Business Financing and Loans for Airbnb Hosts
- August 9, 2018
- Posted by: Jeff Gitlen
- Category: Small Business Loans
In recent years, Airbnb has become incredibly popular. In 2017, 25 percent of leisure travelers expected to book at least one stay via Airbnb. This was up from 19 percent in 2016, according to a report from Morgan Stanley Research. With over 4 million listings in more than 191 countries around the world, it is little wonder so many people are choosing to stay in an Airbnb rather than book a hotel.
With so many people eager to stay at an Airbnb, there is a big opportunity for entrepreneurs to make some extra money by renting out a house, apartment, or other space. While Airbnb does not release the number of people who currently host guests, estimates place the number at around 650,000. In 2017, Airbnb revenue topped $2.6 billion, with hosts making an average of $924 per month.
Some hosts have even been able to earn enough through Airbnb to quit their jobs. Of course, there are costs associated with hosting through Airbnb — from obtaining the property you want to rent, to increased taxes and property insurance, to paying commission, and ensuring your rental is well-stocked and cleaned for each guest.
If you want to get involved in the potentially lucrative business of hosting guests through Airbnb, you will likely need some capital to get started. Here are some tips on how you can get money for this non-traditional type of business.
On this page:
- Common Costs of Becoming an Airbnb Host
- Challenges of Getting Financing
- Small Business Loans for Airbnb
Common Costs of Becoming an Airbnb Host
There are a variety of costs associated with becoming an Airbnb host. Perhaps the most obvious is the property itself: You will either have to rent or purchase a place to list, if you do not already own a property you can rent. Beyond the property, there are a number of expenses you should take into consideration before listing on Airbnb.
First, carefully evaluate your tax situation. If you are renting out your personal home, you will need to report money earned from Airbnb if you rent it out for more than 14 days per year. If the property is not a personal home, it must be reported as rental income. Be sure to consult with a tax professional to discuss the tax implications of renting via Airbnb before starting this endeavor.
Second, Airbnb charges a flat three percent commission to hosts to cover the cost of processing payments. While this fee is relatively low, it can add up over time making your overall profit margins decrease significantly.
Third, you will need various supplies for your listing. These may include everything from sheets and towels to basic household items such as soap, coffee, and dishes. You will also need to purchase any furniture and electronics you do not already have.
Fourth, after your guests leave and before your next guests arrive, you will need to clean up. This most likely will involve doing laundry and scrubbing floors, or paying someone else to do it for you. While many hosts choose to tack on a fee to cover the cost of cleaning, it still should be factored into your overall budget.
Fifth, consider what type of insurance you will need. While Airbnb offers insurance to American hosts, it only provides basic liability and property protection, which may not be sufficient. Property owners should call their insurance companies to make sure their coverage is enough to protect them against all possible scenarios.
Challenges of Getting Financing for Airbnb
All of these costs can add up, requiring a potential host to shell out thousands of dollars before he or she has ever booked a guest. While obtaining financing is often the solution for small businesses, it is often difficult for people operating a rental business through Airbnb.
Banks are more closely scrutinizing how properties are being used when it comes to either writing new mortgages or refinancing existing mortgages. They are uncertain about how to classify loans for homeowners who intend to use the loan proceeds to operate a rental property as a primary residence or a rental property. Traditionally, mortgages on rental properties have been viewed as a riskier proposition for banks. Many banks will not extend home equity lines of credit or other types of loans on properties that a homeowner is using as a business, including as an Airbnb rental property.
It can also be challenging based on local laws or city ordinances. Some localities restrict hosting on sites like Airbnb, so banks will not lend money to an entrepreneur who would be violating the law by renting out properties. Banks may also be averse to lending money to a proposed business that could become illegal, given that some cities have moved to prohibit Airbnb hosting in recent years.
Small Business Loans for Your Airbnb
Although it can be difficult to obtain financing for an Airbnb business, it is still possible. There are some small business loans available that have sprung up in response to the demand for Airbnb financing. These include companies that offer advances on Airbnb reservation receivables and loans to Airbnb hosts.
For example, Payfully purchases Airbnb reservation receivables so hosts can be paid within 24 hours for their future reservations. Once Airbnb pays the host, Payfully automatically deducts the same amount from the host’s bank account. The company charges a fee of between three to five percent and requires hosts reach a certain status (hosting for a period of time and have a number of reviews) before using the service.
Airbnb also offers early payouts for its American hosts. Through this pilot program, Airbnb will send 50 percent of their payout three days after a guest books, and the rest after a guest checks in, with a one percent early payout fee. This fee is waived for reservations less than 14 days away. There are exceptions to the early payout program, including long-term reservations of 28 nights or longer, reservations subject to super strict cancellation policies, and reservations involving co-hosts, landlord agreements, or hotels.
If you would rather get a loan, Clearbanc offers cash advances to merchants, including Airbnb hosts, with a flat, fixed fee. The lender analyzes your past, present, and future business to determine the amount of funds you need to help your business grow. For Airbnb hosts, there are minimum qualifications, including having listings for at least the past six months, having future bookings for the next 60 days, having monthly revenues over $4,000, and being incorporated. There is no fee to apply for an advance, but there is a fixed fee charged for each advance, which is determined based on the creditworthiness of each applicant. Repayment is made from future business revenue.
One final option is a relatively new tech startup, Loftium. This company offers down payment for a house to eligible buyers in exchange for the buyers listing a room on Airbnb. The catch is Loftium gets all of the income from the rental, but you don’t have to pay back the down payment, and Loftium is not on the title of the house. Loftium also provides all of the supplies to get started hosting, including linens and toiletries, along with keyless entry for your guests.
While getting financing for Airbnb hosting can be challenging, there are some great options available that may help you get your foot in the door — or build your business once you are already established. So if boosting your income from an Airbnb rental sounds like a good idea to you, consider one of these options for financing.