Yahoo Finance 5 Reasons Renting Out Your Home on Airbnb Might Actually Cost You Money
It was reported that short-term listings on Airbnb generated $85 million in net revenue in New York City alone in 2022. Then, in 2023, the city cracked down on short-term rentals on Airbnb, causing over 80% of the listings to disappear and forcing many hosts to decide what to do with their property next. As profitable as short-term listings can be, we can’t ignore the fact that putting a space on Airbnb isn’t always the best business venture. We will look at the different reasons why renting out your home on Airbnb may cost you money and become unprofitable in the long run.
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Here are five ways renting out your home on Airbnb might cost you money.
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You Spend Too Much Money on Another Mortgage/Housing Expenses
The goal of purchasing or renting a property for Airbnb is to turn a profit by charging more than you spend on your housing costs. However, the harsh reality is that you may not always cover these costs or be able to turn a substantial profit after you add everything up.
“When you’re buying a property for Airbnb, it’s important to make sure that the numbers still work as a long-term rental and during the slow season as well,” said Cody Berman, a real estate investor who teaches people how to build passive income. “The mortgage might be well covered during the hot season, but you don’t want to find yourself trapped when rental demand slows down.”
When you run the numbers, you’ll want to consider every possible expense that could impact your bottom line. What real estate costs do you have to factor in when listing your place on Airbnb?
Your mortgage/rent
Property taxes
Home insurance
Taxes
Cleaning fees
Possible damages
Slow periods
As enticing as it can be when you find out that you charge hundreds of dollars per night, you must consider that there won’t always be a busy season. You also have to plan for increased competition, and you can’t forget that you rely on one platform. One negative review from a guest could bring you down in the rankings, possibly making it challenging to land guests. When you can’t fill up your space, you’ll be stuck paying for a mortgage and living expenses for a home that isn’t bringing in any money.
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Furnishing a Home Can Be Expensive
“Furnishing a property and getting all the supplies isn’t cheap,” said James Lowery, a real estate investor and one of the founders of Rethink The Rat Race. “There’s also no guarantee that you’ll make your money back.”
Setting up a home for Airbnb can be costly and time-consuming. While you can likely be profitable if you simply list a spare bedroom on the platform, you could struggle to make money when you invest solely in a home for Airbnb.
If you purchase a space for Airbnb, you may have to renovate the entire house to ensure it’s adequate for hosting, and then you’ll have to spend a hefty amount on furniture. You should also consider that furnishing a home for Airbnb is different than a traditional space because you have to factor in every possible request that guests could have, from an ironing board to extra towels. Once you run all of the calculations, you may realize that this space will take a long time to become profitable compared to the money you could’ve made from finding a long-term tenant.
Cleaning Fees After Messy Guests
As an Airbnb host, you can charge a cleaning fee, but there will be times when the mess requires extra attention. You also can’t forget a short-term guest who stays in a place for a night or two won’t take the same care of the space as someone living there. You may spend extra money replacing appliances sooner due to wear and tear or paying for deep cleaning services.
Guests Damage Your Home
“There are plenty of times where guests damage a property and ghost the owners, so you’re coming out of pocket for repairs,” Lowery said.
While you may be able to prove certain damages, you could be stuck replacing a toilet seat or dishwasher due to the negligence of careless guests.
There have been numerous horror stories shared by hosts about how guests damaged their homes, and they struggled to recover the fees. Even though Airbnb states that it offers host damage protection through AirCover, collecting your money or proving that your guests caused the issues can be difficult.
Airbnb Could Become Illegal Where You Live
“There are a number of hosts who are operating in grey areas or even outright illegally and it could cost them in fines, back taxes, and more,” Lowery said.
As mentioned earlier, new restrictions were placed on short-term rentals in New York City last year, and most listings disappeared. However, many other municipalities have unclear laws and rules about short-term listings. For example, your condo corporation could’ve banned Airbnb years ago, and you didn’t realize it. This means that you could be facing hefty legal bills if caught.
Another expense that could eat into your profits is home insurance expenses since many providers don’t allow for short-term rentals. While you may think you’re running a legal business, your home insurer could feel otherwise about this venture.
Those are the five main reasons why renting out your home on Airbnb might actually cost you money in the long run. This is why we always recommend that you conduct your due diligence to ensure that you’re making the right financial moves for your situation.
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This article originally appeared on GOBankingRates.com: 5 Reasons Renting Out Your Home on Airbnb Might Actually Cost You Money
