Between family events, holidays, and vacation time, your family cabin probably sits unused for a good chunk of the year. You can turn those vacant nights and weekends into an income stream to offset mortgage, maintenance, and utility costs. Think of it as prime real estate! 

Thanks to companies like Airbnb, Trivago, and VRBO, the short-term rental business is booming. Airbnb is active in more than 100,000 cities worldwide, with over 4 million current hosts and 7.9 million available properties. In 2020 alone, Airbnb recorded over 10 million short-term rental agreements. 

Renters are looking to get out of town more and more these days, offering property owners tons of potential guests to utilize their extra space, home, or investment properties for an additional somewhat passive income stream.

To help you decide if renting your space is right for you, we have assembled this guide to short term rentals to answer the most common questions about the short-term cabin rental process and requirements. 

How much money can I make?

Your potential rental income depends on two key factors: the number of days it's available and the daily rate. In other word, your occupancy rate and your cash flow are directly responsible for your bottom line. 

Available Rental Days

If you only rent out for the weekends or by the season, that's about 100 days. Using a daily rate of $300 works out to a potential income of $30,000 less rental expenses for turnover service. (Turnover expenses include cleaning, laundry service, and restocking supplies.)

After blocking off the dates for family events and holidays, the property is available 200 days each year. Using the same day rate from above generates a potential income of $60,000 minus those turnover expenses.

If this is a vacation rental property or a second home, this certainly increases your available rental days without full time residence in place. 

Day Rates

Calculating your day rate requires a bit of work on your end. Using the sites above, search for properties like yours. And don't forget to note their rates and the amenities they include like WIFI, outdoor kitchen, on-site laundry, and local accessibility to beaches, parks, trails, and other points of interest.

Chances are that the potential rental income is more than enough to cover the mortgage, utilities, and turnover costs. 

Rental Platform Fees

Airbnb, among the other platforms, need to be paid for its services as well. Host fees range from 3% to 5%, so the listing price that your guests see is higher than what you earn.

Airbnb, for example, collects your payment from your guests before their arrival. You can receive your payments via PayPal or direct deposit 24 hours after guests check-in.

How do I become a short term rental host?

There's much more to being a host or landlord than collecting payments regularly. Just like a hotel, the unit requires prepping between guests. Your reviews will suffer greatly without a consistent turnover process in place, and somebody assigned to it.

Turnover chores can include:

• Change the linens and towels

• Clean, dust, mop, and vacuum the entire unit

• Stock up supplies like soap, shampoo, and coffee bar

• Clean kitchen and bathrooms thoroughly

• Put dishes, books, and games away

• Restocking firewood or fire pit area

• Leave the cabin looking precisely like the posting

You can quickly complete the turnover process if the rental property has on-site laundry and dedicated storage for cleaning supplies. However, if you need to transport everything back and forth, you may have to space your bookings out to allow enough time for turnover.

The host is also responsible for handling the check-in process with the guest, but programable door locks and sharing apps have streamlined the process.

As the host, you're the point of contact for any problems or emergencies during the guest's stay. And you may get a call asking about the best pizza and wings, how to light the barbeque, to why isn't the TV remote working?

If you can handle those duties, you'll probably be a great host or landlord. However, if your time is limited, you'll find these rental-adjacent businesses very helpful:

• Keycafe: Turns cafes near your rental property into a key-storage location (if you don't invest in a keyless lock).

• Guesty: This property management company helps you handle the backend of the rental process, such as bookkeeping and accounting.

• Properly: Offers changeover cleaning services for turnovers and sprucing up your rental cabin between guests.

Posting your rental via any of the rental platforms listed in this post is a straightforward process. 

First, you need to create an account, supply your taxpayer information, and provide bank information for payments. Then make your listing, including photos, reviews, amenities, and any discount options (offseason, weeklong, or monthly rates).

Always check with local authorities for information about legal restrictions and any hospitality taxes or fees you may need to collect. 

How does rental income affect my taxes?

If you rent out the property for 14 days or less per year, you don't need to report the income to the IRS.

Airbnb reports all income over $20,000 and 200+ reservations during the calendar year to the IRS. 

Starting in January 2022, PayPal will report income/payment of $600 or more during a calendar year to the IRS as well.

But if you rent the property for more than 14 days, you must report the income via a Schedule E (individual) or Schedule C (business) when filing your tax return. After deducting direct expenses, the income earned is subject to the standard self-employment tax rate of 15.3% or the current tax rate for your business structure. (Sole proprietor, LLC, S-Corp)

Using the income examples above.

$30K in net revenue would result in a tax liability of $4,590.00

$60K in net income would result in a tax liability of $9,180.00

Direct Expenses

These are deductible expenses that apply only to renting the property and can include.

• Rental agency fees

• Platform costs

• Advertising costs

• Credit checks

• Rental insurance

• Cleaning supplies and service

• Repairs (for the rental portion of the property)

• Depreciation (for the rental area of the property)

A little due diligence now can save countless headaches and non-compliance fines later. For more on tax issues for hosts and other short-term rental properties, see Every Airbnb Host's Tax Guide by Stephen Fishman.

Is my cabin or vacation home rentable?

To answer this question, you must look at your rental from a customers' perspective. While your new cabin maybe everything you've ever dreamed of, potential guests might disagree. And not for the reasons you might assume.

Location: You may love the 90-minute drive from the city to the property. But after a long flight, tired parents with a rental car full of kids and a dog might decide to pass.

If the property is close to the city with plenty of shops and restaurants nearby, those looking to get off the beaten trail will most likely swipe left and continue their search.

Activities: People who love the water or the forest won't be interested in your desert retreat. And stoking a wood stove to warm up from a hike isn't everyone's idea of a vacation.

Amenities: Some people love their technology and can't live or work without it. And some people only charge their phone once a week and read the newspaper every morning.

The point is that no matter what type of property you own or where it is, it's not going to be everyone's cup of tea.

And that makes your job easier as a host or landlord.

Don't waste your time and energy trying to get everyone to book and visit your rental. Instead, focus on the guests who would love the property and the nearby activities. 

In most cases, a good marketing strategy has more to do with your home being rentable than the home itself. Visitors want an experience, and that starts with your rental listing. 

You can just tick boxes and create a listing that looks like this;

2 BR, two baths with mountain views and fireplace. Close to the ski resort.

Or,

Relax in front of the river rock fireplace or admire the stunning mountain views from the back deck of this cozy and comfortable 2 BR, 2 bath cabin that's perfect for skiers or snowboarders like you.

As the seasons and activities change, update your listing info and photos to match accordingly.

The wildflowers are blooming, and the hiking trails are open! This spacious and comfy 2 BR, 2 bath cabin is the perfect basecamp for a weekend family hiking adventure in the local mountains.

If you get stuck while writing your listing, try this. Search for properties similar to yours in size, activities, and amenities. And use those listings as a starting point or for inspiration for your listing. 

Running Your Short-Term Rental Business

Because you provide a service in exchange for a fee, you are "in" the short-term rental business now. (Provided you rent out more than 14 days per year.) 

With an additional $30-60K in potential income to deal with at tax time, getting organized sooner rather than later will save you time, money, and at least a few dozen headaches.

Contact your business license office.

Explain that you plan to list a property on a rental platform and ask them what type of license(s) you will need. Check for any other rental requirements the city, county, or state may have in place. At a minimum, you will need to obtain a business license.

HOA

If there is an HOA (Home Owners Association) connected to the property, be sure to check if short-term rentals are allowed. And if there are, does the HOA have any compliance requirements in place?

Determine Your Business Structure

Your business structure determines your tax rate with the state (if applicable) and the IRS. You can opt for:

• Sole Proprietor

• Partnership

• Corporations

• S-Corporations

• LLC (Limited Liability Company)

Each option provides different levels of financial protection in the event of a claim or lawsuit, should one ever arise. This IRS publication explains the differences and benefits of each business structure. A local accountant or bookkeeper can also assist if you still have any questions regarding your business structure.

Keep Accurate Records

You don't want to miss a deduction or expense that lowers your net income at tax time. It's much easier to start organized and follow a process than to try to sort through stacks of papers and receipts with the filing deadline fast approaching.

Property usage - track when the property is vacant, used by family/friends, and rented out to paying guests. You can easily create a calendar (Word) or a spreadsheet (Excel) on your computer to track property usage.

Track all property expenses - such as supplies, maintenance/repair, and advertising. These direct costs are deductible, but you can't claim them without receipts. You might want to consider setting up a business bank account to handle (and track) your deposits and property expenses.

Verify your 1099K forms - compare your records to the amounts shown on each 1099K form you receive. Again, taking care of discrepancies ahead of tax time will save you time and energy.

Insurance

Be sure to contact your property/homeowner insurance agent and let them know that you plan to do short-term rentals with the property. You may want to increase your coverages or limits for added peace of mind. In addition, some insurance companies provide "riders" that specifically cover damages caused by the guests or tenants.

Your Airbnb Rental Guide

Not everyone will want to use their cabin as a short-term rental property. And we get it!

But short-term rentals can provide a significant revenue stream with minimal cost and effort on your end. Perform your due diligence to comply with state, county, or city laws and requirements around short-term rentals.

If you're still unsure about renting through a platform, you can check out Vacation House Rules on HGTV. While the main activity involves remodeling the property, the host shares some great tips about succeeding in the short-term rental business.

 

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Resources:

• Fishman, S., JD. (2021, June 4). Legal restrictions to renting your home on Airbnb or other rental services. www.nolo.com. https://www.nolo.com/legal-encyclopedia/legal-restrictions-renting-your-home-airbnb-other-rental-services.html
• Fishman, S., JD. (2021a, May 6). Tax issues when renting your home on Airbnb or VRBO. www.nolo.com. https://www.nolo.com/legal-encyclopedia/tax-issues-when-renting-your-home-airbnb-vrbo.html
• Business Structures | Internal Revenue Service. (n.d.). https://www.irs.gov/businesses/small-businesses-self-employed/business-structures