What Hosts Need to Know about Airbnb

What you don’t know can be very destructive to your bank account and life when you are an Airbnb host. Many hosts fail or end up broke because of what they do not know about Airbnb.

Just a few things that you need to know about Airbnb include:

  1. It can get you into conflict with city or county government. A group of Airbnb hosts who spoke out against a ban on short-term rentals at a Miami city commissioners meeting found themselves targeted by code enforcement officers, The Associated Press reported. Airbnb and the hosts are now suing the city and alleging it violated their First Amendment right to free speech over the incident.

 

  1. You will need a source of working capital – that is extra money to cover expenses. Ideally this should be a savings or money market account with several hundred or several thousand dollars in it and two or three extra credit cards. A good rule of thumb is to figure out what you will need – then try to save twice that much.

  1. It might be illegal. Before you start hosting check with your municipal or county government and ask if short-term rentals are legal in your jurisdiction. A good place to ask is at the planning and zoning department.

 

  1. You will need additional insurance. A typical homeowners or renters’ policy will not cover business activities. You will need to get additional coverage for Airbnb.

 

  1. You might run out of money even if you have a lot of bookings. Airbnb can take weeks or even months to pay a reservation. This can lead to a cash crunch because expenses like utility bills are not delayed. A good solution to this problem is factoring services like Payfully which advance cash against future reservations.

  1. You might not be able to get a mortgage or a home equity loan. Traditional lenders such as banks will not issue residential mortgages on properties used for business even part time ones like Airbnb. This means you will have to find a non-traditional lender or a smaller mortgage company if you are hosting.

 

  1. Hosting is a lot more work than you might think. A host has to be a cleaning service, a manager, a concierge and a maintenance person. That can be a lot of work and it might be impossible for persons busy with a job and a family. This is many hosts end up hiring professional Airbnb management services.

  1. There are many more Airbnb hosts out there than most people think. Before you start check Airbnb for your area, if there are a lot of hosts, you might reconsider becoming one. Remember every other Airbnb host and every hotel and motel in town is your competitor.

 

  1. You will have to pay taxes on Airbnb. The IRS regards Airbnb as taxable income, so US citizens will have to file a W-9 tax form on. Non-US citizens will have to file a Form W-8ECI or W-8BEN, all of these forms are available at Airbnb’s site. Note: if you make more than half your money from Airbnb or rental income, the IRS will consider you a “real estate professional,” that means the amount of business expenses you can deduct is limited. If you fall into that category you will have to file a different kind of profit and loss statement called a Form 8582.

 

Understanding these facets of Airbnb before you start can help you decide if short-term rentals are for you.

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