The Risks and Rewards of Making Money With Airbnb

Peer-to-peer short-term rental services, such as Airbnb, are becoming an alternative for many travelers. Some travelers are looking for the feel of a home away from home. Others are looking for accommodations that will cover large groups in one place. Many also look to short-term peer-to-peer rentals as a less costly option than the standard hotel room.

If you are thinking about getting in on the trend and renting out a room—or an entire home—here’s what you need to know first.

How to List With Airbnb

It is up to you to decide when to make your space available and at what price. Listing is free, and you can individually approve potential guests. In setting your price, you’ll want to consider the going rate in your area by looking at competing listings. You’ll want to consider the costs of hosting—including cleaning, higher utility bills, taxes, and Airbnb’s host fee, which is 3% for payment processing. Your guests pay Airbnb’s 6% to 12% booking fees. Make sure you understand Airbnb’s hosting standards for listing accuracy, communication with guests, keeping your reservation commitments, cleaning your place for each guest, and providing basic amenities such as soap and toilet paper.

You’ll want to clean and declutter your space before you photograph it to present it in the best possible light. In most cities, Airbnb will even send a professional photographer to capture your space for free if you’re an active host. When describing your place, think about what makes it unique, and try to consider it from an out-of-town visitor’s perspective. Is your place within walking distance of public transit? Is it located near great restaurants, nightlife, or cultural activities? What amenities can you offer: wireless internet, a fully stocked kitchen, cable television, an outdoor patio?

Your listing will be displayed on Airbnb’s website, and you can also cross-promote it through social media or your own website. 

Legalities and Taxes

Before listing your place on Airbnb, you might need to get permission. If your property is controlled by a homeowners’ association or co-op, check its rules to make sure you’re allowed to host. If you rent, you’ll want to get your landlord’s blessing. Airbnb suggests adding a rider to your contract with any of these entities to specifically address hosting through Airbnb.

In addition, your locality might require a business license, and you might owe local taxes on any income you earn. For example, you might have to pay a transient occupancy tax, the same tax that applies to hotels. Hotels usually pass this tax onto their guests: You might recall the extra 12% that was added to your bill the last time you stayed somewhere. You can look up Airbnb's information on many cities’ regulations.

You’ll also owe federal taxes on Airbnb income, which will be reported to you and to the IRS on form 1099. However, you may be able to reduce your taxable Airbnb income by deducting business expenses, such as cleaning fees and insurance.

Personal Safety

If you’re renting out your home when you won’t be there, you’re probably not at risk of physical violence. However, you’ll want to find a safe place to store anything of high sentimental or financial value. Your wedding dress, Grandpa’s gold watch, photo albums, your emergency cash, and your tax returns are all examples of things you’ll want to secure. Don’t give guests the opportunity to steal your possessions or your identity.

Things get trickier if you’re renting out part of your home while continuing to live there. You can keep a closer eye on your stuff (though you’d still be wise to safeguard it), but you’re physically vulnerable if your guest turns out to be dangerous. It’s not realistic to run criminal background checks on guests before they book or before they check-in; you can do some basic internet sleuthing, but it’s not a failsafe process.

Reviews from previous hosts can offer reassurance, and you can always decline a reservation or even cancel a booking, though in some cases, Airbnb will impose penalties. You can also limit the reservations you accept to guests who have completed Airbnb’s Verified ID process. Both hosts and guests can have Airbnb verify their identity by uploading a valid government-issued ID and connecting a Facebook, Google+, or LinkedIn account to an Airbnb account.

Airbnb Home Safety

Airbnb also provides guidelines for hosts to make their homes safer. If basic human decency doesn’t give you enough incentive to make your place safe for guests, minimizing safety risks to guests minimizes your risk of being sued by a guest who is injured on your property.

Guests also might give you lower ratings if you haven’t taken basic precautions to protect them, such as installing smoke and carbon monoxide detectors and eliminating or pointing out any trip or fall hazards. If you’re particularly negligent, Airbnb could refuse to let you continue to host. 

Insurance and Liability

Speaking of liability, let’s talk about insurance. Airbnb’s host guarantee provides up to $1 million in insurance coverage for property damage in 29 countries, including the United States, United Kingdom, and Canada. Airbnb’s insurance is not a substitute for homeowner’s or renter’s insurance, and it doesn’t protect against theft or personal liability. Talk to your homeowner’s or renter’s insurance company to make sure your policy will cover your property, your possessions, and your liability while renting out your place through Airbnb. If you need extra coverage, an umbrella policy might be the ticket.

Airbnb offers liability insurance for U.S. hosts. It offers up to $1 million per occurrence and is secondary to any other insurance, such as your homeowner’s policy or your landlord’s insurance, that might cover the incident. Like any insurance policy, Airbnb’s liability insurance has conditions and limitations, so if you want to know exactly what’s covered and what’s not, read the fine print thoroughly.

Airbnb’s host guarantee doesn’t protect against wear and tear to your place, but you can charge a security deposit to cover possible damage. It’s important to inspect your property after each guest checks out because otherwise, you’ll have no way of knowing which guest caused the damage, and you won’t be eligible to file a claim. You’ll want to document any damage with photos and substantiate the “before” value of the damaged property. Airbnb asks that hosts first try to resolve any problems directly with guests before filing a claim. To file a claim with Airbnb for more than $300, you’ll need first to file a police report. Hosts have a limited window to file a claim: 14 days or before the next guest checks in, whichever is sooner. 

“Airbnb provides an option to procure a refundable security deposit, which is what I do for each guest,” says Deb Glassman, who has been renting out her Venice, California, home on Airbnb for the last four years. “In one or two situations where I have had to collect the security deposit for minor issues, Airbnb has always backed me 100% with the guest.” She adds that staying in the studio in the back of her house while renting it out seems to be an automatic deterrent to potential guests who might want to party.

Payment Guarantees

Is it possible for a guest to crash and dash—that is, to stay overnight in your place without paying you?

Guests actually pay you through Airbnb. As long as there are no problems, Airbnb will release your payment within 24 hours of your guest’s arrival, and you’ll receive it within one business day, if you choose to get paid via PayPal or via Payoneer prepaid debit card, within a few days for a bank transfer, or within 15 business days for a mailed check. 

Guests must notify Airbnb within 24 hours of check-in if there’s a problem that warrants a refund. If you don’t respond to guests who try to contact you about a problem, they might be allowed to complete their reservation and receive a partial refund. 

Airbnb could require you to refund a guest’s payment if you cancel a reservation at the last minute, forget to leave the key, misrepresent your listing, don’t clean your home, or otherwise fail to meet Airbnb’s hospitality standards. In your listing, make sure you describe your room type, number of bedrooms and bathrooms, and amenities accurately. If you choose to provide linens and towels, make sure they’re clean. Also, note whether there will be any animals on the property. 

You could also get burned if you arrange payment with a guest outside of the Airbnb website. A guest might try to do this to avoid paying Airbnb’s guest fee or might be planning to rip you off. As a host, you only stand to save 3% by not going through Airbnb’s payment system, plus Airbnb could refuse to do further business with you if you get caught. So don’t try to circumvent the system.

The Bottom Line

The growing sharing economy offers ways to make extra income that weren’t available even a few years ago. Many of these opportunities require you to be comfortable navigating unclear local laws, sharing your most valuable possessions with strangers, and taking on additional legal liability. Airbnb is no exception, but if you’re willing to take on the risks, you could make thousands of extra dollars a year.