Hosting on Airbnb for Fun and Profit
Housing takes a big bite out of our budget, 40% of our monthly spending on average. We live in a slightly expensive area; one might think of this as a problem, but we prefer to think of it as an opportunity. Expensive housing means that people want to be there. If housing costs are being driven up by an imbalance in supply and demand (or restrictive local regulations), you can adapt the situation to your favour.
Every weakness can be turned into a strength:
1) When life gives you lemons, you make lemonade.
2) When markets give you losses, you tax loss harvest.
3) When life gives you expensive housing, you consume as little of it as you need and provide the surplus to someone else for a tidy sum.
Our place is bigger than we need; it has two whole bedrooms, even though we only sleep in one room at a time as we tend to like each other. Consequently, we experimented last year with renting out the second bedroom on Airbnb when it wasn’t being used (no house guests, no plans to entertain friends, etc.) We had long been fans of using Airbnb as guests in people’s homes while travelling, and were curious to see what the experience was like from the other side of the arrangement.
The experiment was a grand success: we had fun, met interesting people, made some extra money, and got some tax deductions. The Airbnb experiment would have continued indefinitely, but the arrival of Little Man meant we now had different plans for the second bedroom. (He finds his way to our room anyways; I’ve tried explaining the wasted opportunity cost of lost rental income, but he just drools on me in response.)
Here are some of our numbers, what we found worked well, and what we might have done differently.
Fun and Finances
During the eight months we had the the room listed on Airbnb, we averaged $580/month income at 37% occupancy. That represents approximately half of our average monthly discretionary expenses. Not too shabby for something that was fun to do.
Expenses were minimal and mainly invisible to us: Airbnb fees and local lodging taxes (if applicable) are charged directly to the guest and taken off the top. The extra people probably meant more electricity and water usage. We offered a self serve breakfast consisting mainly of oatmeal and coffee/tea which had minimal cost.
You can hire a cleaning service between guests, but we did this ourselves. It mainly consisted of light tidying and a quick load of laundry. We found our guests to be neat and they picked up after themselves. The extra cleaning was minimal with the most work amounting to throwing a set of sheets in the wash. People seemed to accept they are guests in someone’s home and tried not make a mess, unlike at a hotel. If you do already use a cleaning service (we won’t judge you if you swing that way, and might be kind of jealous), renting a room could make that cost partially tax deductible.
We could count some portion of our mortgage payments as an expense related to the Airbnb income. We certainly did this for tax purposes, but in accounting our overall profit we didn’t. We would have had the same mortgage costs regardless. From our point of view, the Airbnb income was allowing us to make more efficient use of space (and costs) that would have gone to waste otherwise. When we did the calculation at tax time, we still made a large profit after subtracting part of our mortgage payment… this was unfortunate from a taxes point of view.
We could have made more money by renting the room for more days and increasing the price we charged. Our primary goal wasn’t maximizing income, but rather to have fun and a new experience, while making sure there was no disruption to our lives. We lost some revenue, but probably saved a lot of headache by only making the room available when it was convenient for us, and by being extra picky when accepting guests. Hence the 37% occupancy rate instead of 100%.
Airbnb will give you a suggested price for your room based on other listings in the area. They are happy to remind you when you are charging below market rate and could increase your price. Airbnb collects fees based on the price you charge, so it’s in their best interest to help you make as much money as you can. Economic incentives are funny that way. Since we weren’t concerned solely about making money, we were happy to charge what we thought was a fair rate, and felt like we were returning the favour for some great rooms we’ve stayed at for very cheap during our travels. (In reality only one of us is this gracious, I would have happily charged the market rate, added a fee for extra people & children, etc… but even I draw the line at charging extra for dogs, I’m not a monster after all..)
Financially speaking, the Airbnb experiment was great and if you really want to maximize your income you can do it. For the best experience, approach the opportunity from a position of strength where you don’t need the extra income. That way, you will make decisions that makes the most sense for your life without worrying about losing profit.
What Worked Well, What We Would Have Done Differently
Join your local hosting/Airbnb group and go to some meetings. These are facilitated by Airbnb, but there are probably also other non Airbnb affiliated groups for you to check out. We starting doing this after hosting, and learned a lot from people who do this much more full time than us. As a plus, we met some pretty cool people, made good contacts, and had fun pot-luck meet-ups.
Be picky when screening guests. I can’t repeat this enough. We were lucky to have only good experiences with people who stayed in our home. We were also very careful about reading reviews, asking for more information if we needed, or turning people down if we felt it may not be a good fit. For example, we would ask them for their general itinerary (check in/out time, how long they would be in our house vs. outside), this was especially important since one of us worked from home on most days.
Limit to short stays. We preferred to limit our listing to people staying for less than six days. We found most people who are very active hosts on Airbnb preferred longer stays (including months) because the income is more reliable and they save on cleaning costs. However, we didn’t want to go down that route, and as they say, guests like fish start to smell after three days. By doing this, we probably inadvertently limited ourselves to tourists, but hey, tourists tend to be happy and interesting people (often with money to burn).
Just do it. We had toyed with renting on Airbnb for some time, but always found excuses not to. Mainly that we didn’t want to do it as renters and risk alienating our landlord or neighbours. While doing some cross-country travel, we stayed at a lot of Airbnb rentals, and a fair bit of them were run by people who rented, not owned their place. They all reported having no trouble at all. So going back in time, that would be another option to consider.
We saved this for last, because we did it last. As we tend to do with taxes, we put off thinking about it until tax deadline minus two days or so. We probably lost out by not researching the tax implications and optimizing fully. Deriving income from an unused room does mean you will have to pay taxes on the extra income, but it also means you can deduct a portion of many expenses, based on what portion of your home you rent out, and for what fraction of the year. We won’t offer general advice, as optimizing the tax situation is on our to do list. The basic information is available, but reads like watching paint dry. If anyone has tips on how to make the best of the situation (I am sure there are loopholes we missed), let us know.
Renting out an unused room is like voting: Do it early, do it often, and make a nice profit.
For those of you who have not tried Airbnb and would like to, feel free to use our referral link and get a $25 credit for renting and $75 for being a host (we will too – thank you in advance!).