How to become an Airbnb landlord
Airbnb is a platform for letting or renting a spare room, flat or house on a short term basis.
Airbnb was founded by Joe Gebbia and Brian Chesky. The pair realised they could make money renting spare rooms after charging three guests $80 per head to use their airbeds when every hotel in San Francisco was booked. They probably didn’t anticipate the scale of the business they’d started.
Since Airbnb began in 2008 it’s served over half a billion customers and offers around 6 million places to stay in over 81,000 cities. With so many Airbnbs, it’s safe to say, there’s a fair number of hosts letting these properties that range from a bedroom with a shared bathroom to a stand alone house, all earning a range of passive incomes.
If it’s something you’re considering then fantastic, 76% of Airbnb hosts in the UK use the platform as a side hustle to earn some spare cash. But there are a few things to consider when setting up, such as what the requirements are for your Airbnb, what kind of costs are involved and what impact this can have on your taxes (which is where we come in!).
What do I need to become an Airbnb host?
If you have a spare room, or you’re often out on work trips, or if you want to go travelling then a great way to earn a passive income or even mitigate rent (depending on your local subletting laws) is to list your property on Airbnb. That said, it isn’t just a case of listing your property on the site and it becomes a self-fulfilling business. There’re a few things to consider. Here we’ve compiled our top tips when it comes to setting up on Airbnb.
Assess your space - Not just how many people could you comfortably accommodate, but also think about the ideal guest. If you’re in an urban area then maybe it’s for people joining conferences or on business trips, if it’s more rural then you might want a family. Usually, the personality of your home will attract people too, so the more unique it is, the more specific an audience it’ll attract.
Have clear expectations - What’s your minimum stay? You can get more turnover for shorter periods although this will mean more work changing sheets and supplies. You might want to think about seasonality, if it’s a ski chalet then it might only be popular from November to April or if it’s a city then you might get less business on Mondays and Tuesdays.
Check your short-term renting laws - If you rent your property then it’s worth checking your tenancy agreement first as there’s usually a clause on this. You can ask for your landlord’s permission to sublet part or all of your property. Within London you can also short-term let part or all of your property for 90 days of the year without a permit. Beyond that you need to submit Airbnb’s exemption form and receive a planning permit to change the property type.
Make a list of all the supplies you’re going to need - Airbnb provides a list of basic amenities like soap and hand towels, that are expected by guests. Make sure you’re on top of these, if you’re away you could pay someone to come in and replace these, or for things like linen to have them cleaned. It’s also worth thinking about nice touches like a greeting note and tea and coffee, these can be the difference that get you those top reviews.
Conduct market research on pricing - Take a look at similar properties in your area to get a sense of pricing, too expensive and you could lose business, too low and you might miss out on profit. You can use a platform called Dynamic Pricing too, this means that your prices change depending on the time of year. If it’s summer or there’s an event on, you don’t want to lose out on more revenue. It’s also worth understanding how Airbnb’s fees work (more on this later).
Take lean, bright and high quality photos - Once you’ve decided to list your property, it pays to put the effort into your images. Make sure you have clean, bright photos of rooms to really sell the place. It can also be a great way to highlight quirks and characteristics about the Airbnb which will distinguish it from the rest.
Use the superhost network - There are loads of expert ‘Super Hosts’ on the site to ask questions and get support. Super Hosts can be recognised from the badges on the profile, and is meant to indicate someone who goes above and beyond for guests. Also if you gain this badge then you can expect to get more business from guests who see it as an indication of quality.
Establish the rules that you want - It’s best to give your guests rules from the beginning to suit your needs. You can set anything from a no-shoe policy to a minimum 3 day booking, depending on your own schedule around the property and how you’d want it lived in.
Use the instant book option - but with the setting that guests can only instant book with a high rating of their own. This can really increase turnover as it makes it easier to lock in the rental and you can also make sure the guest is vetted before they book.
Ask for reviews - Alongside photos, reviews are critical for getting business. People see the rating before they see the property. Be explicit in asking for 5 stars reviews after each guest has stayed, most will leave a 5 star review unless there was something wrong with their stay, they just need a nudge to leave the review. The better your reviews the more you’ll appear in searches as key words like ‘amazing view’ can lead straight to your property. And generally, your rankings will encourage people to stay.
How much can you make from letting an Airbnb?
According to short-term let app, All the Rooms, the average UK Airbnb host makes around £17,400. Which is a lot of money considering 76% of people on Airbnb are using the platform as a side hustle.
There are of course a few things to consider when setting your prices and trying to spin a profit:
- Optional fees like cleaning fees, on-street parking, and meals. Some people want to pay for the ease of use and don’t want to pay hotel rates. These you choose to offer and they get added to the total cost paid by the guest.
- Service fees from Airbnb (usually 3% for hosts and 14% for guests). This is important to get your head around because service fees will change the price for the guest and you should factor it into how much you charge. If a property is on for several nights at a total of £300 that means £42 will be added on for the guest when they check out. They also won’t get this back if you cancel and refund them.
- Taxes…
How much tax would you pay?
Airbnb rentals are not considered separate from the rest of your income and mean, that if you let out an Airbnb, you’ll have the income taxed on top of the rest of your income as one total. This can push you up a rate in the tax bands. You can read more about tax bands in our article here.
But basically they work like this:
- Tax allowance: 0% of earnings (You’ve earned between £0 and £12,570)
- Basic rate: 20% of earnings (You’ve earned between £12,571 and £50,270)
- Higher rate: 40% of earnings (You’ve earned between £50,271 and £150,000)
- Additional rate: 45% of earnings over £150,000
However…
There are two ways you can reduce the burden of tax on your Airbnb income. Bear in mind you can only choose one of them:
- The Government Rent a Room Scheme - this means you don’t pay tax on the first £7,500 you make from renting out a room or your entire property for a short-stay period. This only applies if the property is your main residence. It does apply if you’re renting. This is automatically applied if you earn below the threshold so you don’t need to do anything.
- Deducting expenses from renting your property for letting it out.
It’s worth working out which will have a bigger impact on reducing the amount of tax you pay first. In some cases if you deduct expenses it can have a greater reduction than the £7,500 you’ve earned.
An example would be if John’s total annual income is £40,000 and he earns £10,000 from letting out his Airbnb. He could either use the £7,500 reduction, meaning he’d only be taxed 20% on £2,500 (£500). OR he could opt out of the scheme and claim expenses. If he claimed £1,500 in expenses he would be taxed 20% in £8,500 (£1,700). So in this case it’d make more sense to use the scheme. If his expenses were higher though it might be worth going down this option.
It’s also worth bearing in mind that if you earn over £85,000 per year from your Airbnb, you’ll be eligible to pay VAT at 20%. You can actually charge this to the customer as part of the price although it could impact demand.
How do Airbnb hosts pay tax?
Each year you need to fill out a self-assessment tax return. What you pay is your tax bill minus the expenses of running your Airbnb. You can read more on how to complete your self-assessment tax return in this Earnr article.
The usual cut off date to complete your self-assessment is the 31st of January if you’re doing it online, and 31st of October if you’re completing the form by post.
What can you expense as an Airbnb host?
As an Airbnb host you’ll have various running costs depending on the work you do. You can deduct these costs from your taxable profit as long as they’re eligible expenses.
So if you earn £50,000 and you claim £9,000 in expenses, you’d only be taxed on £41,000 for the year.
You can read more on what the Government considers expenses here.
As a host you might expense things like:
- Cleaning services
- Council tax
- Utility bills
- Kitchen and bathroom supplies
- Rent or mortgage
- Insurance
How can Earnr help?
Earnr allows you to track your incomings and outgoings over the course of the year, and automate your tax return. You mark each payment you receive and each expense to your income so that by the time you get to doing your tax return, we’ll have everything we need to do the process for you.
We also give you real time projections for your income as the year progresses so you know how much tax you’ll need to pay. You can say goodbye to manual bookkeeping!
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