctuations and special events that may impact demand.”
It’s entirely up to you how often you want to rent out your Airbnb property, but to make the most out of your business, plan to keep your booking calendar full during peak times and offer discounts to guests during slower times. For example, a lake house might not be as popular a vacation spot in the winter, but if you offer the right price (and maybe a cozy fireplace), you can continue to make money even during off-peak times.
Of course, one of the many benefits of owning a vacation rental is also being able to enjoy the property yourself, which can be a significant perk. Basically, as a property owner, you have the potential to earn a significant income from a vacation rental business and have a place to stay when you need a getaway. Talk about having your cake and eating it too!
Startup costs and ongoing expenses
Running an Airbnb business isn’t cheap, so before you get started, make sure you have the budget to handle buying and/or furnishing a property. You also need to factor in recurring costs, such as cleaning services, repairs, and property maintenance.
You can save money by doing most of the work yourself, but keep in mind that if you don’t have any help, running an Airbnb business can quickly become a full-time job. This is especially true if you plan on listing multiple properties. That’s why many hosts find it’s worth the investment to hire professional cleaning services and/or a property manager to do much of the work for them.
The Airbnb market opens you up to a seemingly endless supply of potential renters. This is ideal in terms of income potential, but the downside of a business based on short-term rental properties is that a lot of traffic will be going through your vacation rentals. That’s why it’s important to make sure you have the right insurance to cover you in virtually any situation.
In addition to the homeowners’ insurance that you should already have on your property and the insurance provided by the Airbnb platform, you may also need landlord’s insurance or other specialty insurance to cover you in the event of damages or liability claims. When in doubt, talk to an insurance professional to make sure you have the proper coverage for your business.
- A key component of any successful Airbnb business is a rental property that’s close to local attractions and that offers a wide variety of amenities for guests.
- Before you purchase a property to use for your Airbnb business, make sure there are no local laws and regulations that overly restrict or outright prohibit Airbnb rentals in the area.
- To properly set up an Airbnb business, you’ll need to acquire a business license, get special insurance, and open a dedicated business bank account. You may also want to structure your business as an LLC to protect your personal assets.
- Make sure to consult with a tax professional to understand the multitude of tax implications that come with running an Airbnb business.
- You may also want to hire a property management company and a cleaning service to help you manage and maintain your vacation rental properties.
View Article Sources
- About Airbnb: What it is and how it works – Airbnb
- Tax Information For Businesses – Internal Revenue Service (IRS)
- Get a federal tax ID number – Small Business Administration
- How to Invest in Airbnb Rental Properties – SuperMoney
- Airbnb vs. Renting: Pros & Cons of Each Strategy – SuperMoney
- How To Finance Multiple Rental Properties – SuperMoney
- How Much Does a Home Inspection Cost? – SuperMoney
- 10 Tax Tips for Small Business Owners You Can’t Afford to Ignore – SuperMoney