Short-term rentals have become more and more popular over the years. This includes renting an Airbnb for your next vacation or starting one as a small business to make some extra money. In 2019, I started my first Airbnb property and have learned so much along the way. Today I am sharing how to start an Airbnb business from scratch and start making some extra income!
There is a lot of information out there about starting an Airbnb and it’s hard to know what is real and what is fluff. In this post, I want to guide you through the steps to take from square one. This is not about building a multi-million dollar empire. Instead, this is about how to begin if you’ve never owned or managed an Airbnb and you want to start an Airbnb business from ground zero.
Yes, the Airbnb empire can be the long term goal but you have to get there somehow! To be the best Airbnb owner, operator, and host that you can, you can’t take short cuts. Learn the ins and outs of the entire process and you will have a more successful Airbnb business than anyone else.
Airbnb businesses can start as a side hustle but they are also a great way to accumulate long term wealth. Whatever your goal is, getting your first Airbnb under your belt is a great way to generate some additional income and gain equity in a property.
Find The Right Property
Finding the right market and property that will be successful on Airbnb in the first step. You can’t have a profitable Airbnb business without the right space in the right location for the right price.
There are a few components of securing the best property for your Airbnb. I’m going to break these down into sections: Budget, Analysis, Financing, Purchase or Lease.
NOTE: If you already own a property and have a spare room that you don’t use, you can get started with Airbnb House Hacking and start living mortgage free!
Pick a projected budget
Depending on your personal financial situation, you’ll want to define a budget to stay within while looking for potential properties.
Bigger pockets has a great mortgage calculator you can use to estimate you monthly payment.
Make sure you have a really good idea of monthly expenses in order to calculate how much money you will profit.
To add to your monthly mortgage payment, don’t get about these additional things:
- Property taxes
- Utilities like water, electric
- Lawn service
- Maintenance and repairs
- Reserves for future upgrades
Analyze potential properties
Like any other type of real estate investing strategy, you want to know exactly what your cash flow will look like on a monthly and yearly basis. There are two parts to this.
First, you need to know what you monthly cost will be. This included mortgage principal and interest, real estate taxes, property insurance, routine maintenance, utilities, internet, lawn service, and reserves for unexpected repairs or upgrades.
The second part is discovering how much your targeted property will make you on Airbnb. As someone who also owns a long term yearly rental, the profit margins are way higher with short term rentals.
Use AirDNA Rentalizer
To check out the income potential of any short term rental, use a tool like AirDNA to see the data. The AirDNA Rentalizer allows you to input an exact address and they will estimate the potential yearly revenue.
Their numbers are based on properties in the same immediate area with similar bedroom and bathroom count. One thing to keep in mind is that these projection do not include amenities. For example, if your property doesn’t have a pool but most of the Airbnb’s in the area do, you’ll want to take that into consideration.
The Rentalizer section on AirDNA will show you helpful pieces of data like:
- Annual Revenue
- Average Daily Rate (ADR)
- Occupancy Rate %.
This is a must have when analyzing a potential property for Airbnb. You don’t want to guess. These numbers may not be 100% accurate but they are pretty darn close from my experience.
Research Local Guidelines
Many cities will have their own local laws and guidelines on short term rentals. The last thing you want to do is find the perfect property and then discover that the area has a lot of restrictions on short term rentals or they don’t allow them at all.
Call the local city housing department before going through with the purchase process. Find out if they have restrictions and if they do, what they are. Some cities will have a 7 or 28 night minimum stay, making it a little more difficult to get a higher occupancy rate.
If there is a business license or local permits required to rent out on a nightly basis, make sure to get these in place as soon as you can.
A real estate agent that is familiar with Airbnb properties in the area you’re targeting might be able to help with this!
Purchase The Property
There are two popular ways to start your first Airbnb. The first is to purchase the property and have full ownership. The second is to lease a property for at least a year and list it on Airbnb with the property owners permission.
My personal take on starting an Airbnb rental business is to purchase the property. The long term benefits of this vs Airbnb rental arbitrage are much greater. Gain equity over time AND create cash flow instead of just the monthly cash flow part.
Let’s go through what to think about during the purchase process!
Line up a plan for financing
Unless you plan on purchasing a property with all cash, you will need to find out what your options for getting a mortgage are.
Financing an investment property is a little different than a conventional primary residence loan. Most likely there will be a larger % down payment required and the interest rate will be higher.
If this is your first time getting a mortgage for an investment property, read about the mortgage requirements to see if you can qualify.
Financing plan for my 2nd Airbnb property
I will share the route I took when purchasing my 2nd short term rental / 3rd investment property.
First, I took a HELOC against my primary residence. I had a lot of equity and was able to pull out a large chunk of money. This money was used for the down payment, closing costs, rehab, and furnishing costs.
Essentially I did not use any of my own savings for this!
Second, the mortgage option I was able to quality for was a Debt Service Coverage Ratio (DSCR) loan. This type of mortgage using the market rent of the property to help you quality.
With my first Airbnb and long term rental property on my personal taxes and liabilities, I wouldn’t have been able to qualify with my W2 income alone. Using the DSCR loan did not look at my Debt to Income (DTI) ratio like a traditional investment loan.
If you’re not sure your DTI will quality for a mortgage and you’re really trying to learn how to start an Airbnb business, I suggest looking into the DSCR loan!
Purchase and close on the property
If you’ve gotten this far in the process, you should be proud! You’re officially almost a real estate investor. Purchasing a property to start your Airbnb rentals business is my preferred method. If you can come up with the cash, the equity and return on your investment is 10x better than leasing in most scenarios.
Create An Airbnb Business Plan
What do I mean when I say Airbnb business plan? Having a plan on how to manage and maintain all aspects of a new Airbnb ahead of time. You don’t want to wait until it’s too late for things like tracking income and expenses, knowing your numbers, or hiring a handyman to fix small issues at your property.
As business owners, you always want to have a plan in place. Let’s go through some of things to think about for your vacation rentals business plan:
- How will you track all income and expenses related to the Airbnb?
- TIP: Create a business bank account and only use it for Airbnb related expenses
- Will you report taxes as an individual or Limited Liability Company?
- Are you going to manage the property yourself or find a property manager?
- Who will be responsible for restocking consumables between turnovers?
- What is your plan to get as many positive reviews as possible?
- Do you have a handyman on call if an issue is reported by a guest?
- How often will you monitor the nightly pricing strategy?
Furnish, Stock, & Stage Your Property
This is the part when you can really get creative with your new Airbnb! Short term rental owners and hosts are really taking things to the next level with design and amenities.
You really want to add decor items that will make your listing stand out.
For example, if you want to target business travelers, make sure to have a home office/desk setup. If you want to target families, add a game room or board game area.
Furniture can get expensive pretty quickly. That’s why you want to create a plan for what you want to spend and find budget friendly furnishing options for your Airbnb space.
Since you’re hosting guests that will most likely be from out of town, you’ll need to make sure that every space is well stocked with the essentials. Here are some of our resources for what to stock in every room.
There are a few other important things to make for your Airbnb that you don’t want to leave out. Guests need to know what your house rules are, guidelines for each room, checkout rules, etc.
Take Amazing Photos For Your Listing
Photos are the first impression potential guests will see once you list your property on Airbnb. That’s why you want to make sure you take the best Airbnb photos to showcase your space.
Getting as many clicks on your listing as you can starts from the cover photo! This starts with high-quality photos and using the best one as the cover photo.
Create Your Listing On Airbnb
Before you get starting with your listing, I am here to help as an Airbnb Ambassador! That means that you can click this link to get connected with me directly on the Airbnb platform. It’s absolutely free for you and I am here to answer and help with any questions you have about this phase of starting your Airbnb.
This part is super exciting but also nerve racking! You’ve done everything to get to this point and you are ready to officially list your property on Airbnb – CONGRATS!
Some important things to pay attention to in your Airbnb listing:
- Listing title
- Listing description
- Accurate bedroom and bathroom count
- Highlight unique amenities right away
- Nightly price
- Cleaning fee
- Are you pet friendly?
- Calendar availability
Learn How To Navigate The Airbnb Platform
If you have decided to manage your Airbnb yourself, the next step is learning how to use the Airbnb platform. From guest communication, to bank information for your earnings, to property reviews, you’ll want to know where to get all of this.
Note: You may not have to worry about this part immediately if you decided to use a property management company. For a fee, they will manage things like guest communication and issues for you!
Find An Airbnb Cleaning Service
Finding a reliable and trustworthy cleaning service is the backbone of having successful turnovers every time. When you start to get same day check out / check ins, there is a limited amount of time to get the space ready for the next guests.
The best thing to do as a business owner and host is to create an Airbnb cleaning checklist for the company you choose.
Get Ready For Your First Reservation
Once you’re officially listed on Airbnb, hopefully your first booking will come quickly. If it doesn’t don’t worry too much and be patient. Sometimes it does take a little while to get your short term rental off the ground.
Keep Ahead Of Low Supplies
You’ll want to create an inventory checklist of everything to keep stocked at your short term rental.
This includes consumables like toilet paper, paper towels, and dish detergent. Also, things like towels, bedding, and a hair dryer for each bathroom. These are just as important as consumable, if not more important.
The last thing you want is to have to use stained bed sheets for the next guests. Make sure you have back ups of things like this in case there is a stain that your cleaners can’t get out.
Use the right tools to automate your business
An Airbnb property will always have some components that are hands on. But for things like sharing your calendar with cleaners automatically or guest self check-in, you can use the right Airbnb host tools to make these much easier.
Market Your Short Term Rental
Marketing your Airbnb listing is a great idea to get some extra attention. The Airbnb online platform will definitely do some of this for you but there’s no harm in marketing it yourself. Here are a few ways to do this:
- Social media like Instagram or Facebook
- Local neighborhood groups like Nextdoor
- Online marketplace like Facebook Marketplace
The process of getting your own property to rent out on Airbnb can seem like a lot. The best way to accomplish your goals of starting an Airbnb business is to take it one step at a time. Make sure you pay attention to the details like décor and amenities to get as many good reviews as you can!