Written by: Jorge Contreras, Executive Contributor
Executive Contributors at Brainz Magazine are handpicked and invited to contribute because of their knowledge and valuable insight within their area of expertise.
Having an Airbnb business is a great way to use your extra space. Plus, it can even give you passive income if automated well. However, several factors can affect your profitability. Let’s talk about those here.
Are you a newbie trying to launch your first Airbnb? Well, there are a lot of things to consider before you can effectively do so. But don’t worry if you have no idea where to start yet. You can use this guide to know the main factors that can affect your Airbnb profit and what you can do about them. Now in my experience as a real estate entrepreneur, the most common things that can influence your Airbnb profits are found in your location, data, pricing, amenities, and contract. Read on to know more about each one of them.
Location
One of the most important aspects of any Airbnb is its location. Not all properties can be used for business and not all cities and states allow short-term rentals. Now if you’re still at the point of acquiring a space for your Airbnb business, it’s important to understand what kind of properties are ideal. First, you need to know the 4 main categories of real estate locations: A, B. C, and D. A properties are in luxurious neighborhoods with lots of wealthy facilities and high-end security, and D areas are the exact opposite because it’s where poverty and crime are prevalent. Now the recommended areas for Airbnb are between B and C because they are safe but are not too pricey for regular guests to rent in. This is an essential factor to consider because it will make or break your business. Some people who make the mistake of starting a business in areas in the lower categories often receive negative reviews from guests which lower their booking rates and ultimately leads them to close the business. Another thing you need to know about locations is that NOT all cities allow short-term rentals. This is why you must do your research first so that you don’t buy or sign a sublease for a property in a locality where Airbnb is not permitted. To know for sure, you can go on Google and search for the ordinance of the locality you want to launch in. Once the number of the building department comes up, you can call it to inquire. Through this, you’ll discover if the area allows Airbnb with no restrictions, if you need permits to operate, or if they don’t allow short-term rentals at all.
Data
Once you’ve checked if your potential property is in a great neighborhood in a city that allows Airbnb, your next move is to study the data of similar businesses in the area.
This step is often overlooked by a lot of people and causes them to miss their opportunities. To prevent this, you can use sites like Mashvisor and AirDNA to know the number of bedrooms, bathrooms, square footage, and amenities of the most successful Airbnb in your area. Use this data to create a similar experience for your guests and see how your business fares. This is a great method because with it, you won’t be starting from scratch and your venture won’t be a hit or miss either.
Pricing
Another thing that can directly affect your profit is your pricing. When you start your business and notice that bookings are coming in very slowly, there is a possibility that your rates are too high. On the flip side, if you’re getting bookings fast, there’s a chance you’ve priced your Airbnb too low that you’re just making losses. So what’s the trick? Now when it comes to pricing, your Airbnb will differ from the rest. Your nightly rate will depend on how big your place will be, what amenities you have, and the overall experience you promise to give your guests. However, if you want to maximize your profits on the platform, you also need to know how to charge right. I use the 10-20-30 Rule where I price my Airbnb so that I’ll break even in 10 nights, double my earnings in 20 nights, and triple it within 30 nights. For example, if my rent or mortgage for a property is $3,000/month, my nightly rate would be $300/night. This way, I’ll earn $3,000in 10 nights, $6,000 in 20 nights, and $9,000 in 30 nights.
Amenities
When people book your Airbnb, they’re not just looking for a place to stay ‒ they’re also looking for a great overall experience. And you’d want to add to that positive experience by including amenities that your guests can enjoy. You can purchase recreational items like a foosball table, board games like Monopoly, card games like Uno, and even an oversized Jenga that your visitors can use during their downtime. If you have a bigger budget, you can also try setting up leisure facilities like pools, jacuzzis, or even a spa. Now if you’re Subleasing (renting a property from a landlord to use for your Airbnb business), you can arrange with the property owner to make some upgrades. By adding these amenities, you’re enhancing your guests' experience making your listing stand out, and ultimately creating more revenue for your business.
Contract
Since we’ve mentioned a bit about Subleasing or Airbnb Arbitrage, here's another factor that can affect your business that is connected to this method. You see, one of the biggest mistakes newbies make when starting a short-term rental business with the arbitrage strategy is not understanding the legal verbiage on the contracts.
Since you’re technically renting a space to use as an Airbnb rental, your agreement with its owner also needs to reflect that. And there are two things you need to see in your contract:
1. It must say that you have permission to use the property as a short-term rental.
Without this clause, you’re only renting the space for personal use and not for business. Launching it on the Airbnb platform is basically violating your agreement and you have to pay for the breach.
2. It must state that you have permission to change the locks.
This ensures that you have complete control over the property during the contract period. And since you need locks that are automated for your guests, you have to get consent from your landlord to change the initial locks.
Bonus tip:
If you’re buying a property and you have a bigger budget, you need to put your best foot forward. Spending money and renovating your space to look its finest as an Airbnb rental will build long-term equity for you. However, you don’t want to use your own money to renovate a property if it’s only subleased. Instead, you can ask your landlord if they can invest a few more thousand dollars to put in new paint, a new floor, fix up some of the cabinets, or do major repairs on the property. On your end, you can increase your rent little by little per month to help the landlord offset the costs, but this way you don't have to pay out of pocket and you’ll still end up with a profitable space.
The final verdict
To round it all up, your Airbnb’s profitability can be affected by your location, how you use your data, pricing, amenities, and contract clauses. But now that you know how these factors can influence your business, you will now notice them easily.
If you’re a newbie, you now understand the mistakes to avoid. And if you’ve already launched your business and your business isn’t doing well, you can also use this guide to pinpoint what you can change in your business ‒ is it pricing? Amenities?
You see, creating a profitable Airbnb business is more than possible. You can even get it started even if you don’t own properties yet using the Subleasing or Rental Arbitrage method. If you want to learn more, feel free to download and check out our free training guide here so you can get your Airbnb business started from scratch in no time.
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Jorge Contreras, Executive Contributor Brainz Magazine
From poverty to a million-dollar business, Jorge Contreras is a real estate investor and coach. He started his real estate journey over 10 years ago, and he launched his Airbnb business 5 years ago. Before that, Jorge was overworked and underpaid. He barely had time to spend with his family, and his business wasn't exactly thriving. Once he got into real estate, he realized the potential, especially with Airbnb and short-term rentals. When he became a millionaire before the age of 30, he decided to share his knowledge with all the people who have the need to spend more time with their families and less time working. Jorge has already helped over 3000+ people reach their goals with Airbnb.
