It is no secret that Airbnb has given hotels stiff competition. The idea of renting from a person instead of a corporation makes it appealing to some travelers, and it offers owners a creative way to earn money. Whether it is supplemental to your day job or a full-time dream, hosting on Airbnb can positively impact your finances.
One of the first things you need to do (after determining you can legally operate an Airbnb) is develop a pricing strategy…. how much money is your place worth as a short-term rental on Airbnb? How do you figure out your minimum nightly rate?
About 60% of your potential income comes from the real value of your property, location, and amenities; the other 40% is dependent upon implementing an effective Airbnb pricing strategy
If you’re renting out an entire place versus a room, this is easier to compute. Figure out your monthly cost (whether it’s mortgage, rent, etc.) and add your average utilities expenses (electric, gas, water, internet, cable and anything else). Divide that number by 30 (the average number of days in a month) to find your cost out of pocket for each night. For example: If your rent is $800 (including heat and hot water), you pay $35 a month for electricity, and $60 for Internet and cable. $800 + $35 + $60 = $995 ÷ 30 days = $33.16 per night
That’s probably the minimum you want to charge, unless you’re just looking to break even. Once you know your basic costs, you can decide how much you want to make on top of that. Take a look at similar listings in your area and see what they’re charging. This can help you establish a reasonable range to see how much you can expect to charge.
If you’re renting out a single room where you live, it can be a little more complicated. Again, check out similar rentals in your area to compare; look at amenities, location, and other differences of your listing to see if you can increase or lower your rate. If you have a two-bedroom apartment, divide your nightly cost of maintenance by two in order to estimate how much you spend to keep the property. This can give you a good starting point.
Helpful Tip: Get a calendar of local events and raise your rates for popular events well in advance.
Cleaning fees: Once you know what you want to charge per night, think about how much time it takes you to turn over the space for the next guest. Keep in mind that high cleaning fees may deter guests, especially those who only plan to stay one or two nights.
Cancellation policies: Airbnb offers six types of cancellation policies: flexible, moderate, strict, super strict 30 days, super strict 60 days and long term. Both super strict policies apply to special circumstances, and the long term cancellation policy applies to all reservations that last 28 days or more. The three cancellation policies that hosts have to choose from are the flexible, moderate and strict
Flexible: A flexible cancellation policy means guests receive a full refund if they cancel at least one full day prior to arrival. If you don’t have a serious financial need for your Airbnb income, then a flexible cancellation policy may work for you. It makes your rental more desirable to renters, as they will be more likely to book and not have to worry about paying for accommodation that they never use.
Moderate: The moderate cancellation policy gives guests a five-day buffer time, so if they cancel less than five days in advance, then they are still charged for the first night but are refunded the rest of their money.
Strict: Strict cancellation policies never give guests a full refund. Guests are given a 50 percent refund if they cancel at least a week in advance, and zero refund for any cancellations after that. While this offers plenty of security for hosts, and more committed bookings, this can make your rental unattractive—especially to those planning far in advance.
Hosts can offer discounts to guests who stay for extended periods of time, on a weekly or monthly basis. There are a number of benefits to this sort of arrangement. You won’t have to prepare the rental space for new guests as frequently, and it provides security in terms of having your listing booked. You’ll know you have a guest for the next week, or month, or whatever the arrangement may be. However, convenience and security come with a cost. If you’re in a location where demand is high, you risk losing out on that extra income due to your reduced rates.
Bottom Line: Becoming a host and renting your space out on Airbnb can earn you some serious financial benefits; but, don’t forget to carefully consider all the numbers to make sure it’s worth it. Ease yourself into it the business and after a little trial and error, you’ll find out if hosting is right for you!