Lots of people make money on Airbnb. But lots of others don’t, too. In fact, there are way more hosts barely making ends meet on short-term rentals.
But why is that?
Let’s take a look at the many reasons why people fail to succeed on Airbnb. In this post, you’ll learn about the common mistakes people make when investing in short-term rentals. Keep reading so you don’t end up doing them yourself.
Of course you can! That’s how we at Short-term Sage came to be. We built a $2M-per-year short-term rental business in just 2 years, operating more than 70 homes throughout the USA. We know how to make money on Airbnb without owning property. In fact, we’ve become experts at it, we now teach others how to do the same in our online master class.
Many hosts don’t have a successful Airbnb story to tell though. Without proper training, experience, and enough business acumen, they fail to get adequate returns on their investment. Here are some of the most common mistakes they make that cause them to lose profits on Airbnb.
The first thing many investors do wrong is jumping right into it without doing enough research. They didn’t get to know the real estate market well enough, study the neighborhood around their property, and do some serious investment analysis.
Investment analysis involves getting a proper estimate of your expected occupancy rate, potential cash flow or rental income, cash-on-cash return, and your ROI. These can be obtained using tools like Airbtics, AirDNA, AllTheRooms, KeyData, Mashvisor, Rabbu, and Transparent.
Another reason that’s connected to the above oversight is not knowing whether the local market is saturated already. In areas with a high concentration of Airbnb listings, you’ll face intense competition for bookings.
As we said in an earlier post about “Airbnbust”, many markets are seeing a supply saturation of short-term rentals. That’s what happened over the past 2 years in the top 50 markets in the US alone.
We have to always consider the law of supply and demand. More listings in a particular area mean fewer bookings for each listing. This means it’ll be harder to generate consistent income on a regular, long-term basis.
Getting a mortgage to buy a property may help you get your foot in the Airbnb investing door, but if you’re not sure you’ll be able to pay it, you’re making a big mistake. A lot of hosts fail to make money on Airbnb because they can’t pay their monthly mortgages.
Again, that’s the reason why you need to make a serious data analysis before making your investment. You can’t gloss over your monthly cash flow and cash-on-cash return. If the cost of the property you’re eyeing, along with any renovations you need to do on it, doesn’t surpass the figures you’re projecting, it’s not worth the investment. Look for another property.
You’ll want to invest in homes that promise a positive cash flow and will pay for your mortgage – and leave you with enough profit, besides.
Also, hosts who are barely making it on Airbnb have likely forgotten to factor in their overhead costs and fees. These are things like Airbnb fees, taxes, insurance, utility bills, cleaning, maintenance, and management fees – in case they choose to hire professional property managers.
These can easily eat away at their profits and leave them with zero ROI.
A lot of factors drive a local market. Demand for short-term stays is affected by various elements such as:
Keep an eye on what’s happening in your locality, and on what the market wants. If you’re seeing more traveling nurses passing through your area, find ways to reach out and accommodate them.
If a big festival, convention, or concert is coming to your city, raise your daily rate.
Be flexible and always adapt to current market conditions.
Related to this is pricing. Rates per night should take into account the demand in your market, the seasonality, and additionally, your competition.
Find out how much others are charging, and be competitive. If you overprice, your bookings go down. And if you underprice, you’ll get fewer profits.
If your competitors are getting a bigger slice of the pie than you are, chances are they’re using a dynamic pricing tool and you’re not.
Dynamic or “smart” pricing is an automated tool that lets you adjust your rates quickly according to changes in local demand.
It takes into account your competitors’ prices and occupancy, supply and demand in your area, day of the week, number of days left to book, and even travel patterns in the next 6 to 12 months. It’ll also factor in your amenities, the number and quality of your reviews, and the historical performance of your listing.
It’s based on real-time data so you don’t have to do rough estimates or spend countless hours analyzing market trends yourself.
It changes your rate every 24 hours so you can offer last-minute discounts at competitive prices. That way, you can capture as many bookings as possible, without letting you sell out too early.
Folks who fail to make money on Airbnb may also be lacking helpful systems and procedures in their business operations. If they’re not using a management company – which takes care of these things – they’ll need to build their own infrastructure to manage day-to-day operations more efficiently.
These systems need to be in place to make sure everything is running smoothly: cleaning and turnovers, channel management, guest communication, keyless entry, and all other processes that should be monitored carefully.
Systems will save hosts lots of time and energy and spare them from headaches.
Hosts need to actively promote their listings and there are various ways to do it. You can:
But most importantly, you can expand your distribution. Use Booking.com, Vrbo, FlipKey, Tripping, and other booking platforms to increase your visibility and get more bookings.
Aside from these giant platforms, there are now plenty of smaller niche channels that cater to specific demographics. You may try KidandCoe for child-friendly listings, BringFido for pet-friendly ones, Yonder, HipCamp, GlampingHub, and CollectiveRetreats for unique, outdoorsy stays.
When it comes to listing descriptions, hosts need to make sure it stands out from the crowd. Listings with forgettable titles and incomplete descriptions won’t cut it. Nor will drab photos.
Make sure your wording and pictures are optimized for search engine results. Algorithms need data to work with, so the more information you put on your listing and the clearer your photos and descriptions are, the higher your chances will be for ranking in the search results.
Use keywords that will move your listing up in the search results – terms that highlight your best amenities, the attractions in your local area, and exciting activities guests can do during their stay.
And it’s crucial to use photos that are bright, vibrant, and high-resolution. If your thumbnail photo doesn’t stand out, it won’t get much of a click-through. If you must, hire a professional photographer. It’ll be a small investment with tangible rewards.
Travelers looking for places to stay will always prioritize listings with positive feedback.
If you have negative reviews or low ratings, you’ll struggle to attract guests or keep those you’ve already had.
TripAdvisor once studied how reviews affect guests’ booking behavior and this is what they found:
Guest satisfaction is one of the most effective ways you can attract guests and gain loyal clients. So it’s crucial to get those 5-star ratings and avoid bad reviews as much as you can.
But getting some negative feedback is inevitable because can’t please everybody, right? There will always be very fussy guests.
So if you do get an unpleasant review, just respond with a sincere apology and utmost diplomacy. Acknowledge any errors and share your side of the story, explaining as best you can. Stay calm and describe how you’ve tried to resolve the issue.
How you handle a complaint could decide whether you’ll keep a guest or lose them.
And always respond to all guest reviews promptly and politely. This will show other potential guests that you take hospitality seriously and care about each and every guest.
Short-term renting isn’t legal everywhere. In some areas, there are restrictions such as zoning laws and limits on the number of units, nights, or guests that you can rent to. In many big cities across the world, you can’t rent out an Airbnb that you’re not occupying.
Other Airbnb rules require permits and licenses, tax payments, and safety precautionary measures.
And you can’t dodge these ordinances if you want your business to survive and thrive. You don’t want to run an illegal Airbnb and risk getting shut down, penalized, or having to pay huge fines.
Note that rules are adjusted from time to time. Remember to track any changes so you don’t get into legal trouble at any time in the future.
Lastly, hosts need to make sure their availability calendar is always updated. If they don’t keep it current, their listing may not appear in search results for dates when their property is available. That’s one way to miss out on bookings.
An updated calendar also shows that you’re active on Airbnb, which the platform’s algorithm likes.
So it’s important to keep track of your availability especially if you’re using multiple booking channels. If you don’t stay on top of it, you risk getting double bookings which leads to cancellations and cause your listing to drop in search results.
By the same token, consider keeping your cancellation policy flexible. Guests tend to prefer listings with a lenient cancellation policy because it gives them a safety net in case something goes wrong. And they can get a full refund with their cancellation.
Besides, Airbnb runs algorithms that make listings with flexible cancellation policies more visible in their search results.
These are just some of the reasons why hosts fail to make money on Airbnb. If you avoid them and follow the solutions we recommended, you can expect to enjoy more bookings, better cash flow, and higher rental income.
Ready to learn how we built and operate a $2M/year short-term rental business, operate properties throughout the USA remotely, and acquired 70+ properties without owning any in just 2 years? Attend our free online master class to learn how you can do the same. Click here.
