Many view Airbnb hosting as a simple way to earn some side income. A spare room becomes easy cash, and not much thought goes into it beyond presentation. However, for it to last and grow, you need to already be treating it like a business and plan forward. Because, as you do grow your AirBnB presence, you will wish you had started early.
This is a collaborative post.
From host to entrepreneur
The hobbyist host often reacts. A problem arises, and they fix it. Standards fluctuate, and finances mingle with personal accounts. Expenses can then feel like personal costs, which you’re often uncomfortable making when the nightly rate is fixed, rather than investments. This reactive approach breeds stress and is holding you back from growing.
The key here is that it may be stopping you from making well-needed improvements (investments) to then charge a higher nightly rate, increase bookings, or even get a second and third property.
Systems standards and suppliers
True business efficiency stems from systems. Relying on memory or improvisation is what leads to inconsistency and errors. So, to sort this out, you must begin with standardization. Unique setups, even in one property, create chaos as you begin to manage multiple units. Standard Operating Procedures (e.g. how you clean, check-in/out etc.) should be documented from the offset. This way, things grow according to a process, and it cuts down on confusion as each dwelling will be the same.
Another element often overlooked by newer hosts is supplier strategy. Instead of looking at Argos for outdoor furniture, you can go straight to outdoor furniture manufacturers. B2C purchases will still happen of course, as it’s convenient, but B2B suppliers can yield cost savings via buying in bulk, and buying furniture that is designed to withstand many visitors.
Every guest then encounters the same quality towels, for example. The same dependable coffee maker in each home is easy to maintain when it breaks, because the spare parts are shared, as is the knowledge on how to fix them.
Standardizing items through a B2B supplier means using the exact same model appliance, same type of lock, same bedding across units… Troubleshooting simply becomes faster, and the cost per unit decreases as you scale up.
Knowing your numbers
A hobby might ignore the bottom line, but a business lives by it. Treating your Airbnb professionally requires a lot of financial diligence. Commingling funds is a big issue here, as you mix in your personal spending with professional spending. This not only makes expense tracking and bookkeeping more tricky, but it can muddy your KPIs, which you will need to measure your efficiency, profitability, and which of your AirBnBs needs more attention.
Occupancy Rate Average Daily Rate (ADR) and Revenue Per Available Room (RevPAR) are useful, as is your Net Operating Income (NOI) to gauge true profitability. Develop a budget, and account for variable costs like utilities, supplies, along with fixed costs like the mortgage.
The guest experience as your core product
You aren’t just renting out a room – you’re delivering a product, and the guest experience is everything. A business approach elevates this product because it’s treated as such. Treating it as a business will also come across in your tone, as you become more timely and professional.
Consistent quality in cleanliness is of course important to guests, but so is the process you do to achieve that. You will cut down on human error when it’s viewed as a repetitive product rather than hosting a friend, because you will be more ruthless in how you achieve your goal. This may sound cold, but the result is effective.
Navigating regulations and managing risk
Operating under the radar is not a sustainable business strategy. Professional hosts understand the regulatory landscape to proactively manage risk. This involves researching and securing all short-term rental licenses and permits. Everything down to the fire alarm and fire extinguisher will need to be validated and routinely checked, though of course it depends on the license at hand. You also need to know how to properly manage waste upholstered domestic seating containing POPs, for example, which is something many casual hosts wouldn’t even think of.
Within this, insurance insurance becomes key. Insurance that is aimed at short-term rentals specifically will have better coverage compared to standard homeowner policies. Properly registering for collecting and remitting occupancy lodging or tourism taxes is of course non-negotiable, but again, dependent on the area.
Building a sustainable Airbnb business
Transitioning your Airbnb from a casual endeavor to a structured business isn’t easy, as it requires both a change in mindset and, more often than not, putting your hand deep into your pocket.
It moves beyond the hope of passive income. In fact, it shouldn’t be seen as passive at all for the time being. Instead, there should be plenty of proactivity until you have scaled up enough to eventually hire a property manager.
Even if you do not have dreams of scaling up, but want to keep just one or two AirBnBs – it can still be beneficial to buy from suppliers, create proper business accounting, and view it as a more professional endeavor.