Could Property Owners Profit Well From Airbnb?

VOLUME V

By Nikki Davidson

When two men living in a San Francisco apartment couldn’t afford their rent, they came up with a billion-dollar idea that forever changed the real estate and tourism industries. They purchased a couple of air mattresses and opened their pad up to the public, marketing it as a “bed and breakfast.”

Fifteen years later, their business, Airbnb, helps more than four million people do the same in 191 countries. Although initially intended to be a tool for tenants needing extra cash, the service has attracted the attention of property owners who recognize the opportunity to rent outside the box.

The pandemic skyrocketed the short-term rental trend, as work-from-home gigs created a breed of digital nomads who crave a life on the move. Additionally, now that the U.S. border has opened to some international travelers, South Florida is one of the most sought-out Airbnb destinations in the United States.

But is it worth it for property owners to tap into this investment tool? Could this be a way to make some money while searching for the right long-term tenant? This article will discuss the pros and cons that potential Airbnb hosts should consider.

Substitute for Long-Term Tenants: Yay or Nay?

Filling an empty rental with short-term visitors could be wise for property owners for many reasons. If landlords struggle to find the right long-term tenant, a few Airbnb guests could offset property costs and buy them some extra time.

Allied Van Lines confirms that more than half of Americans move every year between May and September. Property owners with an empty rental in the off-season could list the space on Airbnb rather than seeking a long-term renter. Waiting it out may give property owners a better pick of candidates, and potentially, higher rent.

And, according to a study created by online lender Earnest, Airbnb is one of the most lucrative ways to make money in the new shared-services economy. The company analyzed data from tens of thousands of loan applicants for two years and found Airbnb hosts make three times more money than workers on apps like Uber, Fiverr or DoorDash. Earnest reported nearly 50% of hosts earned at least $500 a month; some users made more than $10K in that period.

Property owners can check the viability of their location with short-term rental analytics companies like AirDna, too. The website reports units in Miami have an average occupancy rate of 70% and a nightly fee of $200. In Dallas, the prices are slightly lower, with an average nightly rate of $140 and an occupancy rate of 65%.

Keep in mind that Airbnb isn’t a get-rich-quick scheme. There are fees, startup costs and time associated with getting a unit up and running. Hosting a short-term rental can be lucrative, but it can also end up costing property owners and landlords money if they make the wrong moves.

Location Will Make or Break an Airbnb Listing

The most significant factor in creating a successful Airbnb is location. States, counties and city governments may have regulations, restrictions and fees on Airbnb operations that could kill a business plan before the first guest even turns a key.

Running a successful Airbnb in Florida or Texas is highly competitive. According to a study commissioned by IPX1031, a qualified intermediary company, seven Florida cities appear in the list of the top 10 locations with the most Airbnb properties.

They are (from highest to lowest):
1. Miami Beach
2. Kissimmee
3. Sarasota
4. Daytona Beach
5. Miami
6. Fort Lauderdale
7. Orlando

But before renting out their residencies, Florida property owners must apply for a license to host a short-term rental with the state if they plan to rent out an entire unit more than three times in a calendar year for periods of less than 30 days or one calendar month— whichever is less between the two.

Texas does not yet have a statewide licensing program, but select cities have adopted their own rules. In Austin, property owners must pay a non-refundable application fee of more than $600 if they wish to rent out their units for periods less than 30 consecutive days.

Failure to go through the proper channels could become an expensive nightmare. In Miami Beach, city fines for unlicensed short-term rentals range from $100 to $2.5K per violation.

Amenities To Make Rentals More Competitive

With so many competitors in the market, property owners need to stand out to book guests regularly. The most-searched-for qualities on Airbnb’s site include the following perks: pet friendly, pools, Wi-Fi, kitchens and free parking.

Airbnb recommends hosts provide a minimum of one towel, pillow and a set of linens for each guest bedroom. The service suggests hosts keep the space stocked with essential items like toilet paper, soap and cleaning supplies to get a good review from guests. Successful hosts often store extra toiletries onsite to avoid a potential late-night grocery run.

Hidden Costs of Short-Term Airbnb Rentals

Although some assume Airbnb rentals are passive income, that couldn’t be further from the truth. Hosts must respond to queries, organize check-ins, communicate house rules, stock supplies and clean the unit between each visitor.

Cleaning a high-occupancy Airbnb during a pandemic is a demanding task. Airbnb requires hosts to sweep, vacuum, dust and mop all areas, wash dishes, do laundry, and sanitize all high-touch surfaces before each guest checks in.

Third-party cleaning companies aren’t always the best go-to resolution either. Business Insider reports that MaidPro franchisees in Florida are canceling and rescheduling jobs due to a widespread personnel shortage.

Even if property owners assume the responsibility of cleaning on their own, they’ll be stretched thin if they have more than one short-term rental requiring a scrub down. Additionally, the cost of cleaning items adds up quickly in a space with high turnover. Some hosts purchase these items in bulk to lower costs.

Extra fees associated with running a short-term rental aren’t always apparent. Airbnb charges hosts a service fee of 3% for every transaction, and some properties may be subject to local occupancy and federal income tax.

Airbnb earnings aren’t exempt from income tax either. As of this year, the website will be required to issue 1099 forms to all hosts who make more than $600 a year on the platform. A 1099 form is used to report non-employment income to the IRS. The stricter tax regulations are part of the American Rescue Plan Act. If hosts refuse to give Airbnb their taxpayer information, the platform will block reservations and put payouts on hold.

Airbnb’s Fine Print On Property and Personal Damage, Key Access

Fear of loss, destruction or even personal injury makes many property owners hesitant to give strangers their keys. Airbnb provides $1 million in insurance coverage if a guest damages a place or belongings. The service will also foot the bill for any income lost due to subsequent cancellations. Hosts are responsible for taking photo evidence and filing a case within 14 days of the accountable guest’s checkout.

There’s quite a bit of fine print in the Airbnb contract, with disclaimers and other information that could make a host liable for something that happens during a guest’s stay. If someone is hurt on the property and the landlord is at fault, the associated costs could be well above $1 million. For this reason, experts suggest hosts also purchase additional insurance policies.

Hosts should go above and beyond to ensure the property is secure for potential guests. While some hosts leave keys in lockboxes for guests to find on their own, this can be dangerous for both landlords and visitors. Airbnb's terms of service statement contain disclaimers and other information that could make a host responsible for what happens inside the home.

Neighbors can also be agitated by the constant flow of traffic that comes from a short-term rental. If guests cause problems in the area, residents will blame the host. Neighbors may complain to local governing councils, which could create or change regulations on short-term rentals with little notice.

Should Landlords Allow Tenants To Run an Airbnb?

Let’s say a landlord does have a long-term tenant who is a regular traveler and is barely using the rental. Or, maybe a tenant is having financial difficulties and would like to earn extra income to afford rent.

Should Airbnb rentals be on the table then? Maybe, maybe not. The risks of hosting an Airbnb typically discourage property owners from allowing tenants to run their own businesses in the space. If anything happens on the property, fingers point at the owner, not the tenant who can exit upon the annual lease. But there could be some underestimated benefits for allowing a renter to run an Airbnb.

The company has recently introduced an ability for property owners to designate co-hosts to run short-term rentals. A property owner could potentially leverage this new option to lease the property to trusted long-term tenants with allowances for them to operate an Airbnb service on their property for a cut of the profits. In addition to rent, this could be a moneymaker for both parties.

Are Airbnb Rentals Worth It?

Airbnb’s buzz attracts many people to the side hustle who do not have the capital to invest in property. The founders of Airbnb turned their idea and air mattresses into billions of dollars, but property owners inspired by the site’s success should tread lightly.

One wrong move and they could be out thousands of dollars and forced to hand over their keys for good. However, as long as property owners make sure to read and understand all the fine print beforehand, have open communication with tenant partnerships (if applicable), and are available and efficient for maintenance upkeep, this could work out well.

The Ins and Outs of Working with Investors

While tenants of rental properties focus on factors such as property quality, location and monthly rent, investors may focus on one overarching factor: return on investment. Here’s what Realtors need to know about how investors generally decide whether they want to invest in rentals.

Rental Inspections: Don’t Wait Until Move-Outs Only

Move-in/move-out inspection and periodic inspections are important aspects of managing a rental property. By better understanding what to look for during inspections and how often to schedule them, it is possible for landlords to avoid common mistakes.

Creating a Go-To Contractor List

Agreeing to a contractual relationship, such as a service maintenance agreement, with a vendor could significantly speed up any frantic searches—especially during emergencies and late-night hours.

Navigating Out-of-State Rental Properties

Today’s housing market is a bit of a seesaw. In 2022, the Federal Reserve hiked its benchmark interest rate six times. Higher interest rates mean loans are more expensive for consumers. But no matter what happens with inflation, people need a place to live. This is leading property owners to look for a means of disposable income. And sometimes the real estate investor may choose a property from another state.

Is That Emotional Support Animal Legit?

It can be difficult for landlords to tell if someone has a legitimate ESA or simply a pet. Banning a tenant with an ESA could lead to legal action against the landlord. Fortunately, there are ways that landlords can fairly differentiate between the two to comply with the Fair Housing Act.

Repairs: Who Pays for What?

For a landlord, a rental property is an uphill battle against mishaps, calamities, the hands of time and sometimes nature itself. To guard their investment, property owners must plan ahead, maneuver tactfully and sometimes be prepared to cut their losses.