Airbnb is an online marketplace that connects people, also known as hosts, who want to rent out their homes with other people who are looking for accommodations in that locale. Basically, Airbnb is an online broker app that facilitates hospitality experiences.   It currently has more than four million lodging listings and covers more than 81,000 cities and 191 countries worldwide.  The listings may be for a simple room in your own home or an offsite property that you own.  This article mainly discusses the latter.

If you are looking to monetize an investment property, or convert your holiday cabin to an Airbnb short term rental, here are some key points for you to consider.

PROS CONS
Free Listings

Hosts don’t have to pay to list their properties. Listings can include written descriptions, photographs with captions, and a user profile where potential guests can get to know a bit about the hosts.

Potential Damage

Probably the biggest risk for hosts is that their property will be damaged.  While most stays go without incident, there is a possibility that damage may occur to your property.  Airbnb’s Host Guarantee program provides some assurance but it may not cover everything such rare artwork and pet damages.

Advertising

Airbnb effectively gives you a low-cost way of advertising and getting bookings via their website; plus a ready built system for handling the bookings and payment, making the process much easier than doing it independently.

Added Fees

While listings are free, Airbnb charges hosts a service fee of at least 3% for each reservation to cover the cost of processing the transaction.

Hosts Can Set Their Own Price

It’s up to each host to decide how much to charge per night, per week or per month. 

It Isn’t Legal Everywhere

Before listing your property on Airbnb, you will need to check your local zoning ordinances to make sure it’s legal to rent out your property.  Hosts may also be required to obtain special permits or licenses.

Customizable Searches

Guests can search the Airbnb database—not only by date and location, but by price, type of property, amenities, and the language of the host. They can also add keywords (such as “close to the CN Tower”) to further narrow their search.

Rental Income may be Inconsistent

Unlike renting a property to a long-term tenant where you know how much money you’ve got coming in each month, Airbnb income can be more erratic.  You can have a run where you have a lot of bookings and then a dry period.  It’s never easy to predict.  Bookings also tend to be seasonal to some degree.

Protections for Guests and Hosts

As a protection for guests, Airbnb holds the guest’s payment for 24 hours after check-in before releasing the funds to the host.  For hosts, Airbnb’s Host Guarantee program provides protection for up to $1,000,000 in damages to covered property in the rare event of guest damage.

For the most part, most guests don’t actually use their rooms much.  They mainly want somewhere to sleep and put their stuff.  Many of them are on vacation, visiting a friend or relative, attending a job interview, college seminar, or some sort of event. They spend most of their time out and about.

Can be Time Consuming

An Airbnb property is likely to be more work-intensive, because it will fall on you, the owner, to ensure the property is in top shape all the time.  Unless you can afford to pay someone else to do it, you will find yourself doing a lot of laundry, vacuuming, dusting, and yes, cleaning up the restroom after guests.

Also, you need to monitor what’s happening online so that you can respond to inquiries from guests. You may have to be around in person to check-in guests or clean up quickly to prepare for the next person’s stay.

You may be able to save yourself time and work by hiring a cleaning service and property management firm to handle all of these tasks, but you would also add to your operating costs.

The extra money

A solidly-booked Airbnb rental may be more profitable than renting the same property to a long-term single tenant. That’s because you’re usually able to charge more on a nightly basis.

Can’t Make Everyone Happy

You will always encounter some unhappy guests who give you less than perfect reviews.  It shouldn’t be a problem, however, provided that you are doing your best and the reviews that you get are overwhelmingly positive. You can’t please everyone and maybe some people aren’t a good fit for your property.

Flexibility

If you have friends or relatives coming over to stay, you can block off the calendar and save the room or property for them.

Amenities

If you want to impress potential Airbnb tenants, you may need to invest some cash to make sure the place looks and feels classy. Airbnb guests want to feel like they are staying in a high-end unit.  Items like high-quality furniture, décor and appliances go a long way.  Keeping some basic food items in the fridge can suffice towards keeping guests happy. This may involve stocking fresh eggs, coffee, or alcoholic beverages.   If you rent to a single tenant, it will usually be their responsibility to hook up the cable TV, WiFi, subscribe to Netflix, and so forth. Airbnb tenants, on the other hand, usually expect these things to be in place during their stay, so the cost of this technology—and maintenance—falls to you.

Case Study – Niagara Falls, ON

As mentioned above, it’s imperative that you check with your local municipality before investing in an Airbnb rental property.  Your local Municipal Planning, Building and Development officials will provide you with a list of criteria that must be adhered to in order for you to operate your Airbnb unit.

For example, Niagara Falls, Ontario, sees over 14 million visitors every year.  Needless to say, there are many vacation rental units (VRUs) available to tourists.  That being said, most of them are illegal as the owners have not done their due diligence in following the necessary licensing criteria.  In the last two years, the City has cracked down on these investors and has implemented a very specific set of rules to follow in order to operate a VRU.  Below is a sample of their Licensing Schedule.

Vacation Rental Units

1) In this Schedule,

a) “Vacation Rental Unit” means a dwelling or dwelling unit that is licensed to provide lodging to single group of travelers for a period of 28 consecutive days or less but shall not mean a hotel, motel, inn or Bed and Breakfast.

b) “Applicant” is a person who applies for a license to operate a Vacation Rental Unit, but does not include a licensee.

2) Every person who operates a Vacation Rental Unit shall obtain a license and pay an annual license fee in accordance with the By-law.

3) The City shall not issue a license for a Vacation Rental Unit unless the proposed Vacation Rental Unit conforms to the applicable Zoning By-law governing the premises. An applicant shall provide a site plan and floor plans, to the satisfaction of Planning, Building and Development Department.

4) In addition to the information required above, an applicant shall provide the City with a copy of the standard rental agreement used by the operator.  Said agreement shall contain the following:

a. Notification to guests of applicable regulations from the City’s Noise By-law, being By-law 2004-105, as amended from time to time; and

b. A copy of the code of conduct, to be signed by a representative of each group occupying the vacation rental dwelling, agreeing to abide by all rules and regulations of the municipality.

5) An applicant shall provide proof of a separate liability insurance coverage policy for the Vacation Rental Unit for a minimum of Two Million Dollars ($2,000,000).

6) A licensee shall be required to maintain the liability insurance coverage policy specified in clause 5 above for the duration of the of the license period and shall notify the Clerk immediately if the policy is cancelled and replaced. Cancellation of such policy without notification shall be cause for immediate revocation of a license.

7) Every licensee shall provide the name, address, and phone number of the licensee or a designate who can attend the property in the licensee’s absence. Furthermore, the licensee authorizes the City to publish such information on the City’s website or on any other publication the City deems appropriate to advise the public of the contact information of the licensee.

8) The licensee agrees, upon being contacted by the Municipal Law Enforcement Officer, Chief of Police or any member of the public about any alleged violation of any City by-law or any Provincial or Federal law, to attend the property or direct a designate to attend the property at all times within a period of no greater than one hour from the time of contact.

9) Prior to the issuance of a license for a Vacation Rental Unit, the Vacation Rental Unit shall be inspected by the City’s Building Department and Fire Department and where there are any violations of the Ontario Building Code or Fire Code, said violations shall be corrected.

10) Each licensee shall keep a daily register which shall indicate, the guest name, guest home address and home/cell telephone number, the date and duration of stay, the guest’s vehicle make, license plate number and Province or State in which the vehicle is registered. The daily register must be kept current and be available for inspection of the licensed premises.

11) The licensee, upon request from a Municipal By-law Enforcement Officer or Chief of Police, shall present the daily register.

12) A Municipal By-law Enforcement Officer who finds that a licensee has contravened any provision of the Licensing By-law may issue a penalty notice addressed to the licensee.

13) Any licensee who contravenes any provision of this By-law shall, upon issuance of a penalty notice pursuant to clause 12 above, be liable to pay to the Municipality an administrative penalty pursuant to this By-law.

14) Where the City and/or the Chief of Police have received three or more complaints regarding noise or other such nuisance complaint, or 3 or more penalty notices, the Municipality shall revoke the license and a new license shall not be issued for a period of 6 months.

15) Notwithstanding anything in contained in this By-law, the Municipality is not required to hold a hearing where a license is revoked under clause 14 above.

16) The applicant agrees not to advertise a Vacation Rental Unit in any medium until a license has been issued, and agrees that any such shall constitute a violation of this By-law.

Final Thoughts

Airbnb and other short-term rental platforms can be very lucrative, especially if you are patient and willing to do the work to attract renters and keep them happy.  However, your operating costs will likely be higher than for a traditional rental property, and regulations have made investing in Airbnb hard or even illegal in many places.

What about Liability Insurance?

Most standard homeowner’s insurance policies exclude short-term rentals so your Airbnb property will not be covered.  In addition to Airbnb’s Host Guarantee Program for damages to the property, you can get a Host Protection Insurance for seasonal and/or short-term rental properties that will provide liability insurance (typically $1 MM) for third party claims for personal injury or property damage.  Check with your local insurance broker to see what policy best fits your needs.