How to Start a Short Term Rental
Recently short term rentals (thirty days or less) have been in the news a lot. People are posting spare bedrooms, couches and houses on websites like Airbnb, FlipKey and VRBO are helping people like you and me to cash in on the sharing economy.
Have you thought about starting a short term rental? Not sure what to do or where to turn? Here are some time-tested ideas, suggestions and step-by-step instructions to answer your questions and make starting your new business easier. Although the following tips and suggestions are geared toward someone who is in the very beginning stages of starting an rental, anyone should be able to gain a tip or two and it could even help a seasoned host increase their bookings and please more guests.
I had a house I decided to convert from a long term to short term rental. My first year’s income as a short term rental was more than double what I would have earned from monthly renting the house. This experiment sold me on the viability of the business model. We all want to make money so here is how to make money renting your extra space!
The first item to accomplish when you are thinking about starting a short term rental business is to research rentals around you. Go onto Airbnb, FlipKey.com and VRBO.com, enter your city in the search bar of each website but don’t enter any dates so you will get more representation of what is available in your area. Filter the results to what you are offering, whether it is an entire house or room. Read many (yes, many) of the descriptions and think about what you could offer that would be different from other people. Think about it this way, “Why should someone book with me instead of somewhere else?” Whatever it is that separates you from other people will be your “hook” to draw guests.
During my research phase I booked a suite at a nice hotel for a night. I took notice of the items the kitchen was stocked with and general furnishings. This experience gave me a good idea of what guests would expect when visiting my own house.
While you are on the rental websites, take time to read the guest’s comments on other people’s listings. By doing this you can get an idea of mistakes others have made and learn from them. You will also get ideas for things you would like to offer your guests thus creating even stronger hooks. Look for star ratings that are both low and high to read both guest complaints and praises.
Another aspect you will need to research are local laws and rules in your area. Some municipalities and home owner associations forbid personal rentals or forbid renting for less than thirty days. Some rules limit the number of times you can rent in a year. You may be required to purchase a business license and register to collect taxes. I strongly encourage you to stay above the law when running your business. Failure to comply with regulations may incur serious fines and even jail time. As the sharing economy takes a stronger hold expect governments to do what they do best- get in the way. The government loves to regulate and has difficulty ruling over this type of business so many municipalities have shut it down altogether or have made it nearly impossible for people to use thier own property in the way they want to.
Start a Business
As with any business, you should also incorporate and operate minimally as a Limited Liability Corporation (LLC) to help protect you and your assets should you be sued. It is not a bad idea to consult with an accountant to make sure you can take advantage of as many tax deductions as possible. A rental attorney may be able to advise you on laws in your state that also affect short term rentals. In some areas hosts are considered landlords and must treat guests according to state tenant law. Open up a bank account in your business’ name so you can accept direct deposits from the rental websites.
As you review listings on the rental websites, take note of nightly charges for similar listings around you. Calculate the average nightly price for comparable spaces. This should be your starting point when setting your rate. Obviously if you list too high you will get fewer bookings. If you want fewer reservations, go for it. You can maximize your bookings and income by changing your prices to meet supply and demand for different times of the year.
Hosts who list their digs too low hurt themselves by losing money. Furthermore, pricing too low drags the price of listings around them down which ultimately hurts the entire community. Some new hosts will initially lower their price to get some reviews under their belt. There is nothing wrong with this strategy, just be sure to raise your price after a few reviews so you do not keep losing money.
One other tip to mention while discussing price is quality. If you intend to furnish your house with cheap furniture and mattresses then don’t expect to be able to charge high prices without getting poor reviews. The higher the nightly rate, the higher expectations your guests will have. If you paid the price for a 5-star hotel you would expect 5-star service. Your guests, and rightly so, will expect the same.
FlipKey and Airbnb offers hosts price suggestions based on expected travel patterns. This can be found beside your calendar in your administration panel. Some people have found this to be very helpful in determining price. Play with this feature and, over time, you will be able to get a feel for your market and will be able to set your rates competitively. Don’t be afraid to change your rates daily to keep your house rented. Also, don't worry of the websites indicate a price that you feel is way out of the ordinary. Use the price suggestion as a tool.
What is Your Why?
Before we go further let’s determine your WHY or purpose in starting a short term rental business. Operating a short term rental properly takes time and effort. Some people desire to simply make a few extra dollars on the side. Some people desire a full-time business for the income. Each of these purposes will determine how much effort and time you will need to devote to your business and, to an extent, how much your start-up costs will be.
After determining your why, you will need to figure out HOW you intend to operate your business. In most instances someone will need to meet the guest and provide keys and orientation. There are some very successful rentals that are fully automatic; however, most guests like to be greeted on arrival.
The guest area will need cleaned after every guest. Inquiries will need to be answered in a timely fashion. Guest’s problems or concerns during their stay will need to be address right away. In every instance, either you must be available or you will need to hire someone to do the job for you. In some states anyone who manages any type of rental property who is not the property's owner must be a licensed real estate agent or broker. Make sure you are on the right side of the law before you hire someone to completely manage your business.
Take time to map out how your business will operate before you spend any money getting your space ready. It is quite possible to have your first guest within hours or days of your listing appearing on the rental websites so all of the operational details must be settled in advance. If you will be using a cleaning service your contracts should already be in place prior to going live with your listing.
Just like any new business there will be start-up costs. Your level of commitment will dictate how often you will rent your location and help you determine how much you should spend to start this business. If you only want to rent occasionally then you will not want to put a lot of money into start-up costs as it will take longer to recoup your expenditure. Someone who desires to rent full-time should take more care in the quality of furnishings as they will get more wear and tear and you do not want to continually spend your profits replacing furnishings all the time.
If you already have a home that is fully furnished then you can start your short term with minimal cash outlay, but you should still review your furniture to make sure it looks nice and matches the overall decor. Your business will live or die by guest reviews, therefore it is important that you do not provide your guests with obvious reasons to give you lower ratings.
Start-up costs may also be affected by the condition of your property. Look around your house (inside and out) for safety hazards. Your guests will be unfamiliar with your house and may be accessing it after dark, so common blemishes like broken sidewalks, loose paving stones or twists in a walkway and inadequate lighting can cause problems. Peeling paint will cause lower than necessary ratings and is an easy thing to fix. Plants and flowers always bring a fresh look to property.
Many people rent their guest bedroom and the mattress in that room is often a hand-me-down or purchased cheap. Double check to make sure it is comfortable. Remember, your guests are ultimately renting from you for a place to sleep. The mattress is extremely important. I have read numerous guest reviews of people complaining about the mattress at their host’s house. This ought never to be!
Obviously a completely empty house is going to cost quite a bit to get furnished. Again, starting up almost any business can be expensive. Be very careful as you make your purchases or you can easily spend close to $15,000 USD outfitting a simple three bedroom home. Remember, every dollar you spend must be recouped before you can make a profit. If you really research your purchases and take advantage of yard sales or second-hand furniture stores you should be able to nicely and completely furnish a one-bedroom, one-bathroom home for around $5,000. Add $200 to that amount for each additional bathroom and $950 for each additional bedroom. These amounts do not include extra rooms such as offices or bonus rooms.
Decorating Your Home
No one wants to stay in a boring pad. Spend a few extra dollars to decorate each room with a picture or nice framed poster. Fill an empty corner with a real-looking artificial plant. Authentic looking plants can be expensive but they are well worth the effort in livening up an otherwise dead room. Stay away from real plants unless you have a very green thumb as well as a way of watering them regularly. You can’t expect your guests who have booked for a week to water and take care of your plants nor will your guests want you entering thier rented area to water them either.
Be selective when choosing paint colors. Many hosts love to decorate based on their own character, but some guests will overlook your house if it has wild colors or weird décor. Keep everything tasteful to the majority of your guests and you will have more bookings. Throw rugs are relatively cheap decorations that can really give a room a finishing touch.
Purchase room darkening curtains. Your guests will probably not keep your schedule and may need to sleep during the day. They will appreciate being able to block out sunlight just as they would in a regular hotel.
There are special considerations if you are renting rooms in your own home. Having strangers in your house is something you will probably need to make adjustments for. The more rules you expect a guest to obey- the fewer bookings you will get. You should abide by the same rules you place on your guests. Be ready to have quiet times to fit your guest’s schedule, not yours. Observe a decent dress code when in shared spaces. Not everyone likes to see a shirtless man no matter how toned the body may be.
Be prepared to keep pets away from guests until you know the guest is comfortable with them. It is best to keep pets out of guest’s rooms. I once saw a listing with a picture of a cat on the guest’s bed. Sorry, but I would never book with that host.
A big question for many people is the location of the bathroom and if they will be expected to share it with other people. Explain the bathroom situation in your listing. If the bath is shared then everyone must coordinate planning, amount of hot water for showers and the length of time the room may be tied up by someone else.
Determine how shared spaces will be utilized. If a living room is part of the shared space then be prepared for your guests to use your TV in that room to watch their favorite shows. You may end staying in another room such as your own bedroom more often. On the reverse side, don’t get upset if guests choose to be antisocial and stay in their own room. Some people are not very talkative or may just want a place to crash. In my experience many of our guests have driven several hours before arriving and are tired and want to sleep, not stay up and talk. Be clear in your desciption of which rooms are shared space.
One more piece of advice about shared space. If you don’t want a guest to use soemthing- move it out of the shared area. This includes toothbrushes and razors. Also understand that not everyone is like you. Their hygiene standards may be different. How they live will definitely be different. Expect guests to play the radio or TV too loud. They may not take off their shoes at the door and may even put their feet on your furniture. They don’t mean to be rude; it may be that that is just how they are used to living and don’t realize it is impolite. Cultures vary by country and regions of countries. Living with strangers requires lots of patience and understanding. It is not for everyone!
Additional Costs to Consider
Just like any business you will have additional and recurring expenses that must be deducted from your income to determine your net profit. In most situations your guests will expect some modern conveniences such as internet and TV. If you do not plan on having these in your home then you MUST disclose that in your listing description or expect upset guests, poor comments and lower ratings. Some guests may even leave to find another place to rent. Many monthly TV and internet subscriptions cost $20 to $50 in the United States.
Expect your water and electric bills to increase exponentially with the number of people now staying in your home. You will find yourself washing linens and towels frequently.
Another factor to consider, especially for people renting their entire homes as a full-time business, is the mortgage costs, house insurance, property taxes and normal wear and tear on the property.
Add together the estimated utilities, TV and internet costs, mortgage (if necessary), insurance, taxes and license charges along with routine supplies like cleaners and anything you will provide to your guests like snacks, water or wine. Compare this amount to your estimated expected earnings to make sure your nightly charge is high enough to cover the expenses.
Let’s Get Started
So far we’ve discussed why you want to start a short term rental business and what it takes to start your listing- a welcoming, well-furnished space that guests can relax in. The next topic to discuss is how to get the business rolling.
After you have furnished the house and everything is ready to go it’s time to take pictures and post your listing on rental websites. Let’s start with pictures. The easiest way to get good pictures is to use a professional photographer. In some areas Airbnb and Flipkey will provide professional photographers free of charge. Going that route can take about two weeks to get your pictures, though and your rental must be vacant at the time the photographer comes for optimum picture quality.
If a photographer is not available then you can easily do it yourself. Here are a few tips:
- Take your pictures during the day to take full advantage of natural light. Open all of the curtains and turn all of the lights on in the entire home before you start.
- Stand in a corner and take shots across the room to get the widest angles possible.
- Turn TVs off so they will not distract from the home.
- Take lots of pictures from many angles so you can select the best ones.
- Set the dining room table with a couple place settings.
- Make sure your pictures are honest and reflective of the actual rental so the guest gets what they see.
- Edit your pictures to brighten up any dark ones.
- Post many pictures in your listing. It is better to have too many pictures than not enough.
- Use clear, sharp pictures. discard blurry ones.
- Take pictures horizontally or landscape mode. Vertically oriented pictures do not look good on the Airbnb website.
- Make sure your pictures are at least 1024x683 pixels. If you are not sure of the size, just use big ones.
- Take pictures of both the exterior and interior of your home.
- Focus on amenities that will make your home appealing to a guest.
- Use your very best picture for your main photo.
When you create your listing choose a title that answers your potential guest’s questions. Is it a room, couch, trailer, hammock or entire house? Mention if it is close to a tourist destination or well-known landmark. Easy on or off an interstate may get you overnighters who simply need an alternative to a hotel for a night while travelling.
Use the description space wisely to sell your house. Think about your amenities and your hook. Paint a picture of your digs for the guest. Time spent developing a good title and quality summary is time well-spent.
The worst thing for a host is guests who arrive to discover that the listing does not match the pad. Write a detailed description that is factual and honest. If the house or neighborhood has a blemish that would potentially affect a guest then write it in there. Add something in all of the areas the rental website offers in the listing section of the administration panel.
Congratulations! You’ve made it this far. Now it’s time to welcome your guests. You don’t have to go overboard in your welcome. Try to keep the orientation to less than five minutes. Hit the basics- keys, beds, bathroom, thermostat, any special rules or offerings, and then answer any questions they may have. Be personable and welcoming but don’t overstay your own welcome!
We have lots of foreign guests so we have a notebook with instructions on just about everything in the house, even operation of the TV remotes along with maps to common destinations like the closest grocery store, restaurants and work-out facilities. We also repeat the house rules in case they did not read them on the rental website.
Go out of your way from minute one. People who tell us they are passing through on their honeymoon get rose petals on their bed. Guests from foreign countries are given a state flag to take home as a memento. Small children are provided with a basket of toys to keep them occupied. The parents are offered family friendly videos. Everyone gets a personalized thank you note and mints on a sterling silver tray placed on their bed.
It is not necessary to have snacks and gifts for your guests, although many people do. Staples like coffee are somewhat expected, though. Some hosts have water in the fridge, some ice cream, others provide a bottle of wine, and some provide earplugs to aid sleeping in noisy neighborhoods. We keep ramen noodles, a few quick meals and popcorn in a cabinet.
There you have it, a basic primer to starting your own short term rental. Do your research, make your house welcoming, your listing inviting and honest, then sit back and enjoy meeting people from all around the world!
I have developed a list of items that should be included in a short term rental focusing on items the guests will need. I have not included any large appliances under the assumption that those items will already be present. Do you need everything on this list? Probably not but I’ve tried to make it as comprehensive as possible.
lamp for nightstand
headboard (will protect the wall paint)
sheet set (two sets per bed)
comforter set (one per bed plus one spare)
pillows (4 per bed)
pillow cases (one per pillow plus equal spares)
blankets (2 per bed)
Minimum 32” TV
TV wall mount (for liability mount TVs so they cannot fall over)
Multi-outlet by nightstand for charging cellphones
clothes hangers (12)
waterproof mattress cover (You will be glad you did!)
room darkening curtains
spray air freshener in bathroom
laundry soap (if offering laundry facilities)
reading materials/magazines on a variety of topics for both males and females
BBQ grill (gas or charcoal)
towels (2 per guest allowed plus 3 or 4 extra)
washcloths (2 per guest allowed plus 1 or 2 extra)
hand towel (at least 2)
non-slip shower mat
shower curtain liner
non-slip floor mat
disposable cleaning gloves
disinfectant bathroom cleaner
general purpose cleaner
shelf or stand for electronics listed above
TV to fit the room size (think 40+ inches)
TV wall mount (for liability mount TVs so they cannot fall over)
dish drainer or towel
misc food if desired
food storage containers
dishes (plates, cups, glasses, etc)
sharp food prep knife
eating utensils (knives, forks, spoons, steak knives)
misc cooking utensils
wine bottle opener
beer bottle opener
ice cream scoop
salt & pepper
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