Is AirBnB Profitable?

Hello readers and welcome to my blog on the various sharing economy apps that have emerged over the past few years. My name is Jerry and I have made a living since graduating from Ohio State on apps like AirBnB and Turo. Today I will be going over a commonly asked question: Is AirBnB profitable? My answer: Yes! Over the years that I have been a host, I have many guests and friends that have told me stories about how they want to take advantage of this income opportunity but are afraid of risks. The amount of misconceptions and hyperbole is extremely rampant – I want to tell an aspiring entrepreneur like yourself that the involved in operating a host are overblown. In the past two years that I have been a full time host I have had 0 covered incidences and only a few situations that required immediate attention. In this article I will be going over my story on how I got started in AirBnB and how I eventually transitioned to managing my AirBnB from across the country.

AirBnB: the beginning of my journey

I graduated college in 2015 and started a full time job. Using this newfound income (and the W2 income proof needed for traditional mortgages) I was able to find and purchase a house near Ohio State’s campus. Having been a licensed real estate agent in Ohio during my time at school, I was able to see how much the housing market was recovering from the 2008 financial crisis. I made sure that I took advantage of the opportunity to acquire this investment property as soon as I could find a suitable listing. I saw a recently renovated home that had been rehabbed after a house fire. The amount of work the original owners put in was staggering for the neighborhood. They used the entire insurance settlement to renovate the house to their specifications and when it came to sell the house not many potential buyers for the neighborhood were interested in paying for such extravagant renovations. The original list price of the 3 story 3400 sq ft restored Victorian was $375,000. At the time, the property was a little over my budget but as I saw price reductions come over the next few months I scheduled an appointment to view the property. The rest is history. I made an offer for $330,000 and mentioned that the 1.5% buyer broker fee could be waived because I was a real estate agent in Ohio. The offer was accepted and I became the owner of my property by Ohio State!

Next Steps: Going in blind on AirBnB

The feeling after I closed on the property was something that I will remember for a long time. It was my first big purchase after graduation and I knew that I had to find a way to generate enough income to cover the expenses associated with the house. During the time I was at OSU I renovated and rented out individual rooms to other students and visiting scholars. The money at the time was enough to cover the smaller house, but with the acquisition of this property I was open to the possibility of trying a new income opportunity. I had heard about AirBnB before I bought the house but I never used it as a guest or host. After a few weeks of sorting out the house to make it look presentable, I did a lot of research about listing the house on AirBnB. I quickly downloaded the app and made a spreadsheet detailing the income potential of the property. I noticed that at the time there were not that many AirBnB listings in Columbus and decided I would give it a shot. To mitigate my risk I found 2 month to month tenants to ensure I at least had a little support to make the mortgage payment. Within a week I had furnished the property and listed the house on AirBnB.

My Superhost profile after 2 years!

 

The first guest arrives

Within a few hours of posting my place on AirBnB I received multiple requests for a room in the house! I quickly realized that AirBnB had a lot of potential. I contacted the guest and confirmed their reservation. They were going to arrive that night! One thing to note: when you first list your property on AirBnB I believe their search algorithm gives your listing a bump to help you get your first reviews. Take this time to make sure you are able to receive 5 star reviews and get stellar testimonials. This time is extremely crucial. Once the property loses the new listing search boost your ranking will depend on the content of your listing and reviews received. You may consider lowering your daily prices as well as offering additional services to make your first guests’ stay enjoyable. By starting off your listing on the right foot you will be able to ensure long term profitability for your AirBnB listing. Now that you’ve heard my story on how I got started, let’s dive into how I came to the realization that AirBnB is more profitable than traditional rentals.

AirBnB vs 12 month lease

A lot of my investors have asked me this question. They always want to know what they gain by incurring the additional risk by converting their properties to AirBnB short term rentals. My answer is very simple. You make more money and accrue less wear in tear to your property depending on the type of AirBnB listing you choose to operate. How?

1. AirBnB listings are covered by two avenues of insurance. AirBnB itself provides a 1 million dollar host guarantee. While there have been many complaints about this coverage, I have found that as long as you document the condition of your property immediately after the guests check out and before the next set of guest arrive you will at least receive some sort of compensation. Most investors and host also choose to purchase short term vacation rental insurance. Nowadays many insurance companies have added this type of insurance to better serve their customers. The insurance provider that I have found to have the most fair price is Proper insurance. They quoted 2 properties for me at a rate only around 30% higher than the mandatory home owners insurance that I had. This “double coverage” allows hosts to comfortably know that their investment is protected should incidents happen.
2. If your AirBnB listing consists of several private rooms you won’t have to worry about excessive partying and noise! When you rent your AirBnB rooms out to separate parties you know that the guests do not know each other. The guests will generally come from different walks of life and you won’t have to worry about them partying it up in the common area. By having individual rooms you will also generally have a quiet hour policy. If any loudness is present you can be sure your other guests will notify you immediately. Many of the horror stories about AirBnB focus on parties being held at the property, by renting out individual rooms your risk for this situation would be greatly reduced. However, if you choose to list your property as a whole apartment or house this risk will increase drastically. Thankfully there are many ways to prevent this from happening. There are noise detectors and wifi user counters that you can purchase to get notified whenever a certain threshold is surpassed. You can even potentially install a camera like this on your front door to make sure unauthorized guests are not showing up to a party. By having tools to help you ensure your guests are following the rules, this risk will be lowered.
3. Another misconception that investors have on running an AirBnB is wear and tear on the property. In a traditional rental setting your tenants will be allowed the opportunity to perform consistent damage. An example would be running the shower without using the vent fan. Your long term tenant would allow the humidity to damage the bathroom over time. Renting out your house as an AirBnB is an entirely different story. Each guest spends on average 3-4 days in your house and usually only come back to sleep. The duration they spend in the house is drastically lower than a long term tenant. Your AirBnB guests wouldn’t bring their dogs, their pets, and wouldn’t even use the kitchen much! In the case of damage you can also address it immediately. After each guest checks out your team should inspect the property and address any damage. By repairing any damage immediately you don’t risk the damage spreading to a catastrophic level. Investors: think of the worst tenant you’ve ever had. Did your property become like that over time? Even if your guest wanted to damage the property they wouldn’t have enough time!
4. AirBnB rentals will generate more than DOUBLE what a traditional lease would bring. Even after accounting for additional cost of cleaning, furnishings, and utilities you still make significantly more! In my next AirBnB articles I will provide actual financials from one of my properties that has completed over 1,000 trips.
5. You don’t have to worry about non payment of rent. No eviction (although there have been stories like this one), no court, just collecting money after each guest checks in.

Conclusion

That will be the end of today’s article on why you should rent your house on AirBnB. I will be going into more detail on the financials and operations in future articles. As always, if you have any questions on this specific article please don’t hesitate to contact me through the comment section or via my email: jerry@sharingeconomysecrets.com. If you’re already a host that is looking to optimize their listing I do offer consultation services at very reasonable prices. Thank you for taking the time to read this article and I hope you have found it helpful. Let me know if I can clarify any topic mentioned.

 

Jerry