Airbnb has revolutionized the short-term rental market, cementing its position as a powerhouse in the travel industry. With its innovative platform and strong brand recognition, Airbnb has seen remarkable growth and now dominates the industry.
According to Statista, in 2023, Airbnb guests booked a staggering 448 million nights and experiences through 5 million hosts. The company’s global revenue approached $10 billion, making it the third most visited travel and tourism site worldwide, just behind Booking.com and Tripadvisor.
However, Airbnb’s rise hasn’t been without controversy. The platform has disrupted local housing markets, as outside investors scoop up properties in tourist hotspots, driving up prices and reducing housing availability for locals. This has led cities like New York to enforce strict regulations on Airbnb rentals, favoring long-term stays and skewing the market towards apartment living.
When most people think of Airbnb, they imagine picturesque vacation homes. But many hosts make money by renting out apartments for both short-term stays and long-term living. The question is, how much profit do they actually make after covering all associated expenses?
To find out, GOBankingRates spoke with an entrepreneur who rents an apartment on Airbnb as a side business to supplement his income.
A Seafood Seller Turns an Apartment Into an Income Stream
Matt Bellerose, the founder of the seafood delivery company Lobster Order, which ships fresh seafood and other delicacies directly to customers, decided to diversify his income by renting out an apartment on Airbnb.
“I’ve supplemented my income by hosting an Airbnb apartment for three years,” Bellerose said. “My two-bedroom apartment in Downtown Portland generates an average monthly revenue of $3,200.”
However, as a seasoned entrepreneur, Bellerose knew that gross revenue wouldn’t be the same as net profit.
“The actual profit is much lower due to various expenses,” he explained.
Predictable and Unexpected Costs
Just like homeowners, Airbnb hosts must budget for recurring bills to keep their rentals operational. Bellerose’s monthly expenses include $400 for cleaning services, $150 for supplies like toiletries and coffee, and $200 for utilities. He also sets aside $300 each month for maintenance and repairs.
But then there are the unexpected costs. “One surprising cost was insurance,” Bellerose said. “My regular homeowner’s policy didn’t cover short-term rentals, so I had to purchase additional coverage at $600 annually. Also, local regulations required a short-term rental permit, costing $200 per year.”
Start-Up Costs and CapEx
To make the apartment appealing to guests, Bellerose had to invest significantly upfront. “I invested $15,000 in furnishings and decor to make the apartment attractive to guests,” he said.
In addition to start-up costs, there are capital expenditures (CapEx) for unforeseen expenses. “Unexpected expenses have included $2,500 for a new water heater when the old one failed suddenly and $1,800 to replace a damaged sofa after a guest party got out of hand,” Bellerose said.
What’s Left Over as Profit?
Airbnb, of course, takes a cut of the revenue. “After Airbnb’s 3% host fee, my average monthly profit is around $2,000,” Bellerose said.
However, this doesn’t translate directly to $24,000 a year. After accounting for all expenses and taxes, Bellerose is left with about $18,000 in annual profit. “While it’s a nice supplemental income, it’s far from the windfall some might expect, given the apartment’s $38,400 annual revenue,” he said.
In conclusion, while renting out an apartment on Airbnb can provide a substantial supplemental income, the actual profit is significantly lower after considering all the associated costs and expenses. For Bellerose, the venture brings in $18,000 annually, demonstrating that the profitability of Airbnb rentals requires careful management of both predictable and unexpected costs. However, still a very profitable small alternative investment.
