How to Reduce Risk and Reap Profits When Renting a Home or Room on Airbnb

By on January 13, 2018

Are you trying to pay down your mortgage as quickly as possible? Do you have a room in your home that you aren’t using, or are you frequently out of town and paying for a space you don’t occupying very often? Perhaps you still own a city condo while you and your spouse have moved into your first starter home and want to rent out the space for a profit?

A peer-to-peer short-term rental service, such as the ever popular Airbnb, might be the solution to your problems. Here’s what you need to know about the risks and rewards of renting out all or part of your home through these new shared economy services.

Listing Your Home or Room on Airbnb

You decide when to make your space available and at what price. Listing is free, and you can individually approve potential guests. In setting your price, you will need to consider the going rate in your area by looking at competing listings.

Then, consider the costs of hosting – including cleaning, higher utility bills, taxes and Airbnb’s host fee, which is 3% for payment processing (the guests pay Airbnb’s 6% to 12% booking fees). Beware, some cities or municipalities may require you to have a business license or owe local taxes on any income you earn. For example, you might have to pay a transient occupancy tax (as measure used to keep the peer-to-peer system from undermining the hotel industry in your area).

Before you list your home or spare room, make sure you understand Airbnb’s hosting standards for listing accuracy, communication with guests, keeping your reservation commitments, cleaning your place for each guest and providing basic amenities such as soap and toilet paper. Once you register, you will need to create a listing for your space. Clean and declutter your space before photographing it to present it in the best possible light. In most cities, Airbnb will even send a professional photographer to capture your space for free if you are an active host.

Depending on how much your earn, you will probably owe federal taxes on Airbnb income. The annual total you earn will be reported to you and to the IRS on form 1099. Speak with your trusted tax professional and financial advisors to find tax savings on your Airbnb income by deducting business expenses, such as cleaning fees and insurance.

The Risks Involved with Renting Your Space

When you rent out your apartment or spare room to a near-stranger, and you will not be on the property, you are making some very trusting assumptions of your guests and the overseeing service company (Airbnb). Most hosts are assuming that the person they have entrusted their home to will treat it with respect, and none of their personal belongings or sensitive document will be damaged or stolen.

For the most part, you and the company will go through a series of procedures which will ensure that is most often the case. However, you will want to find safe places to store anything of high sentimental or financial value such as tax returns, credit card applications, or valuables. Don’t give guests the opportunity to steal your possessions or your identity.

4 Steps to Managing Risk When Renting Your Home on Airbnb (or other Peer-to-Peer Sharing Sites)

Most peer-to-peer hosts are at risk for property damage or identity theft. Before sitting down with your own insurance broker, review these four common risks and strategies for mitigate financial or personal losses.

#1 – Understand the Fine Print of the Host Guarantee

Credit cards and financial instruments aren’t the only items not covered by their much-trumpeted insurance policy for hosts. Before you decide to list your property on the site, read (and understand) the fine print of all agreements. And speak with your insurance agent to determine whether or not your homeowners policy covers you for any property damage, theft or identity theft you encounter from renting out space through Airbnb or a similar service.

The Airbnb host guarantee does not protect against general wear and tear to your place, but you may charge a security deposit to cover such minor damages. Claims may be files in the event of excessive damage beyond $300. Additionally, hosts have a limited window to file a claim: 14 days or before the next guest checks in, whichever is sooner.

It is imperative that you inspect your property before and after each guest otherwise you’ll have no way of knowing which guest caused the damage and you may not be eligible to file a claim. Airbnb asks that hosts first try to resolve any problems directly with guests before filing a claim. To file a claim, document any damage with photos, substantiate the value of the damaged property and file a police report.

#2 – Get to Know Your Guests

For Airbnb, due diligence is a pre-condition if you wish to qualify for the Host Guarantee. You are required to communicate with your guests and review their profiles in-depth (at a minimum) in order to qualify for any damage or theft reimbursement. It is also recommended that you perform a cursory search of your guests on Google or social media platforms (such as Facebook or Instagram), read their previous rental reviews, listen to your gut and arrange for the key exchange face-to-face. You can rescind your offer if anything seems remotely uncomfortable, though in some cases Airbnb will impose penalties.

Hosts can also limit reservations to only accept offers from guests who have completed Airbnb’s Verified ID process. Both hosts and guests can have Airbnb verify their identity by uploading a valid government-issued ID and connecting a Facebook, Google+ or LinkedIn account to an Airbnb account. This may deter any guests with malintent.

#3 – Protect Your Personal Information

Use a P.O. Box or Stop Local Mail Delivery If You Are Away

If you, or a trusted friend or neighbor, will not be residing on the property while guests are present, you may want to have your mail delivery placed on hold or transferred to a P.O. Box. Either option will keep your mail — and your financial documents and personally identifying information — safe from an ill-intentioned guest. If you plan on offering your space on Airbnb often, it may be well worth the investment to avoid potential identity theft situations.

Shred Sensitive Documents

Even if you have a shredder, the best of us tend to let the to-be-shredded pile grow as we get busy. Before you hand over your keys, make sure that anything that isn’t locked away in a remote location is slashed into little tiny pieces (and that those morsels of confetti are deposited into an appropriate trash receptacle).

Invest in Off-Site Protected Storage Devices

It might sound antiquated, but safe-deposit boxes aren’t just filled with diamonds for movie thieves to pilfer. Most local banks offer them for free or a small fee (depending on what kind of account you have) and, in reality, you shouldn’t have to use your Social Security card or birth certificate so often that it needs to be in your house. For larger items like artwork, firearms or collectibles (which are not covered against loss by Airbnb) or the rest of your financial files, look into a secure, climate-controlled storage space and a really good lock.

If you are concerned that your personal information has been compromised because of a house guest — or for any other reason — remember, you can check your credit reports for free once a year. Make sure your reports are accurate and that you recognize all the accounts. If it is worth it, pay to check your credit reports a few weeks after each guest.

If they contain either inaccurate or incomplete information, contact the three major national credit reporting bureaus (Experian, Equifax and TransUnion) immediately and start the dispute resolution processes. If this all sounds inconvenient and expensive compared to what you could realistically earn as a host, consider whether you should host at all (and what it would cost to replace your valuables).

#4 – Purchase Extra Insurance

Let’s talk about insurance. Airbnb’s host guarantee provides up to $1 million in insurance coverage for property damage in 29 countries, including the United States, United Kingdom and Canada. It is important to note that Airbnb’s insurance is not a substitute for homeowner’s or renter’s insurance, and it doesn’t protect against theft or personal liability.

Talk to your homeowner’s or renter’s insurance company to make sure your policy will cover your property, your possessions and your liability while renting out your place through Airbnb. If you need extra coverage, an umbrella policy might be the ticket.

The growing sharing economy offers ways to make extra income that weren’t available even a few years ago. Many of these opportunities require you to be comfortable navigating unclear local laws, sharing your most valuable possessions with strangers and taking on additional legal liability. Sound like a lot of work for a few thousand dollars? It is and it should be.

These space sharing services come with their own set of risks, Airbnb is no exception, but if you are willing to take on the risks and perform your due diligence, you could be rewarded with thousands of extra dollars a year and avoid having to put your life back together again after your identity has been compromised. Do you homework and seek out extra protection where possible and renting your home can be an easy method for extra cash to help you reach your financial goals.

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About David Leighton

FSN real estate investment journalist - Property can still be a great way for someone to secure or grow their portfolio. Any smart investor with a good education and understanding of the opportunities in the the market can buy their dream home, rental unit or commercial parcel. David wants you to have the tools and resources to make informed decisions in your real estate investments. Connect with David on !

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