How To Make Money by Renting Out Your Home

What homeowner couldn't stand to have a little extra cash lying around? With services like Airbnb  and VRBO , it's easier than ever for people to list their homes, condos and apartments for short-term rent. The power of the internet has made this business arguably more lucrative and safe for both renters and owners than it was in the past. However, before welcoming your first guests, it's important to understand all the costs and risks involved in the experience.

"Many now choose short-term rentals over hotels when traveling."

If you aren't familiar, services like Airbnb and VRBO connect travelers with homeowners willing to rent out a spare bedroom - or even their entire home - for a temporary visit. While vacation rentals have been around for ages, these websites make it easy for renters and property owners to connect with each other, and also facilitate the exchange of money. In just a few years, Airbnb has grown into a worldwide service, with millions of active listings and around 200 million guests served, according to its website. The service has grown so quickly that many now choose it over a name-brand hotel when traveling.

Short-term rentals surge in popularity

Why bother renting out your home to strangers? For one, it can provide a source of income. These services collect fees from both homeowners and renters, and there are many additional costs involved. But Airbnb estimated that someone renting out a private bedroom to two guests in Denver could make approximately $460 per week .

Besides the financial incentive, services like Airbnb make the experience rewarding in many other ways:

• Hosts can set specific rules and limits on price, number of guests, length and time of visits and much more.
• Renters and hosts each complete detailed profiles online, allowing both parties to feel more comfortable. Although renters can choose to book any listing they want, hosts are allowed to deny listings if they wish.
• Both guests and hosts are encouraged to review one another, but these reviews won't be shared between the two if they wish.

With millions of guests and hosts per year, Airbnb and similar vacation rental services are exceedingly safe. But when it comes to financial risk, there is more to be worried about. While they do their best to make things go smoothly for everyone involved, these services can't guarantee a steady income, let alone protect against the risk of loss in many cases.

If you're considering becoming a rental host and want to make the most of it, here's what to consider:

Local laws and HOAs

Airbnb has surged in popularity, but local and state ordinances designed to regulate apartment leasing and the hospitality industry have struggled to keep up. Some cities in the U.S. have explicitly banned Airbnb, while others enforce restrictions or fines pertaining to its use. Similar restrictions have been enacted by homeowners associations and co-ops. Airbnb maintains a list of the cities it operates in and the various regulations that hosts need to be aware of, so be sure to check with this as well as your HOA contract to see if you are even able to host.

Homeowners insurance

Just like local laws and HOA rules, many insurance policies either explicitly prohibit or will not cover claims related to short-term rentals. According to The Washington Post, it's common for homeowners insurance policies to allowa small number of short-term rentals , but require a separate policy for regular use of your home as a source of income, which can increase premiums significantly. Should an accident happen on your property while serving as a host, standard insurance might not offer any financial protection.

Add this to the list of important costs that may become an afterthought for Airbnb hosts: income taxes. Depending on the situation, your personal tax liability may increase depending on how often you serve as a paid host.

Additional expenses

Each of these costs are just the basics. To really see significant income using short-term rental services, it pays to invest some effort - and money - into making your abode as humble as possible.

First, consider how much  you will be able to charge, and use that to estimate your budget. Besides Airbnb's general citywide estimate shown above, try browsing through local listings to see how much rooms near you are going for. This can give you a better idea of what you should charge, but remember that first-time listings will not attract as much attention from renters as more established hosts. You might need to lower your price point for your first few guests to gain some traction in the community. Also remember that you have the option to charge one-time fees for extra guests or cleaning.

Once you know how much you can expect to bring in, work to make your home safe, presentable and practical by following these tips:

• Ensure your entire home meets basic requirements for safety by checking or installing smoke detectors and CO monitors. 
• Think about how you will allow guests to access their room, particularly if renting out your entire home or providing them with their own entryway.
• Guests tend to prefer, and often expect, to be provided with some basic amenities when staying with you. Be sure they have access to a bathroom that's clean and stocked with essential toiletries. Most also appreciate wireless internet access. Be as detailed as possible in your listing on what you will provide, including rules on extra guests, pets, kitchen access, parking and anything else you can think of.

If you follow these tips and do your research, you should be ready to make the most of your experience as a host for renters.