Starting your own business is a huge step to make. No matter what area of property investment you are looking to break into, there are essential things to know before jumping in blindly. Airbnb has been a successful platform for everyday people and entrepreneurs alike, providing opportunities to make a pretty penny from renting out serviced accommodation properties and rooms for short stays. Of course if you already own a property you may be a few steps ahead, but there is always the option to invest in Airbnb property with little to no money. It is important to understand that a lot of Airbnb hosts fail in their first years because they neglect the importance of understanding the basics.
The essential tips to know before starting your Airbnb business might just save you from disaster, or even more serious legal complications.
The essential legal obligations
As with any business, you will have certain legal obligations that you must abide by if you would like to continue the running of your business. Complying with the laws of the country and area that you are operating within is not something to neglect, so make sure you have done your research on the following obligations:
As a new business owner, you might not expect to make enough profit to be taxed, but you will be surprised how quickly your Airbnb business can profit in its first year. Depending on the amount of money you make and any other sources of income you receive, your tax obligations may differ. Make sure you consult an accountant before setting things up and ask for their expert advice on how to make the most of the tax benefits as an Airbnb host.
Insurance for being a host
As with running any property and managing guests, you will require certain insurance. If the property you intend to list on Airbnb is currently insured under residential circumstances, this needs to be changed as you begin to use the property for commercial gain. Airbnb does offer ‘Aircover’ for hosts, which consists of the following cover:
Host damage protection – This covers you for any damage that comes to the property. This provides $3 million in coverage in the event that anything is broken.
Host liability insurance – up to $1 million in coverage if you are found legally responsible for the harm of guests, including if their goods are stolen or damaged.
Experiences liability insurance – Similar to host liability insurance, this provides hosts with up to $1 million in coverage for potential harm or damage to guests and their belongings. This also protects you and your co hosts.
The other insurances’ that you ideally need to include. In Airbnbs own words their Aircover is “not a substitute for having your own insurance”, so consider the following:
- Building insurance
- Contents insurance
- Home emergency insurance
- Accidental damage insurance
- Loss of booking income insurance
Checking out local laws
You need to ensure that in-depth research is carried out for the local area, checking if there are any laws against hosting an Airbnb. Each city and country can widely differ in what laws they have in place.
For example, some cities prefer to have their hosts as residents of the city or country, so hosts must review the zoning rules of the area.
For example, if your property is in London that you wish to list on Airbnb all year round, you will actually need planning permission before you even consider listing it. Of course if your property is only listed on Airbnb for no more than 90 days in London, you will not need to apply for permission.
There are tailored laws and regulations for each city and area, so do your research into what you are permitted to do.
If you completely own your property without a mortgage, this point is not something for you to worry about. On the contrary, if the property you intend to operate as a short-stay accommodation is currently under a residential mortgage, you need to look into what your current mortgage is accepting.
You should tell your lenders that you would like to use your property for short-lets and enquire about whether this would be permitted with your existing mortgage. In some cases residential mortgages can permit this, but always speak with your existing lender to solicit this information.
Typically, buy-to-let mortgages allow homeowners to rent their homes out as short stays, but you also have the option of getting a holiday-let mortgage spending on your area. Speak with your mortgage advisor for more tailored information.
The running costs
Aside from your legal obligations, a large chunk of investment will need to be made on the running costs. Running a short-stay accommodation is not an easy ride; the costs will quickly surpass the cost you may have spent doing regular buy-to-lets.
The most important thing to keep in mind is that if you make a valuable contribution towards your Airbnb business in the beginning, your return on investment will come much sooner with regular bookings.
In terms of how much you ideally need to start your Aiirbnb business, it is estimated that you will need around £5,000 to start an Airbnb business.
This cost is of course subjective to the specification of property you are looking to let out, and you should expect luxury Airbnbs to be much more expensive to get up and running.
Costs you need to consider
Here are just a few of the most important costs you need to calculate and set budgets on for your Airbnb business:
Utility bills will be expensive, and this includes anything from your water bill to the cost of the broadband. Don’t cut corners with your utility bills, and make sure they are paid on time.
Furnishing your Airbnb property will require a large initial investment. Not only will you require quality furniture, you will likely also have to have a budget to replace things that can get easily damaged such as cushion sets, glasses, and other furnishings.
Depending on your area, council tax will differ. Make sure your council tax is paid for your serviced accommodation property, and ideally divert the letters sent to the property to your own home to avoid missed payments.
You may be surprised how much cleaning will cost when running your Airbnb, but again this is not something you should cut corners on.
Cleaning is one of the most imperative aspects of running a successful Airbnb. Enlist the help of a cleaning team who are readily available exactly when you need them.
As we have touched on, insurance will be a monthly or yearly expense that needs to be factored into your overall costs.
From your monthly estimated profit, at least 10% of this should be put aside to go towards maintenance. You never know if you need an emergency plumbing issue fixed, and this will come at a cost. It is best to plan for the worst, so have a maintenance fund calculated into your costs.
If you want to compete in such a competitive market, you need to be creative. This means you need to go above and beyond for your guests with additions such as birthday displays when they stay for occasions, or even small gestures such as fresh flowers on the property.
No matter how much you try to streamline your business, the beginning stages of your Airbnb business will require a heavy time investment that should not be avoided if you hope to see the business prosper.
If you are considering doing rent to serviced accommodation, an extension of rent to rent, your costs will completely depend on the agreement you set up with the actual landlord of the property.
If your landlord wants a complete hands off experience and you are free to do as you please with the property, most of the responsibility will be onto you. This will likely include the council tax, as well as all the utility bills.
Make sure that your R2SA agreement with the landlord lays out what each party will be responsible for to avoid any confusion.
Additionally, you must have an up-to-date understanding of the market before you start running your Airbnb business. Aside from being close to local attractions and tourism, there are some different ways to assess the demand for short stays in the area. This would include the following
The most important element of your market research would be to check your competitors. It can be as simple as checking the other Airbnb listings in your area, reviewing the quality of their property, how booked in they are for the next few months, and also checking their reviews to see what guests especially liked.
You also shouldn’t push for your property to work if there is a low demand for Airbnb in the area. If people do not seem to be booking stays in your property area, you might not find success through Airbnb.
Check occupancy rate
There are some services and applications that show the occupancy rate for Airbnb in your local area. Knowing the average occupancy rate for your local area is important, and it should ideally be over 70% if you hope to break even with all of the running costs.
Call local serviced accommodation
You can also have a good idea as to what the demand for short-stay accommodation is in the area by ringing hotels that are local to your property. Call them up and ask if they have last-minute availability for 6 rooms and if they are fully booked regularly that would indicate there is a high demand for short stays in the area.
Overall, Airbnb can be a lucrative business opportunity that requires little to no experience. Having a suitable property is not what you need to be successful on Airbnb.
You need to assess the demand in the area for short-stay properties, ensure you have all the needed legalities ticked off, and also plan for the worst-case scenario.
If you lay a strong foundation, you will be ahead of the game and learn as you earn!