It all started when two broke men bought some airbeds and rented out their floor during a busy conference week in San Francisco. With every hotel bed spoken for, people snapped up the new Air Bed and Breakfast spaces.
Slowly from these humble beginnings, the business developed to the mega status that it now has. In 2019 it’s been estimated that AirBnB is worth $38 billion worldwide but can this concept really make its hosts decent money? Let’s find out.
- Is renting through Airbnb profitable?
- What percentage does Airbnb take?
- What property types make the most money with Airbnb?
The concept behind Airbnb is to provide people with the opportunity to make some extra money by renting out their spare rooms. For guests, these rooms offer an alternative to impersonal hotels, providing a more local and personal experience.
However, now Airbnb lists a range of properties and rooms, including whole house rentals. Some of these properties are marketed explicitly as holiday lets, but the option to rent out a single room does remain. This helps to retain the original mission of making some extra money from renting out the spare room, as opposed to being a fully-fledged holiday rental company.
How much money you can make from Airbnb differs wildly between hosts, dependent on the type of property and how often it is available for rental purposes. Some hosts choose to rent on an ad-hoc basis, perhaps in response to an event in the area that sees an influx of people seeking a bed for a few nights locally.
Others see it as a significant business opportunity, particularly if they own a second property or have free space available all year round. Having space to rent in well-visited tourist areas can also increase the profitability of an Airbnb venture.
How much profit one can make depends on two aspects; turnover and expenditure.
Costs incurred by renting space will include Airbnb charges. Listing your rental is free, which offers peace of mind to newcomers to the business, as many are concerned that they will not be able to rent their space but will still incur listing charges. When you do rent your space through Airbnb, you will be charged a percentage of the rental cost, which Airbnb state is generally about 3%. So for every £100 you are paid, subtract £3.
You will also have to pay running costs, which can include:
- Maintenance and replacement of broken goods
It’s also important to factor in your time for overseeing the bookings. Airbnb acts as a marketplace for guests to find your property, but you will still need to work hard to offer them a great experience, this will, in turn, gain good reviews. These reviews will help rank your rental space higher and therefore mean that it is viewed by more people, leading to more bookings. Take all of these aspects into account when calculating how much you could earn through your spare room or whole house rental.
When considered as part of the gig economy, a term that refers to the workforce that provides temporary or freelance services, Airbnb is rated as the top method of earning extra money. On average Airbnb hosts are found to make just over £700 a month, compared to the number two platform TaskRabbit which sees users make just under £300. Naturally, there is wide variation in these figures as some hosts make up £10,000 a month whereas others only make £200. There is also a more significant percentage making over £2000 a month through Airbnb compared with other gig economy platforms.
A range of different property types are advertised on Airbnb, demonstrating that there is demand for a variety of spaces, from nine-bedroom mansions to a single room in an occupied home.
However, if you are considering investing in an Airbnb property, it’s useful to have an understanding of the type of properties that are likely to make the most money and return on investment.
Firstly, Airbnb is targeted at short term rentals, so any property that lends itself to this form of letting will do well. Single rooms, apartments and whole houses all have benefits. Below we look at each of these individually.
If you suddenly find yourself with a spare room in your home and decide to let it out on Airbnb, then you will need very little investment to start making some immediate income. Disregarding a few decorating costs or minor maintenance there should be no capital outgoings required.
The other advantage to renting a room in your home is that you are already paying the overheads so there should be few additional running charges, apart from extra insurance.
The disadvantage of hiring out a single room is it provides a limited income. However, weighing up the pros and cons it can be a profitable venture as there is little to no initial investment, which can be an essential factor for new landlords with Airbnb.
If you are looking at Airbnb as a business venture then purchasing an apartment can be an excellent method to start. Apartments are generally cheaper to buy than houses in most areas, and as the location can have a massive impact on overall sales, a lower-priced apartment can be a good initial investment. Long term you are likely to make more money than renting a room, although the initial outlay will be much higher. The rental price is usually cheaper than a house which guests find attractive. The lower cost will help fill the apartment for more weeks of the year.
Unless you are left a house as an inheritance, these can be a more costly option. You can however, charge more rent dependent on the property and location. Some individual guests prefer the scale of a house compared to an apartment. Guests often have different demands; for example, families with children may like the outdoor space and garden that usually comes with a house. Overheads, maintenance and running costs tend to be higher, so this needs to be factored in, as does your time to manage and clean a house.
As mentioned earlier, all types of properties can make money on Airbnb, so it depends very much on your personal circumstances as to which you decide to invest in. Many people have started small and build their portfolio of Airbnb properties over time.
Becoming a successful Airbnb host is not just about your property; it also relies on you. To give your guests the best experience possible you need to be a great host. Here are three tips to help you achieve that.
The personal touch
Remember that many people choose Airbnb because they want a more personal experience than a hotel can offer. They also may prefer to experience the local area fully, rather than stay on the traditional tourist route. Making your rental more personal can really hit the spot with guests and not only will they return, but they may recommend the rental to others.
There are so many things you can do to increase the personal experience, how much you do can depend upon your time and budget. Welcoming your guests on arrival, inviting them to join you for a glass of wine or leaving a small welcome bottle in their room, as well as fresh flowers and complimentary tea, coffee and biscuits are all simple ideas. Stock up with good books and games as well in case they feel like a night in.
You can also offer extra services with a small charge attached, which can also help make you more profit. If you are a good cook, providing an evening meal is always welcome. You could also offer individual tours of the area, or a taxi service if your guests want a night out without worrying about driving.
Talk to your guests, make them feel at home, give recommendations and suggestions on where to go and what to do. Give clear guidance on when and where everything is and be easy to communicate with. In essence, help them have an excellent, straightforward and stress-free time while they are with you.
Keep it clean
Whatever type of property you provide, it should be spotless as guests don’t want to spend their time cleaning. Take care to scrub those places that the eye can’t necessarily see, such as under beds and behind wardrobes and heaters. Provide quality, laundered bedding that gives that extra luxurious feel to the room. Cobwebs and dust are a big no-no so be extra vigilant.
Include a final clean in the deal as well and make sure the cost is incorporated into the overall charge, rather than add it as an extra. Having a list of compulsory extras to pay for can be off-putting; instead, make the process easy for any guests.
Go above and beyond
You want your listing to be as attractive as possible, but if you oversell it and it does not live up to expectations, your guests will be disappointed. However, if the experience is better than expected, they can not fail to be impressed.
To achieve this make sure you go the extra mile. If your guests need something and it’s not included as standard, look for ways to provide it for them. Perhaps they have a special diet and breakfast is included in your plan; if you can offer a vegetarian or gluten-free option then do so.
If they are coming during a festive period or you know it is their birthday, then add some unique decorations. Some balloons with ‘Happy birthday’ show you care and go above and beyond. If you really want to offer that extra something, you could bake them a cake as well.
Not everybody who lists on Airbnb is looking to create a full-time business income. Many people just find themselves with extra space and see it as a way to make some extra money to cover the costs of their annual holiday or go towards a new car.
However, if you are looking to leave your 9-to-5 job and replace your salary, then Airbnb can be a viable plan to do just that. It can also be a flexible and fun way to earn a living, and if you achieve Superhost status (experienced hosts who offer their guests a fantastic experience), it represents a way of making an excellent income. However, if you decide to enter the world of Airbnb, you can look forward to a profitable business, that introduces you to new people and a flexible and exciting way of life.
If you are looking to purchase property as an Airbnb investment and need short-term funding while you secure long-term finance, Novellus can help. We have a range of lending solutions that can help in a variety of situations. Speak to one of our advisors today.