If you have a room or second house to spare, you're sitting on a potential gold mine. So just post a rental notice and watch the money flow in, right? It's not quite that easy, but many people earn extra income by listing their spaces on peer-to-peer online rental marketplaces such as Airbnb and HomeAway. Some even stay at friends' homes several nights a month while their own homes are rented out. Here's what potential hosts need to know about the time and costs involved, as well as the ups and downs of the experience.
16 Need-to-Know Tips for Renting Out Your Place on Airbnb
Airbnb is one of the largest and most popular online peer-to-peer marketplaces in the United States, but it's not the only one to consider. HomeAway, VRBO, and FlipKey are three other popular listing services, and there are others in the international market. Some sites specialize in particular groups of people; Misterbnb, for example, focuses on gay-friendly accommodations.
Websites that host listings may not indicate whether they comply with local laws. It's an owner's responsibility to know local regulations and proceed accordingly. Residents of New York City, for example, have been fined thousands of dollars for renting apartments through peer-to-peer services. In some cases it may be worth going the formal route -- that's what Dustin and Laura Floyd did when authorities in Deadwood, South Dakota, said they had to be licensed as a bed and breakfast. That meant preparing a hot breakfast for guests and keeping the place clean while holding full-time jobs, but they enjoyed the work and meeting the renters. Sandi Fellman rented out a house on the north shore of Long Island, where weekend stays were popular in the summer, but the town didn't allow rentals of less than two weeks.
Generally speaking, if a home is rented out for more than 14 days a year, taxes must be paid on the income -- and the host must spend at least 14 days in it as well. This 14-day rule applies even if only a room in the house is rented out. It's important that hosts treat the rental as a business, keeping flawless records both of rental days and the days they use the property themselves. This will also help at tax time when figuring out such things as mortgage interest and deductions for expenses. San Francisco recently ruled that hosts have to itemize furnishings, appliances, and other items they buy to rent out their homes, and pay extra taxes on them.
While hosts can insist that renters take out liability insurance (which is available through Airbnb), home insurance may not cover renters. In renting her Long Island home, Fellman found that her home liability insurance would cover guests for only 21 days a year and ended up doubling the cost of her home insurance to get the type of liability coverage required for a bed and breakfast. Airbnb also offers host protection insurance. Hosts should see which works out better for them financially.
Related:What's Really Covered by Homeowners Insurance -- and What's Not
There's a lot of work to do before listing a space. Create a binder with house rules, local attractions, the Wi-Fi password, contact number, and other pertinent information. Not all guests will be familiar with the area or country, so it's important to include emergency numbers. Hosts also need to make an initial investment in extra sheets, towels, and soap. The online pictures and description usually sell the space, so be sure they're enticing and high quality.
Don't start and stop at Airbnb, or whichever site seems like the best fit for your rental. Listing a property on multiple sites increases the chances it will be seen and booked. Each site has its own rules and regulations, so make sure to review the fee structure, insurance coverage, and other policies before listing.
Rachel Burke has rented her California apartment on Airbnb to cover the cost of vacations while she's away. She conceded that it's a lot of work, but she's a big fan of Airbnb. Most renters are clean and respectful, she said, and when a guest forgot to return a parking permit, Airbnb reimbursed her for the cost of replacing it.
There are lots of start-up costs to renting out your home online, but the real expenses come in the form of rising utility bills and an ongoing stream of consumables (for example: soap, cleaning supplies, and toilet paper) -- renters are unlikely to be overly concerned about wastefulness. Save money and time by buying items in bulk. Allison Ramirez of Los Angeles said she has charged a $35 cleaning fee to offset some of these costs and to pay herself for the time spent cleaning before and after guests rent her studio apartment.
In some cases there may be just a few hours to turn over the space between the departure of one guest and the arrival of the next. A reliable cleaning service eats into profits, but the DIY route requires flexibility in the host's schedule. Additionally, hosts should stay connected to phone and email to answer inquiries about the space and questions from current guests. HomeAway has estimated that people with a vacation home spend an average of 8.4 hours every week trying to market and manage it.
Renters who use peer-to-peer marketplaces don't expect a hotel-like reception and often say they enjoy the more personal interaction with their hosts. Don't carry this too far and try to become the guests' best friend. After greeting them and making sure they have everything they need, give them space. If they have owner contact information they'll reach out with questions.
Although a traditional lease to long-term tenants is easier to manage, listing space on Airbnb, HomeAway, or another peer-to-peer marketplace can be more profitable. Paula Plant has shared her experience as an Airbnb host on her site Afford Anything and estimates she took in 50 percent more than she would have with traditional, long-term rentals.
Although ultimately hosts determine the cost of the rental, the market sets some bounds. Check the local competition as well as nearby hotels and hostels to get a sense of the price range. Thomas Nitzsche has rented through Airbnb and Craigslist. With a home near the University of Missouri-St. Louis, as well as an airport, he found renters easily -- and learned that if you're always at 100 percent occupancy, your price may be too low.
Sometimes owners can increase the value of their space with add-ons. For example, those near a beach should consider getting snorkel equipment, boogie boards, and a cooler for use by renters. It's a small upfront cost, but some guests may be willing to pay a slight premium for those convenient extras. To appeal to groups, some hosts set a low price for the first two guests and add on for each additional guest.
Reviews of hosts and their spaces that get posted on the listing service are crucial to staying in business. Hosts should always treat guests politely and when mistakes happen (as they inevitably do) own up to the problems and do their best to resolve them. Guests don't expect luxury treatment, but they tend to notice when hosts go above and beyond. Even if it's just greeting visitors with a glass of cold water or setting out a dish of local fresh fruit, small acts can help earn positive reviews.
Reviews go both ways, and hosts should be judicious about who they welcome into their homes. Dan Nainan, a comedian who has rented out multiple New York apartments, said if he saw anything that was even a little dubious in a review of a guest, he wouldn't agree to the rental. Other hosts abide by a more general rule of allowing only guests who have garnered a few positive reviews, and some insist on speaking with a guest before approving the rental request. Although there have been news stories about renters trashing apartments or hosting sex parties, a majority of guests don't cause problems. Worried hosts can use SafelyStay or another company that offers guest verification services and additional insurance.
If all this sounds like too much, turn to a property manager. Andrew McConnell, co-founder and chief executive of Rented, said some people want to remain in control no matter what, but others like the idea of letting a property manager handle things such as cleaning and resupplying the unit, utility payments, repairs, and key exchanges. On the Rented marketplace, homeowners can receive bids from professional property managers and have the option of guaranteed monthly payment (typically property managers take a cut of rental income but don't guarantee bookings). Another option is to hire a friend or relative to help manage the property.
Elizabeth Sheer contributed to this report.