By Rich Danby
This is the first article in a series on how to run and manage an Airbnb rental.
Is Airbnb Right for You?
It is difficult to ignore the rise of Airbnb as a model that has disrupted the hospitality business, much in the way Uber has disrupted the taxi industry. People looking to make extra income might be drawn to renting through Airbnb based on the statistics, which suggest that it’s a wildly successful business model. Consider these numbers from the company’s website: since 2008, there have been 200 million Airbnb guest arrivals worldwide and 4 million listings in 65,000 cities and 191 countries.
As reported recently on Metronews.ca by journalist Braeden Jones, “[In Canada] Airbnb has expanded over the past few years in 11 markets: Vancouver, Victoria, Calgary, Edmonton, Toronto, Ottawa, Montreal, Quebec, Halifax, Regina, and Winnipeg. Of those cities, Winnipeg has the second-smallest Airbnb inventory, with 615 listings, finishing ahead of only Regina, which has 183 listings.”
But statistics tell only a part of the story. Being successful at running an Airbnb rental depends on a number of factors. Right off the top, you need to be a responsive host who offers clean and comfortable accommodation located near a core business area for the business customer or, for the customer-tourist, near the arts, culture, and/or entertainment districts. You also need to be successful at running a business. As with starting any business, you need to do your due diligence. In this article, I offer some tips and strategies to set you on the right path.
There is a perception in some people’s minds that running an Airbnb is a guarantee for extra income or that it will even make you rich. People see the daily rents that tourists or businesspeople are paying in any given city for accommodation, especially the premium rates that hotels are charging in downtown areas. But there are a lot of factors involved in running an Airbnb, and a lot of people are not giving those factors enough consideration before starting an Airbnb, whether they are offering a suite in their home or buying a house specifically for Airbnb travellers.
Often, the following line of thinking is how people measure their potential income if they were to rent through Airbnb: If you rent a house, let’s say you get $2,500 per month in rental income. If you rent the house on Airbnb for $150 a night, you could potentially get $4,500 per month. The big mistake is that this is the only thing people measure, and this sets them up for failure. It makes all the sense in the world to do an Airbnb if you just look at the income. But people aren’t cost factoring in the cost of utilities and water, hiring a cleaner, their own time, the potential vacancy rate, and the cost of all the furniture.
When you factor all of these things in, are you reliably getting $2,000 more than a standard monthly rental? No. If you’re at a 50% vacancy rate, which is very possible when you’re starting out (in other words, you have bookings for 15 days out of each month), you’re down to $2,250 in monthly income. Let’s say utilities are $300 month; now you have a net income of $1,950. Factor in $500 month for furniture you bought on a payment plan, and you’re down to $1,450 a month. Add a cleaner at $600 a month, and you’re left with $850. And we still haven’t figured in the cost of your time, your property taxes, or your mortgage payment.
When you’re buying a property you intend to rent out through Airbnb, what other immediate expenses are there beyond the furniture? This list includes things like bedding, towels, small appliances, dishes, and cutlery. What other expenses might you have in ten years? A roof, for example. Much like owning a straight rental, you’ll also have to factor in future costs to ensure you’re setting aside enough money along the way to pay for major expenses when they come up.
Beyond the finances, you have to factor in what could go wrong—someone coming into the property and trashing it, for example. It is something that your family could withstand, especially if it is your own home? Owning a rental property can be stressful, but it’s even more so for an Airbnb, considering the frequent client turnover and extra time required to manage it. You must be prepared.
Consider the Impact on Your Lifestyle
If you choose to rent a room or a suite in your home, you need to think about the impact it will have on your lifestyle, with people coming and going at all hours. As an Airbnb host, you are “in demand” and “on demand,” so you must be prepared to provide a good service or else risk losing business to negative reviews.
As I said above, running an Airbnb is running a business, and to be successful at it, you must put in the time. Factor in the impact this will have on your lifestyle, your full-time job, your family, your leisure time. If you have kids and commitments, are you going to be available to your renters on demand? If you are a busy executive who works long hours, an Airbnb might not be the best strategy for you as compared with investing in a standard rental property.
Another question to ask yourself is, do you have the right personality to run an Airbnb? It’s all about sales, positive interactions, and providing an excellent customer experience. If you don’t like dealing with people, especially talkative ones, or responding to the many questions your guests are likely to have, Airbnb may not be right for you. You’ll find the experience frustrating, and so will your customers. One last thing to consider is, if you’re planning to rent shared space in your home, how will it impact the rest of your household? Is the suite soundproof?
In the next article, we will delve deeper into why it’s important to view operating an Airbnb rental like a business and not a hobby.