Advertiser Disclosure

How to Cash In on Short-Term Rentals Like Airbnb, VRBO

Making Money, Personal Finance
Before Airbnb or VRBO, Learn the ABCs of Short-term Rentals

You can make some serious money renting out your home if you don’t mind strangers singing in your shower. But the finances of hosting on Airbnb and VRBO can be tricky.

Before cashing in on your space, learn about the market, expenses and taxes you’ll encounter.

Think like a small-business owner

Hosts are entrepreneurs. They must rent their home legally, compete in a crowded marketplace and choose a smart listing price. Here’s how to pull that off:

Create an attractive listing

Research how to make your property stand out among local hotels and other rentals. The internet is full of guides to creating the perfect listing, and Airbnb offers members a “toolkit” on the subject.

To summarize some of the most important advice: Post enticing photos. “Images are what sell properties,” says Scott Shatford, co-founder and CEO of Airdna, a service that provides rental data and analytics to hosts. “Whatever you’re writing about yourself, it doesn’t mean anything unless you have beautiful images.”

Shatford recommends landscape-oriented photos that show the space as clean, well-decorated and full of potential. “What you’re trying to sell is what you can do in an Airbnb rather than a hotel room,” he says. So make sure to include pictures of the well-stocked game room, for example, or the shops and restaurants around the corner.

Pick the most enticing shot for the primary image, the one people see when scanning local listings. “Having that one picture that makes someone click on it is really the most important thing you can do,” Shatford says.

Make sure the price is right

“A bunch of people are kind of guessing the value of their home,” says Michael Quinn, brand manager at Wheelhouse, which makes software that analyzes data and local demand to set nightly prices automatically for hosts’ rental properties. Many of the hosts he’s talked to set their prices too low in an attempt to undercut the competition. But, Quinn says, “you should be getting what your home is worth.” Plus, a cheap listing can turn off potential guests who wonder, “What’s the catch?”

Airbnb has a Smart Pricing tool, which, according to its website, “lets you set your prices to automatically go up or down based on changes in demand for listings like yours.” You can turn to tools such as Wheelhouse and Airdna to help determine the best price to list. Or, set your own prices with a few tips in mind, from Shatford’s blog, rentingyourplace.com:

  • Compare your property with similar rentals in the area to gauge about how much to charge each night
  • Charge a little less than the competition until you’ve racked up a few positive reviews
  • Anticipate local events that bring in out-of-towners, such as conferences, marathons and music festivals. Hike up the nightly rate during those events.

Plan to spend money

“I wish I would have known of all the expenses associated with renting a home,” says Sally Kane, who rents her West Virginia home through VRBO, Craigslist and a local rental agency. With so many guests, you’ll have to shell out more for cleaning and property upkeep than you would for one family.

“Rental properties suffer a lot of wear and tear,” Kane says. “I must frequently replace towels, linens, comforters, dishware, pots and pans, deck furniture and other items that become worn with heavy use.” She adds higher utility bills, as well as frequent cleaning and lawn services to the list of renter expenses.

Plan to pay Airbnb and VRBO, too. Airbnb charges hosts a service fee of about 3% for each reservation subtotal. The majority of hosts using VRBO choose to pay a flat rate of $399 per year, but they also have the option of paying an 8% commission per booking instead.

Document rental expenses, income for taxes

If you rent out a home for 14 days or fewer throughout the year and live there the rest of the time, the IRS doesn’t require you to pay tax on that income. Rent for more than 14 days, and it does.

You can likely deduct expenses such as those towel replacements and cleaning services. But organization is key. Alexis Sitka, who rents part of her family’s house in Fort Myers, Florida, tracks her expenses in a spreadsheet and keeps receipts in an envelope. She even has a separate bank account for Airbnb transactions.

The websites of Airbnb and VRBO suggest hiring a tax expert. The following resources may be helpful as well:

Once you’ve sorted out the money matters, you’re ready to rent and make that extra income.

You may even enjoy meeting those strangers who used all your shampoo. Sitka and her husband enjoy exchanging travel tips with their guests. “Some of the people we’ve met have become friends on social media,” she says. “It’s fun to stay in touch.”

Laura McMullen is a staff writer at NerdWallet, a personal finance website. Email: lmcmullen@nerdwallet.com. Twitter: @lauraemcmullen.