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Pros & Cons Of Renting Out An Area Of My House On Airbnb

Renting out an area of your house on Airbnb allows you to make extra money on the side while gaining cultural experience and knowledge. Beware, though, it doesn't come without drawbacks: short-term rentals aren't legal in all cities, having so many people coming in and out of your property increases the risk of property damage, and, finally, it's a lot of work.
How do you become a successful landlord? By picking the right tenants (by properly screening them with a checklist that we'll provide in this article) and by having a team of fellow industry professionals as your support system. If you do those two things, you should have no problem maintaining your properties and getting paid on time – which, in the end, is what it's all about. Screening Tenants It sounds a little bit like a chicken-egg scenario, but in much the same way that building a successful business relies on hiring the best and the brightest, the most crucial element to being a good landlord is having good tenants. You can be the nicest, most caring landlord in the world – getting your hands dirty fixing up the lawn and even fielding late-night phone calls about the plumbing – but if your tenant shows a complete disregard for your property, or, worse yet, a refusal to pay rent after the first couple of months, there's not much you can do except evict. Picture, for instance, two tenants. These are exactly the type of people (and scenarios) that you'll run into when you first get started as a landlord. While you're reading this, be sure to ask yourself: “How would I react?” That might help you in gauging whether or not you're cut out to be a landlord in the first place. We'll call Tenant A “Bill.” Bill is a friend of a friend that you met at a party. He said he needed a place; you mentioned that you just fixed up a duplex – bing, bang, boom: match. Bill seemed like a nice enough guy at first. When he started renting he had a pretty good job as an auto mechanic. He seemed hardworking; he was gone weekdays from noon to midnight, and where else would he be except at work? Then Bill disappears for a whole weekend and his car doesn't move out of the driveway the next week. One week becomes two weeks and two weeks become three. You don't think much of it. You figure maybe he's on sabbatical; that is, until the monthly rent comes due and you don't receive a check. Naturally, you decide to pop over to his side one day after work. Right before knocking on his door, you see that his recycling bin is nearly overflowing with Natural Light and Labatt cans -- and you don't remember him ever having people over. When he answers the door, you can smell the alcohol on his breath. He slurs some excuse about how he can't talk right now, shutting the door in your face as you ask about the rent. You do a little digging and find out that Bill is a repeat DUI offender. His most recent infraction occurred just a couple weeks ago; after calling his employer, you find out this led to the loss of his job. This all could've been avoided had you properly interviewed and screened your potential tenant. Create a Checklist After a costly eviction and a falling-out with Bill (and the friend who recommended him) you run into Tenant B after you put an ad out on Craigslist. Tenant B, “Amanda,” is a sorority girl; she's the sweetheart and Vice President of Finance for Gamma Sigma Apple Pie at the local university. You're worried she might be a party girl, but she has a 760 credit score that she's been building up since high school, a part-time job at a jewelry store that pays her three times the monthly rent, and she's a pre-law student. So Amanda, just like virtually every tenant that you'll run into, has a mix of both good and bad qualities – at least upon first impression as it relates to being a good tenant. But let's take both of the tenants through a basic screening checklist: Is he/she able to pay rent? Does he/she have a credit score? Is it at least above 600? Does he/she have a criminal record? Does he/she have a stable job? Failing that, does he/she have a support system that could help him/her pay rent in case of a lay-off? What other details about him/her show that he/she is a responsible individual? (Conduct a formal interview and take notes). Tenant A, Bill Is he able to pay rent? Yes, he has a job as an auto mechanic. He usually brings home at least $800/week, and the rent is only $750. He should have no trouble paying rent. Does he have a credit score? Bill tells you he doesn't know whether or not he has a credit score, so you run a free credit check of him online and find out he has a 443 because he defaulted on his car payment a couple years back. He hasn't done anything to rebuild his score since. Does he have a criminal record? Beware: Denying housing to anyone with a criminal record just because of that criminal record qualifies as discrimination under the Federal Fair Housing Act. With that said, landlords are also able to access prospective tenants' criminal records. Upon doing so, you find that Bill is on the cusp of losing his license because of his DUIs. Does he/she have a stable job? Does he/she have a support system? After finding out about his missed car payments and DUIs, you begin to suspect that Bill's job isn't as stable as you think. Since you get your oil changed at the place where Bill works, you decide to pop in and ask his boss a couple of questions. He lets you know that Bill is on the chopping block. What other details about him show that he is a responsible individual? After doing a brief informal interview at the party, Bill seemed like the perfect tenant, but now you're certain that he's going to end up giving you nightmares. You apologize to him and tell him you can't let him rent out the other half. It's awkward every time you see him, but at least you don't have to pay for an eviction. Tenant B, Amanda. Is she able to pay rent? Yes, she makes a surprising amount for working part-time at a jewelry place. She brings in about $2100/month. Does she have a credit score? 760, and she's been building it up since high school. Does she have a criminal record? A parking ticket, but that's it. Does she have a stable job? At first glance, part-time at a jewelry store seems about as unstable as it gets, but you find out that her aunt is actually the owner, so she'd likely be the last one to be let go. What other details about her show that she's responsible? She's the VP of Finance for Gamma Sigma Apple Pie, and her support system is her father, a finance executive who co-signed the lease. Your Support System Landlords need professional support—and lots of it. According to a study by Transunion, the average landlord owns and manages at least three rental properties. If you're looking to get into being a landlord, chances are you'll soon be managing a handful of properties. You’ll need the best team possible to help you sort out and fix the problems that will inevitably pop up. Your Real Estate Agent This is your first point of entry into the world of real estate investing. If you're working with a real estate agent who doesn't know what he's talking about, you're going to pay for it. Literally. Make sure you’re working with an expert who has experience working with investors. Interview as many agents as you can, and don’t rush the decision just because you’re eager to become a landlord. Your Leasing Agent As you become a more experienced investor, you might look into hiring a leasing agent who will field tenants for you. Just like how your real estate agent is your first point of entry into real estate investing, your leasing agent is the first point of entry for your prospective tenants. Your General Contractor Your contractor is the go-to guy when the excrement hits the air conditioning. A rental is going to require plenty of repairs. The key to finding a good contractor is to start looking before you actually need one. Your Mortgage Broker This person is going to help you fund the real estate deals you find. A good mortgage broker is going to be able to answer all of the questions you have about closing, including basic terms of your loan like interest rate, loan-to-value, and length of term. Your Insurance Agent Accidents happen, and it's good to know you're covered when they do. Shop around so you can make sure you’re not overpaying or underpaying for insurance.

We've all heard horror stories about renting out an area of your house on Airbnb, or at least about Airbnb in general. You might be wondering about the pros and cons of renting out an area of your house on Airbnb.

For example: A couple went out of town one weekend and they tried using Airbnb to rent their home out to a couple of – as they said – “nice-looking college kids.” They came home the following Monday to a dry sea of red Solo cups on the floor, along with a couple of voicemails from their neighbors wondering why they were blasting EDM all night while the rest of the neighborhood was trying to sleep.

That doesn't have to be every case, though. If you're just renting out an extra bedroom on Airbnb, you don't have to worry about problems like that —at least not to the same extent.

Renting out an area of your house on Airbnb allows you to bring in considerable cash flow while gaining cultural experience and knowledge. Beware, though, it doesn't come without drawbacks: short-term rentals aren't legal in all cities, there's an increased risk of property damage, and, finally, it's a whole lot of work.

But first let's start with the positives.



There's a popular way of gauging the risk and return of a rental property called, “The 1% Rule:” If the property's monthly rent is greater than one percent of its selling price, it's probably a good investment. If, for example, you can buy a house for $100k and rent it out for $1k, it's going to completely pay for itself in less than ten years (even with a ~10% vacancy rate).

In some areas, particularly densely-packed cities that bring in lots of tourists, renting out that house on Airbnb can blow “The 1% Rule” out of the water! Even if you don't live in a city or own a rental property, renting out part of your house on Airbnb can effectively cut your living expenses in half overnight.

Think about it: You're comparing an unfurnished long-term rental with a completely furnished house or apartment that you're already living in. People are willing to pay a premium for a temporary stay in a nice home, especially if you maintain a good rating on Airbnb.

If you want to get an idea of how much extra money you can bring in on Airbnb, do the same thing that travelers do: Compare it with the price of a hotel in the area. There's a solid chance that you'll be making anywhere from two to three times the amount that you'd be making even if you rented out the whole property.

Next, let's talk about how renting out an area of your house on Airbnb can give you some experience in...

Cultural Knowledge

Hundreds of thousands of travelers all across the globe use Airbnb to find cheap accommodation during their adventures, and they'll be more than happy to tell you some stories about where they've been and where they're going.

Not only will that give you plenty of stories to tell your friends, but there's also ample evidence that interacting with people of diverse cultures helps develop your own cultural intelligence, which will help you bridge the divide between dissimilar groups in your organization or social circle.

It's important to learn the customs of how people of various cultures interact if you want to communicate in a way that doesn't cause any unnecessary friction, and the only way you can really develop that cultural knowledge and intelligence is through first-hand experience. Renting out a bedroom on Airbnb can help with that.


Legality of Owning an Airbnb

San Diego, San Francisco, and New York City have, in the past, banned short-term rentals, making it illegal to rent out your home on Airbnb. Las Vegas and New Orleans are following suit, and you might be able to guess why. Noisy vacationers are turning otherwise quiet neighborhoods into college-town frat rows. Also, enterprising landlords are looking for any reason to kick out their long-term tenants in favor of the higher-paying short-term travelers.

A short list of other cities that have either completely illegalized Airbnb or placed considerable restrictions on the service include:

  • Paris
  • Barcelona
  • Berlin
  • Amsterdam
  • London
  • Santa Monica

Make sure you know the law in your area. You might have to register your home as a separate business, particularly if you want to qualify for business insurance. Which brings me to the next con:

Risk of Owning an Airbnb

A homeowner's policy might not cover all damages related to short-term rentals, particularly if your house isn't registered as a business. Airbnb has a “Host Protection Service” that provides primary coverage for liabilities up to $1 million, but their site lists a few things that aren't covered:

  • Property damage due to things like pollution or mold.
  • Damage or injury from something done intentionally (not an accident).
  • Loss of earnings.

Personally, the second one is what I'd be most worried about. If AirBnb decides to claim that property damage was not the tenant's fault but rather your own negligence, there's little recourse.

Work of Owning an Airbnb

You were probably reading through my description about how Airbnb can potentially triple the return on investment from a rental property, thinking to yourself, “Why doesn't everybody do this? It's easy money!”

Well, that's because it isn't easy money. Renting on Airbnb can quickly become a full-time job. You're going to need to keep your house presentable at all times. If you're a pack-rat with a penchant for leaving your dirty clothes on the kitchen table, your rating on Airbnb will reflect that, and you'll lose quite a bit of business as a result.


Thomas O'Shaughnessy
Thomas O'Shaughnessy

Tommy O'Shaughnessy is the Head of Research at Clever Real Estate, the free online service that connects you with top local agents to save on commission. Tommy's team of data scientists create surveys, gather data, and analyze trends in housing, real estate, and personal finance. He directs public relations efforts, acting as a "data communicator" between his team and the press. Clever studies have been featured in Politico, the LA Times, CNBC, Forbes, Yahoo Finance, and other publications.

See all Thomas's Posts

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