How much does it cost to start an Airbnb rental business in Arizona? This article breaks down all the expenses, from initial costs like buying and furnishing a rental property to ongoing costs like utilities and cleaning fees. Get a clear picture of all the costs so you can budget effectively.
Key Takeaways Starting an Airbnb typically costs around $6,000, including furnishing the rental and purchasing initial supplies. The purchase price for your rental property and resulting monthly mortgage payment should also be considered. Managing operating expenses such as utilities, cleaning fees, and maintenance costs is critical for maintaining profitability. Airbnb service fees, local laws, and effective marketing strategies is essential to optimize earnings and attract guests. Initial Costs to Start an Airbnb Starting an Airbnb requires several upfront expenses that can impact your budget.
The average cost to launch an Airbnb business is around $6,000, varying widely based on location, property type, and intended amenities.
Key considerations include:
The property purchase price Furnishing Decor Initial supplies Recognizing the various categories of initial costs helps in effective budgeting and lays a solid foundation for your Airbnb venture. Here’s a closer look at each category.
Property Purchase Price The property purchase price is a major upfront cost when starting an Airbnb. Home prices vary greatly based on location, square footage, property type (single-family homes, condos, townhouses, multi-family units, etc.), and the market conditions surrounding the purchase. If you are considering purchasing a rental property, you should consult with a realtor experienced with short-term rentals so they can curate a list of potential properties that are suitable to rent out on platforms like Airbnb and VRBO.
When purchasing a rental property, it's important to consider loan terms, as they directly affect monthly expenses. For example, a $250,000 property with a 7% fixed interest rate has a monthly payment of about $1,530, while a $230,000 mortgage at a 3% fixed rate requires about $970 per month. Since the mortgage will likely be your largest monthly expense, make sure your estimated rental income covers the mortgage and other related costs.
Using a tool like our Airbnb profit calculator can help you estimate startup and operating expenses accurately.
Furnishing and Decor Furnishing and decor costs vary based on the size and choice of furnishings. On average, expect to spend around $1,500 per bedroom and $2,000 to $3,000 for other areas of the house.
Quality furnishings make for a better guest experience and contribute to positive reviews and repeat bookings. Many Airbnb owners opt to create a theme for their property and use the furnishings to create a cohesive look that enhances the property's appeal. Thoughtfully chosen furniture, décor, and accents can reflect the local culture, a specific style, or a unique concept, making the space memorable and attractive to potential guests. This attention to detail can differentiate your property from others, increase its desirability, and justify higher nightly rates.
For example, one of our most successful properties is a 70's themed single-family home called "The Groovy Getaway". The living room is furnished with a brown, leather couch and two brown, leather chairs, with a custom brown and orange backsplash behind the mounted TV. All of the properties furnishings contribute to the theme, making it a one-of-a-kind experience for guests and a stand-out listing when browsing Airbnb.
The Living Room of "The Groovy Getaway" Initial Supplies and Amenities You will need to stock up on essential supplies like soap, toilet paper, shampoo, towels, snacks, and condiments. Supplies like shampoo, soap, paper towels, tissues, and dishwashing detergent should always be on-hand.
Offering extras like water bowls, high chairs, cribs, and various kitchen supplies will improve the guest experience. These small touches can improve guest satisfaction and lead to positive reviews, which will give your property more visibility on the rental platforms (Airbnb, VRBO, etc.)
Ongoing Operating Expenses
After your Airbnb is operational, you will need to manage ongoing expenses such as utilities, cleaning fees, and maintenance costs.
Here’s a closer look at each category of ongoing operating expenses.
Utilities and Internet Utilities include electricity, water, gas, cooling/heating, Wi-Fi, cable, and streaming services. Trash and sewer services may also be an expense depending on the property. Factor these costs into your monthly budget.
Cleaning Fees Cleaning fees vary based on location and chosen cleaning services. DIY hosts should factor in time spent cleaning, doing laundry, restocking, and traveling to and from the property. Guests may incur additional cleaning fees set by hosts, but you should keep in mind that setting a high cleaning fee can keep people from booking your rental.
Maintenance Costs You should also include the cost of paint touch-ups, minor plumbing and electric fixes, replacing linens, towels, and small appliances in your annual budget and set aside funds for significant, unexpected expenses that could come up like HVAC system failure or guest-related damage. Your property should always be in top shape to prevent guest discomfort and negative reviews.
Airbnb Service Fees
Airbnb uses two primary fee structures: split fees and host-only fees.
Understanding these service fees is crucial for Airbnb hosts to accurately calculate earnings and set competitive pricing. Here’s a detailed look at the different types of service fees.
Host Service Fee Airbnb charges hosts a service fee that is typically 3% of the booking subtotal, which includes the nightly rate plus any optional fees like cleaning, excluding taxes and Airbnb fees. In certain cases, such as with a host-only fee model, this fee can range from 14% to 16% of the booking total. The fee is automatically deducted from the host's earnings.
Guest Service Fee Guests are charged a service fee that usually ranges from 0% to 14.2% of the booking subtotal, potentially increasing to 16.5% for cross-currency transactions. This fee is added to the total price guests pay and can impact their overall booking experience.
Balancing these fees with competitive pricing and excellent service can attract more bookings.
Management Fees Airbnb hosts can choose from several property management options, each with its own costs and benefits. Self-management allows hosts to retain more earnings but requires significant time and effort for managing bookings, cleaning, and guest communication. Hiring an Airbnb property manager can relieve the burden of daily operations but typically costs 20-40% of the rental income.
Property management software can streamline tasks like bookings and guest communication, reducing manual efforts and increasing efficiency.
Here’s a deeper look into each option to help you better understand the pros and cons of each:
Self-Management vs. Hiring an Airbnb Manager
Compare the pros-and-cons of managing the property on your own versus hiring an Airbnb management company.
Aspect
Self-Management
Hiring a Property Manager
Time Commitment Requires constant availability and substantial time to handle guest inquiries, bookings, and issues.
Significantly reduces time commitment, allowing hosts to focus on other activities and priorities.
Guest Interaction Direct guest communication, but can be overwhelming, especially during peak seasons or with demanding guests.
Handled by professionals who ensure a seamless and positive guest experience without the host's direct involvement.
Cost No upfront fees, but potential hidden costs in time, effort, and stress related to managing everything alone.
Charges 20-40% of rental income, but this fee covers comprehensive services that can maximize rental income and reduce vacancy.
Management and Maintenance Host is responsible for all management tasks, from scheduling cleaners to coordinating repairs, which can be highly time-consuming.
Includes hiring and managing cleaning, maintenance, and repair professionals, ensuring the property remains in top condition.
Control Over Property Complete control but requires deep involvement in every decision, which can be stressful and demanding.
Provides peace of mind with expert management, making informed decisions that benefit the property while minimizing host involvement.
Property Value Potentially lower property value due to inconsistent maintenance and management.
Professional management can lead to higher property value through consistent upkeep and optimal guest experiences.
Suitability Ideal for hosts who have the time, expertise, and desire to be heavily involved in all aspects of the business.
Perfect for hosts looking for a hands-off approach, better work-life balance, and potentially higher profits with less effort.
Short-Term Rental Insurance Short-term rental insurance is a great way to protect your investment. It often includes coverage for damages caused by guests to communal areas and liability coverage up to $1 million. While more expensive than regular homeowner’s insurance, it provides essential coverage tailored for short-term rentals.
Your short-term rental insurance premium will be influenced by the location, property type, and property size. While you may not want to incur the additional cost of short-term rental insurance, it is really the best way to mitigate the risks inherent in renting your property. Airbnb does offer some protection for guest damage, but the guest who caused the damage may not have the funds to pay. In other words, even if a judge or arbitrator orders the guest to pay the damages, that doesn't mean the guest will actually pay the judgement.
With a short-term rental policy, you may be able to fix the damage and keep existing bookings instead of waiting for Airbnb to arbitrate the issue and losing out on rental income.
Local Laws and Taxes Hosts may need specific permits to operate a short term rental business, depending on their location. In some areas, additional local taxes such as transient occupancy tax or business license fees may be required. For example, the City of Scottsdale requires hosts to obtain a license for each rental short-term rental property and pay an annual license fee of $250. Phoenix also requires hosts to apply for a permit and license to operate a short-term rental, and pay a $250 annual fee to maintain the permit. Staying informed about local laws can help you avoid unexpected costs and fines.
In Arizona, hosts must obtain a TPT license and report their rental income on their tax return, even if it's through platforms like Airbnb or VRBO, which report earnings to the IRS. Don't worry though, Airbnb collects the TPT tax when each guest pays for their reservation .
Expenses related to the property, such as maintenance, repairs, insurance, and furnishings, can be deductible, allowing hosts to minimize their taxable income. Proper record-keeping of all transactions and expenses is crucial for maximizing deductions and compliance with tax regulations.
Marketing and Photography
Effective marketing and high-quality photography are vital for attracting guests to your Airbnb listing. The title of your listing should cater to the intended demographic. Include an appealing description that distinguishes your listing from the competition and be sure to mention any special house rules and all included amenities.
Professional Photography Professional photos help your property stand out when potential guests browse AIrbnb and other listing platforms. In our experience, photographers charge between $100 and $300 per listing.
Marketing and Advertising Promoting your Airbnb listing on social media platforms and other online channels can enhance visibility and attract potential guests. Paid advertising can further increase your reach. Advertising can help you maintain high occupancy rates and maximize your rental income, but you should factor in the time and cost associated with each advertising method into your budget.
Seasonal Adjustments and Variable Costs You can enhance profitability by adjusting rates according to seasonal demand and occupancy patterns. Seasonal adjustments help you set competitive nightly rates and protect your occupancy rate throughout the year. You should closely monitor utility and maintenance costs during high-occupancy periods and find ways to reduce these costs if possible.
Expense Tracking Monitoring monthly expenses, startup costs, and ongoing operating expenses enables you to make informed decisions that enhance profitability and ensure the long-term success of your short-term rental business. Keep meticulous records of all expenses so you can take all available tax deducations and maximize the net profit of your rental. Working with a Phoenix Airbnb manager can take the expense-tracking headache off your plate, allowing you to focus on other aspects of your business.
Estimating the Net Profit from your Rental By considering factors like startup costs, ongoing operating expenses, and revenue potential, you can estimate the profit margin of your rental and determine if it makes sense to rent your property on Airbnb. It’s important to compare these numbers with what you'd earn from a long-term lease to see which option is more profitable for you.
To help with this, our guide on Airbnb vs. Renting book a call with us
Frequently Asked Questions What are the ongoing operating expenses for an Airbnb? Ongoing operating expenses for an Airbnb property include the cost of utilities, cleaning fees, maintenance, marketing the property to potential guests through social media and advertising, premiums for short-term rental insurance, and restocking essential supplies like paper towel, toilet paper, shampoo, etc.
Why is short-term rental insurance necessary for Airbnb hosts? Guests can cause property damage or sue your for injuries that occurred at your rental property. Short-term rental insurance provides coverage specifically designed to protect Airbnb hosts from being personally liable for these costs.
How can I optimize my Airbnb pricing strategy? To optimize your Airbnb pricing strategy, use Google Trends to identify seasonality, and adjust your prices accordingly. For a more automated approach, you can use dynamic pricing software to monitor trends and adjust pricing without spending any extra time on it. Either approach will enhance your profitability by aligning your pricing with peak, shoulder, and off-peak periods.
