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How to Turn a Home into an Airbnb (Short-Term Rental)

Updated: February 17, 2021

Whether aiming to rent out a spare bedroom or an entire home, owners wishing to break into the short term rental market must take mindful steps towards converting their property into one that stands out from competitors. Creating a unique experience will allow homeowners to earn a passive income while making use of their existing real estate assets.

We compiled a one-stop-shop resource to assist homeowners with transforming their homes into luxury vacation stays. The guide below covers everything to consider before listing a property as a short-term or vacation rental, as well as how to move forward with preparing for guests.

Table of Contents

Legal Considerations

First and foremost, you’ll need to find out whether vacation rentals in your area are allowable by law. Several factors may restrict a homeowner’s ability to rent their residence as a vacation rental in some areas of the U.S., and such restrictions are often attributed to factors like communal backlash, local municipal laws, homeowners’ association agreements, and much more.

Local Ordinance

Cities, counties, and municipalities have specific local laws or regulations that solely apply to their municipal jurisdiction; these laws are known as “ordinances.” Whether short-term renting is a legal practice within a particular jurisdiction may vary depending on the ordinances in place. Therefore, verifying if renting a private residence under short-term rental terms is prohibited or regulated in any way by the local government is highly recommended.

Before listing the property, double-check with your county’s local regulatory body for more information or consult an attorney in your immediate area. Much of the information on short-term rental restrictions is available online, so a dedicated Google-lead search should provide some concrete answers.

Existing Contractual Obligations

Existing legally-binding agreements may bar an individual from renting their property. A homeowner’s mortgage contract, for instance, may prevent them from renting the property on a short-term basis– though unlikely. Additionally, a homeowner can be affected along the line upon attempting to refinance their mortgage. This is in part for two reasons: (1) lenders may reject Airbnb-generated income; and (2) renting a property can result in a lender classifying it as an “investment property,” which entails a higher interest rate. 1

Be sure to exercise due diligence when it comes to legal matters before conducting any rental business, thus strengthening your liability protection. When planning to conduct business through Airbnb, a sweeping review of their “responsible hosting in the United States” page is highly recommended. 2

It would be a let-down to put time, money and energy into an STR only to find out that you can’t even rent the property — so do yourself a favor and do your research first.

Show Me the Money

According to a 2019 poll, nearly half of working Americans had a “side-hustle” in addition to their main job; the pursuit of supplementary disposable income was the primarily cited reason for obtaining another gig 3. With the gig economy on the rise, many individuals have turned to home-sharing as a means for additional monthly income. It is, however, crucial to run the numbers before putting a home for (short-term) rent in order to determine if doing so would be profitable.

Cost-Benefit Analysis

The term “cost-benefit analysis” may seem daunting to some individuals. Still, it is a relatively simple approach that serves to evaluate the potential costs of a project and the likely beneficial outcomes.

Regarding listing a home for short-term rental, one may estimate the costs of re-modeling, existing mortgage payments, maintenance, and utilities against the renter’s total payments. A homeowner should develop a budgetary analysis in order to calculate the potential profits. After all, the main purpose of renting a property under a short-term agreement is to profit a passive income.

Account for Property Management

Adequate property management and everything it entails is crucial when renting a property to multiple renters throughout the year; in fact, management performance is one of the key factors guiding an Airbnb account’s good standing. 4 The individual in charge of maintaining the property must reside in close proximity to the premises in order to perform quality checks and attend to urgent matters.

If the homeowner is unable to do so, they must designate a property manager who shall oversee maintenance/upkeep and other managerial tasks. Individual property managers or property management companies usually charge around 10-20% of monthly rental fees. 5

How Much Should I Expect to Make?

A homeowner looking to make an immediate profit from short-term renting should manage their expectations. First, it is important to note that preparing a home comes with upfront costs, such as renovating and bringing safety features up to code. Homeowners will also need to grow credibility within the platform in which their property is posted. That is, if their vacation property is listed on Airbnb, their account needs time to develop positive reviews in order to appear credible in the eyes of potential renters. The listing may be overlooked at first despite all features and amenities.

The amount an individual with an up-and-running account can make will still vary. In 2020, an analysis found Airbnb hosts make an average monthly income (accounting only for Airbnb-generated income) of $924 a month and a median of $440. 6

However, there exist discrepancies between those who earn the most and the least. Much of the capacity for a higher potential gain boils down to one factor: location. A home situated in a travel hotspot will perform better than one in a more remote area. 7

Selecting an Online Platform

A homeowner may select a website on which to post and market their listing based on individualized demand. For instance, some may seek low upfront costs, while others may desire lower fees for potential guests. Luckily, there is no shortage of online platforms from which to choose. The table below compares rates, terms, and other significant parameters between a few popular home-sharing websites.

Table: Comparing Different Websites’ Fees and Terms

Website Fees Upfront Costs Tenant Profiles Payment Types Best for
Airbnb 3% (*6% to 15% charged to the guest) $0 Yes Upon reservation Rooms and entire homes Year-round rentals
VRBO + Homeaway (by Expedia Group) 3% $499 (annual subscription) No Upon reservation or check-in Entire homes Year-round rentals
FlipKey (by TripAdvisor) 3% (*5% to 20% charged to the guest) $0 No Upon reservation or check-in Rooms and homes Seasonal rentals
Craigslist 0% $0 – $20 No Check-in Shared rooms, private rooms, and homes All rentals
Booking.com 10% to 25% $0 No Upon reservation or check-in Shared rooms, private rooms, and homes Seasonal rentals

Determine a Match

A homeowner looking to list their property on any of the above websites should determine which one best suits their needs. Airbnb is the most popular option with over 650,000 hosts and 150 million users worldwide. 8 In part, Airbnb’s success can be attributed to its intuitive features as well as its vacation-driven platform– meaning, most properties listed are designed to accommodate vacationing guests.

Fast Fact: In the U.S., Airbnb listings make up 19% of the total demand for lodging. 8

Despite Airbnb’s popularity, it is worth exploring all options available. Some homeowners may benefit from another website’s focus on year-round rentals or its standard rates and fees.

Prepare the Property

In the present-day rental market, tenants hold short-term stays to similar standards as they would a boutique hotel or bed-and-breakfast. Essential items and an aesthetically-pleasing space are a must in order to compete with others.

Refurbishing the Rental

Most homes will inevitably require a refurbishment of some kind before being listed for rental; the extent of renovation will depend on the home’s current state of being. Older homes will likely, at the very least, need to be painted and refurbished with modern, clean furniture. The investment may seem steep at first, but it will pay off in terms of elevating the home to be on par with that of other hosts.

One highly effective and cost-reducing way to renovate involves decluttering the living quarters and removing personal property.9 Doing so allows the home to solely include bare necessities for guests, similar to a hotel room.

Take High-Quality Photos

As the saying goes, a picture is worth a thousand words. A potential guest can ultimately make their choice between dozens of properties largely based on the photos– after accounting for price and location, of course.

Hiring a professional photographer is often times the best course of action given the importance of marketing properly. Be sure to have the photos focus on the positive aspects of the rental: views, landscapes, notable features/amenities, and any detail that could sway a potential renter should all be pictured on the listing.

Develop a Marketing Plan

Creating a marketing strategy for the property does not necessarily take a professional. In fact, there are multiple do-it-yourself measures to promote the property. Here are just a few ways to make your listing stand out:

  • Write a detailed description of your property for all potential guests to read;
  • List each feature of the home, whether it is a basic feature or a highly-sought amenity;
  • Provide links to popular tourist destinations near the property;
  • Include a recommendation of nearby restaurants and bars;
  • Note any cleaning and sanitizing methods used; and
  • Offer discounted rates whenever fiscally possible.

Alternatively, one can hire a licensed real estate agent who shall undertake all listing responsibilities.

Spruce Up the Experience

The meteoric rise of home-sharing through short-term (vacation) rental platforms is certainly good news for anyone dedicated to entering the market. However, as the number of listed properties increases, so does the competition among hosts.

Airdna, a data analytics company compiling Airbnb data found the main contributing factor to a higher occupancy rate is amenities– not essentials, as often thought. 10 On that note, exploring the data gathered by Airdna would be helpful for all owners who wish to learn more about their area as well as the earning potential for their rental. (Note, there is a monthly cost involved to access all their data.)

Amenities

Different types of amenities naturally work better in certain places. A firepit, for instance, is a highly sought-after amenity in colder climates and less so in warmer ones.10 Whereas, a hot-tub is a universally favored feature. A homeowner can study their market and ascertain which type of amenity/amenities will benefit the rental.

The following are coveted amenities to include in service of benefiting the guests’ experience, according to Airbnb 11:

  • Fast and functional Wi-Fi;
  • Air conditioning;
  • Kitchens equipped with cooking utensils;
  • Private parking space(s);
  • A pet-friendly policy;
  • A barbecue grill and general outdoor furniture;
  • Hot-tubs; and
  • Cleaning supplies (disinfectant wipes, hand sanitizer, and the like).

Facilitate Check-In

Check-in experiences have long drawn criticisms to the hospitality industry. Therefore, establishing an effective check-in process is key (pun intended). Airbnb employees’ have stated contactless check-ins are highly suggested, and they are plausible in one of two ways: (1) setting up a digital keyless entry system; and (2) utilize an easy-to-use portable lockbox. 9

Maintaining the Property

Homeowners will be subject to self-managing the maintenance of the property unless they hire a property manager.

Cleaning Arrangements

Now more than ever, the rental’s cleanliness is a top priority for many renters/guests. Home-sharing companies, primarily Airbnb, have committed to enhanced cleaning processes that ensure the safety and well-being of renters in lieu of recent health mandates. 12

It is imperative for the property manager to establish a cleaning arrangement with a reputable sanitation company. Several cleaners specialize in cleaning vacation homes, and they are familiar with the cleaning protocols in place. These cleaners can be sourced locally from newspaper ads, Google searches, and basic word-of-mouth.

Liability Insurance

Homeowners should opt into an insurance plan that covers all bases in order to protect their legal liability. Some home-sharing platforms provide an insurance plan for hosts who sign up and list their property.

Namely, Airbnb’s “Host Protection Insurance” protects hosts for up to $1,000,000 and may cover guest/occupant injuries as well property damage. 13 Hosts are automatically enrolled but may opt-out if need be.

Closing Thoughts

Turning a home into a short-term (vacation) rental can yield plenty of benefits for the homeowner, such as making way for an additional income source. It is not an overnight process, however. A homeowner must research everything from local ordinances to viable platforms or marketplaces. The home must also be re-designed in a fashion most appealing to the targeted market.

Initial investments aside, a short-term rental has the potential to produce a steady monetary gain– especially since renting on a short-term basis is often the best way to obtain the maximum amount of rent on a per-day basis.

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Sources

  1. www.forbes.com/sites/alyyale/2018/05/01/putting-your-house-on-airbnb-what-to-know-before-hosting-as-a-homeowner
  2. www.airbnb.com/help/article/1376/responsible-hosting-in-the-united-states
  3. www.bankrate.com/personal-finance/side-hustles-survey-june-2019/
  4. www.airbnb.com/help/article/829/how-do-i-become-a-superhost
  5. www.zillow.com/rental-manager/resources/property-management-cost/
  6. www.earnest.com/blog/sharing-economy-income-data/
  7. www.cnbc.com/2019/07/03/is-running-an-airbnb-profitable-heres-what-you-need-to-know.html
  8. ipropertymanagement.com/research/airbnb-statistics
  9. www.cnbc.com/2019/07/23/how-to-turn-your-place-into-an-airbnb-rental.html
  10. www.airdna.co/blog/the-best-airbnb-amenities-to-boost-your-occupancy-rate-adr-and-revpar
  11. www.airbnb.com/resources/hosting-homes/a/the-best-amenities-to-offer-right-now-203
  12. www.airbnb.com/d/enhancedclean
  13. www.airbnb.com/d/host-protection-insurance

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