2. What are the risks and rewards of investing in Airbnb?
Ensure your property and assets are covered, that you have permission to rent out your space and that you’re filling in your tax return correctly to avoid any potential missteps on your journey to Airbnb financial freedom.
In New York, for example, a bill was passed to make short-term renting forbidden, as Airbnb listings were creating extraordinary high housing costs. South Africa, on the other hand has no such law, but areas like Cape Town have bylaws which means you need the city’s permission before renting out your property on Airbnb.
According to the new bylaw, an owner who wants to let their flat short-term must ensure the property is appropriately zoned and must apply for consent from the city’s development management department.
Keep in mind, that you will need to check the rules and Constitution of your Body Corporate or Home Owners Association. You’ll need to determine the rules regarding rentals. If the rules aren’t favourable, you can discuss your prospective Airbnb listing with the trustees and/or managing agent to acquire consent.
“Earning rental income, in which category Airbnb income would fall, is regarded as a trade by the SA Revenue Service (SARS),” explains Jeremy Burman of Private Client Holdings. “The owner of the Airbnb property must declare all rental income received or accrued during the tax year. He will in turn be entitled to deduct any expenses incurred in the earning of this income with the result that only the net profit will be taxable.”
He continues to say that when a property is jointly owned, by a married couple for example, they will share the income and expenses for tax purposes, regardless of who receives the income or pays for the expenses.
Safety and security
Airbnb offers guidelines on how hosts can make their homes safer, because ultimately you want your guests to be safe while in your property. Guests are also more likely to give you a lower rating if you haven’t taken basic precautions to protect them, for example:
- Installing fire extinguishers
- Eliminating or highlighting any trip or fall hazards
- Basic security features.
If you’re found to be particularly negligent, Airbnb could refuse to let you continue to host.
In case you were wondering what happens if a guest damages your property, Airbnb’s host guarantee offers up to USD1 million in insurance coverage for property damage in 29 countries. Keep in mind that this is not a substitute for homeowner’s or renter’s insurance, and it doesn’t protect against theft or personal liability.
Have a conversation with your insurance company to ensure your policy will cover your property, possessions and liability while renting through Airbnb. If you need extra coverage, an umbrella policy might be the way to go.
If you’re concerned with receiving payments or ensure guests actually pay at the end of their stay, the entire process is handled by Airbnb. Barring any complication, Airbnb will release your payment within 24 hours of your guest’s arrival.
Guests need to notify Airbnb within 24 hours of check-in if there is a problem that warrants a refund. If you don’t respond to guests who contact you about a situation, they might be allowed to complete their reservation and receive a partial refund.
If you cancel a reservation at the last minute, forget to leave a key, misrepresent your listing, don’t clean your home or otherwise fail to meet Airbnb’s hospitality standards, they could require you to refund a guest’s payment.