How to Start an Airbnb Business

Becoming an AIRBNB host is a great way to bring in some extra cash but make sure you look into the rules that apply to short-term rentals in your area.

By , Attorney

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The short-term rental business is booming and, for many homeowners, renting property through an online marketplace like Airbnb, VRBO, Flipkey, and others is a great way to bring in some extra cash. Before you list your property though, make sure you look into the rules and regulations that apply to short-term rentals in your area.

Check Local Zoning Laws

Across the country, more and more cities and counties are passing regulations on short-term rentals. These rules are usually found in a city's zoning or administrative code and often apply only to unhosted listings (where the owner is not present during the stay) and to rentals of 30 days or less.

Some cities limit the number of days a property can be rented out for short stays. This can range from anywhere of a maximum of 30 nights per year to 180, depending on where the rental is located. There also may be restrictions on how many people can stay at the property at one time, such as only two adults per bedroom or ten guests total. Some cities only allow short-term rentals of a primary residence and, in some places, short-term bookings are prohibited altogether. Before getting started, you'll need to look into what's permitted in your area.

Cities that allow short-term rentals often require you to apply for a permit before you rent your property. This typically involves paying an annual fee and undergoing a home inspection to verify that your home is safe and habitable. Failure to follow these permit or other short-term rental rules can result in hefty fines so don't ignore them.

If you don't own the property that you want to rent out, you will also need to check your lease for any restrictions. Many leases prohibit short-term rentals and sublets. If you are part of a Homeowner's Association (HOA), your HOA rules and regulations may limit the number of guests you can have, impose pet restrictions, or prohibit vacation or short-term rentals altogether. Again, violations of these rules can have serious consequences, including possibly being evicted from your home.

Do You Need to Form a Business Entity?

Being a short-term rental host is a profit-making venture, and as such should be treated like any other business. Consider how you will protect your personal assets, like your personal bank account, should you be sued by one of your Airbnb guests. One way to do this is with insurance, but beware that renter's insurance and homeowner's insurance often do not cover short-term or vacation rentals. Check with your insurance agent to make sure you obtain proper coverage.

You may also consider forming a separate business entity for your Airbnb business, such as a limited liability company (LLC) or a corporation. When done properly, only the money you invest in the business can be reached to satisfy the debts of the business. In addition, LLCs may provide certain tax benefits depending on your situation. However, if you only have one rental, you may want to use insurance to protect your assets and wait until you have additional properties or are looking to bring in investors to form a separate business entity. Consult with an attorney to determine the best option for you.

Taxes and Accounting

If create a separate business entity, you may be required to apply for an Employment Identification Number (EIN). This is a simple IRS application and provides a unique number for your business that you use for tax filings. Even if you're not required to have one, you may decide that for privacy reasons you prefer to use an EIN instead of your social security number on your business bank account, tax filings, and licenses.

The laws of your state may mandate that you register with your state tax department. This may be a requirement for all businesses operating in your city, or there may be particular rules that only apply to short-term or vacation rentals. For example, you may be responsible for occupancy tax or sales tax, which is a percentage of the listing price set by the city. While the rules differ on whether this is paid by the host or the guest, the host is typically responsible for reporting the amount and submitting payment to the tax department on a quarterly or annual basis. Check with your county and state tax departments to learn how to register and whether you must pay state or local business tax.

Before listing your rental or spending money on preparing your home, determine what system you will use to keep track of your income and expenses and organize receipts. Most of the expenses will be tax deductible, so it is important to have a tracking and organization system in place from the start. Consult with an accountant or bookkeeper for assistance.

Price Your Rental

To put you on track to making a profit as a short-term rental host, take some time to determine how to price your rental. First, look at all the costs associated with renting out your home, which may include:

  • business licenses
  • insurance
  • host service fees
  • Federal, state and local taxes
  • cleaning supplies and costs
  • utilities
  • mortgage or rent payments
  • cost for repairs to maintain the property
  • new furniture or decor
  • amenities for your guests, like snacks, coffee, or bicycles, and
  • cost to hire a professional photographer.

Next, take a look at how the hotels and other vacation rentals in the area are priced and compare these listings to yours based on the size and other considerations. Consider how much of a demand there is for vacation rentals in your area, and look at whether prices change seasonally or on the weekends. In the beginning, you may consider listing your space at a lower rate, and increase the rate once you have a number of positive reviews.

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