Most people think that if they have listed a property for short-term rent on Airbnb, then they know how to start an Airbnb business. The reality is that listing one property is a far cry from launching and maintaining a successful Airbnb business.
Famed real estate investor Robert Kiyosaki recently wrote on the topic of Airbnb, "Airbnb can be very lucrative… for the right person." But he went on to emphasize that Airbnb hosts who think of their Airbnb operations as real estate investing businesses are thinking about it all wrong.
"You're in the hospitality business," Kiyosaki wrote. "Your success is not just based on providing a nice place to stay. It's based on your ability to provide a great experience."
With this in mind, thinking about how to start an Airbnb business should involve much more than just deciding whether you need to make a real estate investment outside of your own home and how you will acquire that property. The decision to start an Airbnb business involves many angles that have less to do with real estate and more to do with hospitality and hosting, so make sure you are on board with this before getting started with Airbnb.
If that sounds good, then this article answering the most common questions about how to start an Airbnb business is for you.
- How do you start an Airbnb business from scratch?
- How much does an Airbnb business make?
- What are the differences between real estate investing and hospitality?
- What are the step-by-step directions for starting an Airbnb business?
- How do you build a successful Airbnb business?
How do you start an Airbnb business from scratch?
If you want to start an Airbnb business and have never been in the rental sector before, then you may have an advantage over those with more experience in real estate investing. You will probably find it easier to adopt the "host" mindset than someone who has spent years as a landlord.
However, if you don't yet have any real estate investments, you will need to determine where you are going to host your Airbnb guests. You have a few options:
- Your own home.
- Another property you own.
- Another property you have rented for the purpose of starting a successful Airbnb business.
In every case, you must first make sure you are legally allowed to use the property for short-term rental purposes. Some cities have municipal regulations prohibiting short-term rentals other than in a primary residence, while others require you to obtain a license or permit. Some homeowners associations (HOAs) prohibit Airbnb businesses in their communities entirely, and most landlords include clauses in their leases prohibiting subleasing of any kind, including Airbnb rentals.
Before you get started, it is your responsibility to make certain you are allowed to start your Airbnb business in the property and that the property and property owner (as well as you) are protected from damage and liability. To make sure you are in the clear to start your Airbnb business, take the following steps:
- If you are not the property owner, read your lease and talk to your landlord about running an Airbnb business in that residence.
- Read the HOA covenants, if applicable. Consult a lawyer to determine what rights you have as a homeowner if you want to start an Airbnb business.
- Check your city government's website. Search the term "short-term rental" on the municipal website. If you can't be sure from what you find on your own, then call the government offices and ask.
You will also need to consider how to protect yourself by obtaining the right types of insurance and enough insurance to cover potential problems in your Airbnb properties.
Work with an insurance agent with experience with short-term rentals, and consider Airbnb's "Host Guarantee," which protects hosts against damage exceeding security deposits. Your financial and legal advisors will be able to advise you on your specific situation, so do not hesitate to get your trusted experts to help you.
How much does an Airbnb business make?
Once you have confirmed you are clear to start your Airbnb business, your thoughts will probably leap to everyone's favorite question: How much does an Airbnb business make?
That answer will vary widely from host to host and depends a lot on your location, the level of service and amenities you provide your guests, and your nightly rates. Airbnb will give you a very general estimate of projected income based on your geographic location and information you provide about your home, but the reality will become clearer after you list your property and do some research about your future guests.
Most successful Airbnb business owners report generating two or three times more monthly revenue from their Airbnb units than they do from comparably sized and located traditional rentals, but you cannot count on this to happen for you when you are just starting out.
As you conduct your market research, find out how much other Airbnb units are renting for in the area. You can use Airbnb listings or independent data providers, like AirDNA. Just remember that most data providers serving Airbnb owners tend to also sell Airbnb properties, so sometimes their data may be skewed to favor certain markets.
To run a successful Airbnb business, use your market research to determine whether your initial scaling phase should happen in the same geographic area where your first Airbnb property is located.
If there is a lot of demand for Airbnb rentals in the area and you can acquire control of properties that will be good hosting locations, then it may make sense to grow your Airbnb business in your first location.
On the other hand, if you learn there is not a great deal of demand for Airbnb rentals in your initial area, you will need to look elsewhere when you start to scale.
What are the differences between real estate investing and hospitality?
Many Airbnb Superhosts, hosts who have high volumes of stays in their Airbnb properties and great reviews to go along with them, say that new Airbnb hosts often do not realize Airbnb is all about the guests -- not the real estate investment.
What they mean is that if you want to run a successful Airbnb business, you must make sure your guests leave happy. In real estate investing, your focus generally lies on making sure the "math works" on a deal and the residents of the property factor in only insofar as their presence or absence affects the math.
For example, if you fix and flip a property, you will likely want to stage that property for the sale. Staging poorly may result in your property sitting on the market longer, but you will not find yourself suffering from bad reviews (unless you do such a terrible job that your staging photos go viral). On the other hand, if you select poor-quality furniture for your Airbnb property, your guests' reviews may reveal this and make others less likely to stay in your property.
But don't let this hospitality angle alarm you. Being in the hospitality business doesn't mean letting unruly guests run over you, nor does it have to mean spending a fortune on amenities.
"[Good] design goes far toward increasing overall bookings and making money, but it doesn't have to be crazy expensive," said Matt Bray, a Philadelphia-based Superhost with Airbnb who has run a successful Airbnb business in the Northeast for several years. "You just need a well-put-together experience that feels homey to guests."
Part of making sure that experience is rewarding for your guests is not having to pinch too many pennies on providing basic amenities and a few "extras," like snacks and a few drinks in the fridge. Those extras will require you to plan for some wiggle room in your Airbnb business, so don't acquire more properties than you can handle.
Remember to allow room in your budget for cleaning, maintenance, and the occasional emergency repairs. In this way, knowing how to start an Airbnb business is very similar to starting a real estate investing business. Your portfolio should never be larger than your emergency fund and associated exit strategies can handle.
What are the step-by-step directions for starting an Airbnb business?
Once you have an Airbnb business plan or strategy, it's time to get moving. Here we'll break down the directions for starting an Airbnb business into the following steps:
- Determine and set up your business entity.
- Take the photos and write your listing.
- Create your listing.
Determine and set up your business entity
Most real estate investors and Airbnb business owners find it is better to run an Airbnb business through a small business, usually an LLC, than strictly in their own name. This can reduce liability and improve privacy.
Work with a trusted legal professional and financial advisor to ensure you have selected the right type of business entity for your Airbnb business and that you are protected from liability in the event there is a problem on your property. Airbnb offers specific help regarding how to set up Airbnb licenses in some areas of the country, like San Francisco. These resources are useful, but they should not be treated as the last word on the subject.
If you decide an LLC is the right option for you, you can set one up by going to the secretary of state's website or office for your state, choosing a name for your business, and filling out an LLC articles of organization form. Once this form is filed along with an LLC operating agreement, the LLC is approved, and the appropriate fees paid, you have an LLC. The entire process can be handled online in many states, and most secretaries of state's offices have instructional materials online to help with this process.
Take the photos and write your listing
Every time you add an Airbnb property to your portfolio, take great listing photos to showcase your new rental. The National Association of Realtors (NAR) recommends "designing for the camera" when it comes to placing furniture in your Airbnb for a listing shoot. This means constantly checking for good lighting throughout the shoot, fluffing the carpet, ironing wrinkles out of curtains and bedsheets, and limiting your interior color scheme.
If your property has particularly noteworthy attributes, such as a luxurious bathroom or a great view, they should feature prominently in both your listing photos and headline.
Once you have great photos, write the listing itself. Good Airbnb listings are honest to a fault, indicating the best and worst things about a property, and never mislead the resident. Your ideal listing actually has a lot in common with your ideal photos.
"Take good, realistic photos of your space," said Matt Bray. "Nobody wants to feel like they fell for a bait and switch." In his own Airbnb business, Bray said, "We have found that very good, realistic photos (and a lot of them) help sell. The best response we can get is 'exactly like the photos' because then potential guests know what they are going to get."
The same holds true for the written part of your listing.
Create your listing
Once you have your photos, Airbnb has a formatted listing process that enables a new host to essentially "fill in the blanks" to create their first listing. As you create more and more listings, you will develop a feel for what information guests want. You will soon find this part of the process is extremely scalable, and many Airbnb business owners ultimately assign this task to an employee or a virtual assistant.
How do you build a successful Airbnb business?
Once you have the "nuts and bolts" of your Airbnb business in place, you can really start building. For most Airbnb business owners, that will mean learning more about how to make savvy real estate investments in markets where more Airbnb units are in demand. It will also mean fine-tuning your hospitality skills and deciding if you want to start offering certain amenities or Airbnb "experiences" on top of more standard fare.
Bray recommends thinking about what is around your space and who usually stays there to understand how you can provide the best possible experience for them.
If you remember that you are not just a real estate investor but also a hospitable Airbnb host, then you may soon find yourself running a very successful Airbnb business.