Hosting guests is a pleasure. I really love doing it. I’ve become so passionate about hosting on Airbnb I made this site. I think everyone should do it – seriously, sign up here* and get going. I started out with The Great Airbnb Experiment and have really caught the bug now. But you shouldn’t lose money doing it. This is a business and you need to treat it like one. You need good Airbnb cashflow.
Your Airbnb has expenses. A mortgage, property taxes, insurance, cleaning fees, gardening fees, and on and on. You need to make sure you are bringing in more in bookings than you are paying out in expenses.
Cashflow is so important because it keeps your head above water when the market dips. If you don’t have positive cash flow, at best your savings are getting eaten away, and at worst it sinks you. Never forget – Cash is King. I repeat. Cash. Is. KING. If your Airbnb is in the red, read on for 10 tips to improve your Airbnb cashflow (or other vacation rental):
1. Re-finance
This is a pretty pain-free way to improve your Airbnb cashflow. Get a better interest rate, a longer term, move to interest only. Do all three if you have to.
Interest rates are at about their lowest ever, so if you haven’t remortgaged in a while you should definitely consider it.
If you’ve already got the best rate, or that alone doesn’t improve cashflow on your Airbnb, you can also look to increase the term of the mortgage. Obviously you’ll end up paying more for longer, but your monthly payments will be less so your cash flow will improve.
2. Raise Your Rates
Here’s another tip to improve Airbnb cashflow , but this one is not so pain free – for the guest at least. But it will be painful for you too if the increase causes your bookings to dry up. So consider this one carefully.
In my view, nightly rates should only be raised after you’ve proved yourself. If you are just starting out you will need a low nightly rate to ensure you get enough bookings. But once you gain a reputation for providing top quality service (particularly by being recognised as a Super Host) and a load of rave reviews, you can justify a higher price. A minor increase in your nightly rate can be enough for your cashflow to go from red to black.
3. Fire your Property Manager
Property Managers eat into your bottom line. So if you need to improve your Airbnb cashflow, consider managing your property yourself. You don’t need a property manager. I managed my Airbnb from 4000 miles away, mostly through automation, so I’m sure you can manage it yourself too.
You would save 10% to 30% of your GROSS income by firing your property manager, so the savings here can be significant. Definitely enough to turn a poor performing Airbnb around.
4. Up-Sell
Up-selling is where a seller encourages a buyer to take an upgrade or an add on to make a more profitable sale. And it works. Everyone knows it does. But… it can be sleazy.
It doesn’t have to be. Up-selling can be done well, if you provide real value. Here’s 5 ways you can up-sell on Airbnb. The extra income this can generate can easily be enough to convert a poor performing Airbnb into a stellar one with great cashflow.
5. Change from whole house rental to individual rooms
Another way to improve your Airbnb cashflow is to change from a whole house rental to renting individual rooms. This may be particularly effective in university towns, or in locations where there is a scarcity of cheap accommodation. Instead of one guest paying $500 a week for a three bedroom property, three tenants might pay you $200 each and you’ll see instant cashflow improvements. Bare in mind though, you may face further red tape with this type of property. You are also more likely to face greater wear and tear.
6. Minimize repair costs by doing pre-emptive maintenance
Repair costs gnaw away at your bottom line. One of my rental properties (the first house I ever owned) was built in 1882. Initially it needed constant repairs, which were eating into my bottom line. So I became much more diligent with regularly scheduled maintenance, and now I catch small problems before they escalate. This saves me money, and keeps my Airbnb cashflow positive.
7. Shop around for cheaper insurance
When I first moved to America I couldn’t believe the cost of home insurance. I received one quote (from a really respected company) for $13,000 for the year. My U.K. rental property insurance is £300. Quite a difference! But then we don’t get many hurricanes in the U.K, so I kind of get it.
Eventually, after a lot of searching, I found a quote for $3400. I took it. The following year, I shopped around even harder, playing several insurance agents against each other, and got it down to $2700. Still high to me, but my Airbnb cashflow definitely improved.
8. Challenge your Property Tax bill to try to have it reduced
This is not something I’ve done, so speak with absolutely no authority (as usual!). But I’m interested in it – because my Property Taxes are so high! I’m going to research this further and see if it’s worth it for me to challenge my property taxes.
In the US, the system seems to be that each year the local government or municipality assess the current value of your house and you are then taxed on this figure. It’s important to realize it is not the actual purchase price of the house you are paying tax on, but an assessed value of its current worth. During a property boom, this could be much higher than the figure you bought it for.
I stumbled across this guide to challenging property appraisals. To give you the gist of it – you have to appeal in person to an appeal board. The tactic seems to be to highlight all the negatives about your property to show it should be worth less! Point to neighbours houses which sold for lower prices or that sold for the same but are better than yours. It seems a bizarre system to me, but I may well try it.
In the U.K., property tax (council tax) is charged based on the value of your property from back in the 1990s – weird right? Long story short, check out Money Saving Expert’s guide to reducing your council tax.
9. Make Improvements
This one won’t pay dividends right away (you’ll be spending money), but by giving your Airbnb property a bit of extra TLC, you stand a higher chance of attracting premium guests who will pay a higher rate.
If you are new to DIY, jump onto YouTube or take a course at Home Depot for free.
10. Pay off a lump sum of the mortgage
I’m not completely convinced of this one myself. The whole point of having positive cash flow is to make sure you have cash on hand when you need it. So chucking a big lump of money at the mortgage principle isn’t necessarily the smartest choice. However, if you were over leveraged in the first place and you’ve got the funds spare it will save you a lot of money in interest payments over the long term so can be worth considering depending on your objectives. Having a better loan to value ratio can also help you remortgage to a better interest rate. Personally though, I would rather try everything else first and use any lump sum I save for the down payment for my next property.
Give it time – let inflation do its work.
If your Airbnb cashflow is negative, and none of the above methods have succeeded in turning the finances around, you’re left with two options – sell it, or wait it out. The nature of inflation means average nightly rates are likely to keep rising over the long term, so if you need to cut back on other expenses to keep the wolves from the door, so be it. In a few years time you’ll be glad you did.