Home sharing has exploded in recent years, and thousands of Americans are now renting out their homes—either wholly or partially—to gain extra income. Some are even buying properties solely for the purpose of listing them as short-term rentals on sites like Airbnb and VRBO.
But though some hosts are able to make a full-time salary (or even more) thanks to home sharing, others take in only a small amount of passive income. And that may not be enough, especially if you’ve invested in a property you don’t plan to live in.
The difference? It all comes down to strategy. Here are some tips to maximize your gains.
The Importance of Location
If you’re looking to invest in a property to use as a short-term rental, you’ll need to weigh a host of factors including the price and the condition of the home. Location, however, may be the most important.
For example, is the home in a spot where college students head during spring break? A big metro area that might draw people for concerts, sporting events, or family weddings? A place that offers business travelers a quick commute into the city?
Generally, if you want to maximize your income as a host, you’ll want a location that offers:
- Affordable home prices
- Healthy demand from travelers, tourists, or even business professionals
- Safety and peace of mind
- Amenities such as restaurants, public transportation, grocery stores, and entertainment
You can also look to experts for advice on where to buy. AirDNA, an Airbnb analytics firm, and Mashvisor, an analytics platform for real estate investors, publish data on the best spots for U.S.-based short-term rentals. In 2018, real estate marketplace Homes.com published a ranking of the best and worst cities to buy an Airbnb in. Waterside vacation spots, such as the No. 1-ranked Virginia Beach, Virginia, were particularly strong.
Set a Pricing Strategy
First, do some research on Airbnb or VRBO to see what similar homes to yours are renting for, and when.
Keep in mind that potential renters may be loath to take a chance on your place without a history of positive reviews. So it’s often worth discounting your price initially in order to draw in those first bookings.
You should also take advantage of events and holidays. If there’s something happening in your city (or even just near it) make sure your home is available, and increase your rate accordingly.
Once bookings start coming in, make every effort to be a stellar host. On Airbnb, a string of positive reviews and a full calendar can earn you Superhost status, which means more visibility on the platform—and the ability to charge higher rates.
Take Advantage of Tax Credits
According to the IRS, if you only rent your home for a very short period of time—less than 14 days—you may not have to pay taxes on the income. However, as a short-term host, you’ll still be responsible for any short-term occupancy taxes imposed by your city.
Some companies, like Airbnb, may collect short-term occupancy taxes for you.
If you rent your home for more than 14 days, you’ll likely need to pay income taxes on the profits. However, you may also be eligible for a number of tax deductions and credits.
- Business expenses: As a host, this might include the costs of linens, cleaning supplies, water bottles for your guests, and other expenses you’ve incurred. Just be sure to keep receipts and thorough records in case of an audit.
- Hosting fees: If you’re paying a regular fee to your hosting service (Airbnb, VRBO, HomeAway, etc.) for each guest you take in, then this can be deducted from your taxable income as well.
- Property depreciation: You can also claim write-offs based on the depreciation of your property as well as any improvements you make to it. Regular repairs and maintenance don’t count toward this, though. (Those are considered business expenses.)
- Mortgage interest and property taxes: Like any homeowner, you may be able to deduct your property taxes and any interest paid on your mortgage loan from your taxes. Just keep in mind the caps enacted through the Tax Cuts and Jobs Act on these deductions.
- Travel expenses: If you’re traveling to and from your rental often to clean, help with check-in, or meet with guests, you may also be able to deduct your mileage from your income.
The rules on these tax benefits can be complicated, so if you’re thinking of claiming them, consider speaking with a financial advisor or an accountant.
Finally, keep in mind that expenses will eat into your profits. So install a keypad knob to minimize your trips to the property, and invest in a smart thermostat to reduce energy usage when the home is unoccupied. And while you don’t want to skimp on amenities, you can buy toiletries, snacks, and water bottles in bulk to keep those costs to a minimum.