How to Start an Airbnb Business: A Complete Guide (6-steps)
Are you looking for a flexible and potentially profitable business opportunity? Then, starting an Airbnb business might be just what you need. Airbnb is a platform that allows property owners to rent out their space to travelers and visitors. With more than 150 million users worldwide, Airbnb has become popular for people looking for unique and affordable accommodations.
As a property owner, starting an Airbnb business can offer numerous advantages, such as:
- Generate additional income. Airbnb reported from January 1 and June 30, 2022, that the typical U.S. Host earned more than $12,000.
- Flexibility. Hosts can choose when they want to rent out their space and for how long, allowing them to tailor their business to their schedule.
- Meet new people. Many hosts enjoy the social aspect of the business and find it rewarding to connect with travelers and share their local knowledge.
- Tax benefits. Depending on your location, there may be tax benefits to listing your home on Airbnb as a business. For example, in the United States, hosts can deduct expenses related to their Airbnb business on their tax returns.
However, starting an Airbnb business also requires careful planning and preparation. You need to assess the market, estimate your earning potential, create a unique guest experience, and market your space effectively to attract potential guests. In this blog post, we'll guide you through the essential steps you need to take to start your own profitable Airbnb business.
1. Research Hosting Regulations
You must check zoning rules, taxes, and applicable laws depending on your location and space.
For example, some areas have:
- Zoning rules. These specify how you can use your place.
- Taxes. Hosts should understand whether occupancy tax, income tax, value-added tax (VAT), goods and services tax (GST) and transient occupancy tax (TOT) apply to them.
- Laws. Hosts may have to obtain a license or permit, register their place, or secure liability insurance.
To learn more about the hosting regulations in your area, I recommend checking out the following resources:
- The Airbnb Help Center. Airbnb keeps up-to-date information on hosting regulations for you. For example, I can find hosting regulations for Airbnb in Los Angeles here.
- Government websites. For example, I can find hosting regulations for Airbnb in Los Angeles on the city's Planning Department website.
- Consult a local professional. Lawyers and tax professionals can be great resources to inform you of your place's hosting regulations.
Before doing anything, make sure your place is eligible to be listed on Airbnb and understand the taxes and fees that will impact your Airbnb business.
2. Market Research
Once you've determined if your place is eligible to be listed on Airbnb, it's crucial to assess the market.
To assess the market, you can:
- Check out other Airbnb places in your area. How can you position your property to stand out? Look at comparable properties for how they price, how they market the space, what amenities they include, etc. For example, what keywords they pick for the listing title can tell you the type of customers they attract as guests.
- Use short-term data tools, such as AirDNA, to supplement your research. AirDNA can show you important metrics, including the average occupancy rate (the number of nights booked divided by the total nights available to be booked across all relevant listings), the number of active rentals, market grade, and more. The Santa Monica market is completely unlocked, so you can get a taste of the data and insights they can provide. *Disclaimer*: Airbnb does not share host data publicly. Platforms like AirDNA collect their data by scraping the public reservation data from Airbnb and collecting partner data from channel managers, property hosts, and individual hosts. So, the data you see on AirDNA won't be perfect, but based on their collection methods you'll get a fairly accurate (~90% confidence) sense of the market for short term rentals.
- Ask your friends or neighbors. Airbnb has more than 4 million hosts on the platform. Chances are someone you know is already on the platform. Take them out for coffee to learn what's working well.
After speaking with several successful Airbnb hosts, the most important thing that will impact how profitable your Airbnb business is your average occupancy rate. Since an Airbnb business has fixed expenses, such as mortgage payments or insurance premiums, you lose money for each day your listed property is unbooked. So, for example, figuring out how to increase your average occupancy rate by 5% will be more significant to your bottom line than switching to a cheaper toiletry brand that you provide as an amenity.
3. Estimate your Potential Earnings
Once you've assessed the market, determine the potential earnings your Airbnb business can generate. Here's a step-by-step process to estimate your potential earnings:
- Total revenue = nightly price x number of bookings. You can use Airbnb's calculator or your estimates.
- Total expenses = total fixed expenses + total variable expenses.
- Fixed expenses. These are expenses you incur every month regardless of the number of bookings. For example, your mortgage payment may be $3,000 per month. This number does not change whether your place is unbooked.
- Mortgage or rent
- Property taxes
- Insurance premiums
- Property management fees (if applicable)
- Property upgrades or renovations
- Furnishings and equipment (one-time expenses)
- Variable expenses. These are expenses you incur based on the number of bookings you have per month. For example, you may incur a $50 cleaning fee for every booking. So, if you have 20 bookings in May, your cleaning expense for the month will be $1,000.
- Cleaning and maintenance fees
- Utilities (electricity, gas, water, internet)
- Supplies (toiletries, linens, coffee/tea, snacks)
- Airbnb fees and commissions
- Marketing and advertising expenses
- Taxes (occupancy tax, income tax, sales tax)
- Net income = total revenue - total expenses. This is your potential earnings for your Airbnb business.
By estimating your potential earnings carefully, you'll be able to make informed decisions and ensure that your Airbnb business is profitable.
4. Create a Memorable Guest Experience
You need to create a memorable guest experience to attract and retain guests. Think about who your target guest is and what they care about.
For inspiration, here are some stories of memorable guest experiences:
- The Mushroom Dome Cabin - Aptos, California: The hosts of this unique cabin have created a one-of-a-kind experience for their guests. The place is in a redwood forest, and guests can access a private hot tub, a garden, and a nearby creek. The hosts also provide homemade snacks, fresh eggs from their chickens, and a guidebook with local recommendations.
- The Vintage Airstream - Wimberley, Texas: This unique Airbnb listing is a renovated 1970s Airstream trailer decorated in a retro style with bright colors and vintage accessories. The host, Jennifer, provides guests with various amenities, including a fully-stocked kitchen, a record player with vinyl records, and a collection of vintage board games.
- The Treehouse - Atlanta, Georgia: This popular Airbnb listing is a treehouse in a forest in the middle of the city. The host, Darrel, has created a magical experience for his guests with twinkling lights, a hammock, and a swing. He also provides guests with a basket of breakfast treats, including homemade muffins and fresh fruit.
These hosts have all created memorable experiences for their guests by offering unique and personalized amenities and activities. By doing so, they have earned rave reviews and repeat business and set themselves apart in a competitive market.
5. Market your Place
To attract potential guests, you need to market your space effectively. Using high-quality photos and a catchy headline are just the basics. Here are some creative ways Airbnb hosts are marketing their listings:
- Optimize your keywords for Airbnb search. For example, if my place is in an area where people go for honeymoons, I might include that keyword in my description. Or suppose people visit my area to see a particular landmark. In that case, I might include that as a keyword in my description.
- Team up with a travel influencer. For example, I might email a travel influencer and invite them to stay at my place for free in return for a blog post on the experience.
- Partner with local organizations. For example, you could partner with local businesses, such as an art gallery, to stand out by offering promotions and discounts.
These are just a few examples of successful Airbnb host marketing strategies. Ultimately, the key to successful marketing is understanding your target guest and finding suitable mediums to reach them.
6. Scale and Improve the Profitability of your Airbnb Business
After successfully launching your Airbnb business, there are a number of ways you can increase your top line revenue and improve profitability.
Here are some recommendations:
- Automate your operations. Automating your processes, such as check-ins and check-outs, can help you save time and money. You can use smart locks, self-check-in systems, and cleaning services to streamline your operations and reduce your workload.
- List on multiple platforms. Expanding your reach by listing your place on multiple short-term rental platforms, such as VRBO and Booking.com, can help you reach a larger audience and increase your bookings.
- Offer add-on services. Offering add-on services, such as airport transfers, laundry services, or guided tours, can help you increase your revenue per booking.
- List Additional Properties. You could use the income from your first property to pay down on another investment property you plan to list on Airbnb.
- Airbnb Arbitrage. You could lease additional properties eligible for Airbnb and list them on the platform.
- Manage Additional Properties. You could set up another business line where you help Airbnb hosts manage their properties - taking care of marketing, maintenance, check-in, check-out, cleaning, and more.
By following these tips, you can scale and improve the profitability of your Airbnb business.
Starting an Airbnb business can be an exciting and profitable opportunity. However, it's crucial to approach it with a strategic mindset and a willingness to put in the effort required to succeed.
There are several essential steps to ensure a successful Airbnb business. Still, optimizing your average occupancy rate is the most important thing. Several factors influence this, including your location, marketing, and guest experience. Therefore, the success of your Airbnb business is contingent on your ability to figure out how to adjust these factors to influence your average occupancy rate positively.
If this guide helped you start or improve your Airbnb business, please email me at kieran@boringbusinessnerd.com because I would love to feature you and share your story.
Thanks for reading!
