We have the house, so why not use it?
Many people that have a spare bedroom have considered renting it out – whether through Airbnb or by opening a guesthouse. It might be some extra free cash in your pocket!
In this post, I would like to look at the basics of renting out rooms for the short term through Airbnb and as a guesthouse. There are quite a few things to consider, so let’s jump in…
The crux strategy for guesthouses and Airbnb renting in South Africa
The core strategy is simple: rent out a room in your house for an evening and cha-ching! In rolls the money.
Having said that, it’s worth thinking about:
- What do you want to do with the property in the long run? Will this be your primary residence? Are you considering selling this property in a few years time?
- Do you want to pay off the bond with your profits? What will you do once your goal is reached?
- Will you plan on selling the guest house business once it’s grown to a point? When is this projected to happen?
Is this for me?
The Airbnb and guesthouse strategy is not passive. Quite a lot of involvement is normally required. Even if you have someone managing your business, you still have to manage them!
When renting out a room, the host needs to be available for greeting and welcoming guests. They also need to be there in case there are questions such as directions, local sight seeing help or where to find the closest coffee shop. For this reason, it’s ideal for a housewife who loves staying at home, or a student that has a spare place in their living room.
It’s also nifty if this housewife’s husband (or son) is a handyman, so that he is able to fix issues such as burst geysers, tap leaks or a broken mirror.
Here are some things you would need to consider:
- Calculate the costs – see the sections below
- Reputation – make sure you are using reputable websites and agents to get heads on beds
- Location – you need to be in the right location
- Listing price – do your research!
How do I get started?
- Understand the regulations that govern the sites on which you will be advertising such as Airbnb and Booking.com. For example, if you cancel a booking, you could be penalised!
- Preparation – you would be required to prepare rooms for your guests – bedding, coffee and tea, etc would need to be accounted for.
- You would of course need to furnish the property
- Involvement – as mentioned above, you would be required to have more involvement
It’s this recommended that you make sure that your calculations match your returns.
Costs: What do you need?
The whole project of creating a guesthouse or becoming a host with Airbnb is focused on making money. You need to make sure that it will be profitable. You want to reach the point where your venture will be profitable as early on as possible.
The little block that can make the difference between profitability and disaster is “list of renovations, costs and overheads”. This is a black hole. For this reason, I have added a list below for you to consider:
- Refurbishments and enhancements – many guesthouse guests are accustomed to having their own en suite bathroom.
- Furniture and appliances – it’s standard for guesthouses to have hairdryers, televisions and a bed. Airbnb can get away with an air mattress.
- Indirect costs – the electricity used by guests and geysers as well as washing the bedding every day all have a cost impact. The linen might need to be replaced often!
- Extras – As a guesthouse, you would often be required to supply soap and shampoo. For many Airbnb’s, this list could also include tea, coffee, wifi and breakfast.
- Marketing costs. Airbnb and Booking.com take fees from your listing price. If you’re looking to advertise locally or use an agent, there will be a cost impact on your profits.
The tax structures of guesthouses can get very complex. Many guesthouses are in a trust or company – and they run it as a business.
In most cases, you will run Airbnb in your own name. The profit that you make will need to be declared to SARS. It will form part as your PAYE income and fall in the appropriate income bracket.
Whichever structure you’re using, remember that you’re running a business.
All expenses need to be accounted for, as is all income. If you have cleaning staff, buying coffee and tea for your guests, or if they use the wifi – deduct these from tax. Only deduct from tax which helps your business to function.
You can make money through guest houses and Airbnb’ing your rooms out.
Make sure your location is perfect.
Make sure you have a done all your market research before you spend money.
Don’t just think it’s going to be awesome – PLAN!