Prices & Profit

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Hi Everyone!

Does anyone have any tips for determining what the net profit is for a night of rent?

For tax purposes my utilities, property tax, etc., are charged to the airbnb at 29% based on square footage. I pay business insurance, I serve breakfast. I pay self-employment and income tax.

I’m coming up with some numbers but I’m not sure they are accurate or if I’m thinking of it correctly.

It’s one thing to know how to price a room based on the market and amenities offered, but another thing to know that it’s actually putting money into my pocket and not just funneling it to the tax man.

Based on my amateur calculations my after-tax net for 3 people to stay in one room is about $40. While I love hosting I’m not sure it’s worth the amount of work to allow 1-night bookings (this is what started me thinking - I have begun to not want to accept 1 night bookings). I know that adding a cleaning fee will solve this problem - but I’ve price-shopped and for what I offer my base price of $69 is fair. So I’m not sure I can add a cleaning fee and remain competitive - so that would mean setting my minimum nights to 2.

Any thoughts? It seems people want to make apps that do what airbnb already does - create a guest book, etc., but some good, hard, basic tools to help us analyze our profit? That’s what I need now.

thanks!

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You can pull an estimate of the net off your tax return after entering all the income and cost. Make sure to keep receipts for everything you buy and the miles you drive buying supplies for the room or apartment so you get those deductions. I have an excel sheet that counts everything out. Making it was eye-opening to say the least! That’s the same day we had to raise the price by 30/nt. :slight_smile:

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Many hosts may be operating a charity and not even know it…

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yes! I did the same thing at first!!!

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This sounds like something I need to do!

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So what does everyone have on their spreadsheet? I hope I’m not missing anything.

For expenses I have:

permits
property tax
insurance
power and water bills
cable / tv
alarm subscription
trash collection
pest control
house keeper
gardener
hot tub maintenance
window and roof cleaner
cleaning products for housekeeper
consumables for guests (toiletries, coffee)

I then calculate the net income, estimate my income tax, then deduct the TOT (which I pay out of pocket because AirBnB are yet to implement this as a line item in my county). What’s left is actual income.

What I haven’t yet done is track the hours involved in managing the place - I think If i did so, I might find that I was working a minimum wage job :confused:

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I would try the cleaning fee and see if it even deters your bookings at all. Would a $25 cleaning fee make it worth your while for the one night bookings?

Guests need to understand that we don’t have the ability to charge XX for one night, XX if it’s 2 nights, etc. I know guests don’t understand it but I hope they are coming around.

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OMG – I completely think I would be horrified if I saw my net. Utilities are the biggest suck on my income since guests have either the heat or AC cranked up year round. I really need to compare my statements so I can see how much my utilities have increased since I started renting on AIR.

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Do you also have sales and lodging taxes where you are?

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I was just looking at the water statement this morning and they are using 70,000 gallons more water than was used in the past…

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no sales tax, but lodgings tax is 9%. Unfortunately collecting this from guests is super complicated, so i pay it out of pocket (and thus can’t claim that as an expense). I’m hoping AirBnB add it as a line item very soon!

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yep, that’s a good solution. Especially as small bunches of days are left between longer solutions. I just have to take the time to reconfigure the pricing.

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Actually, @Lucy_R, I have very little trouble collecting it.

OK - I wrote all this below and then realized you may not even be on site of your property!! In that case, possibly, they can pay-pal it to you. But I see how it could be complicated. I left it all just in case it helps someone else.

I mention the tax in my listing several times, and when I write to them I mention it again. I ask them to tell me they saw it.

I bought some larger ‘coin’ envelopes at staples. They just look more professional than a regular white envelope. It’s just a thing I have. I put their name, dates, taxes due and ‘thank you’. I bought a cheap business card holder, so when they arrive the nice envelope is sitting in the card holder. I have them all written out for the summer.

I have had someone question it - but luckily they had just stayed in SF where taxes are collected, so I could refer her back to that reservation. She got it.

It’s unfortunate because it is added in Washington DC, and I’m just over the line.

I hate it because it’s so amateurish. But it’s what I live with. Otherwise, you pay tax on your tax - if you figure in an extra 9% you are paying 9% on the tax. That just makes me indignant! And what I do for bookkeeping is, I put the cash in my pocket, then make an entry against my airbnb supplies account and cash - so it’s a negative to the expense in airbnb, and a positive to my cash spending expense. Then at the end of the month I pay the taxes and it then is a positive to airbnb expense. It nets out.

I do round the taxes to the nearest $5, so sometimes I’m out of pocket a bit, but I can accept that.

I did recently have 3 groups in a row for which collecting it was a hassle - but I find these odd things run in cycles. The last three groups have come right upstairs with it.

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Thanks for the feedback - and major props to you for doing it properly!

I do manage my place remotely, but you’re right, I could collect the TOT via Paypal/venmo. Unfortunately, since very few listings in my area are actually registered with the county, or pay TOT, I’m disinclined to mention it on my profile for fear of losing bookings to other places with an “easier” (albeit illegal) process.

AirBnB and the county claim to be working on incorporating a TOT line item, but it if doesn’t happen before the end of next quarter I suppose I really should give collecting it from guests a try. Thanks of the encouragement!

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What are the main things I would look to include in my situation where I rent out a room in my home and I’m here when they are here? (There are only a few times per year I rent out the whole house, usually only if I’m on vacation). Obviously, the cost of sheets, pillows, mattress pad, and things that are consumables for guests only (such as times when I purchase granola bars, keurig coffees). But then again, if they don’t eat all of them, I may help myself and replace them! My water usage is a flat tax unless I go over a certain number of gallons per year. I have no idea what it may cost for washing the load of laundry to wash linens/towels, but then again, there are times I’m throwing my towel in that load also. I don’t pay a separate insurance (wing and a prayer here). Then I guess I just need to factor in how many hours of cleaning I do specifically before a guest arrives and after they leave? Advertising (very limited).

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I know what you mean!! I feel like I look like some kind of crook when in reality I’m doing it ‘right’. And add to that cities all around me are getting it collected by airbnb. When I see them rolling out all these other wonderful ‘initiatives’ I think “JUST FIX THE TAX PROBLEM”!

Let me know how it goes!

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It doesn’t have to be complicated. I collect it in cash from my guests on the payout amount and send it in to the state quarterly. I use the envelope method DC does. Except I tape mine to the door. When I show them to the flat, I say, oh this is for your tax…usually they pay it right then and there. If they fumble around, I tell them it’s okay to leave it under my welcome mat upstairs. I decided I am going to have them sign a waiver for using snorkel gear at the same time so I can just tell them to leave both on under the welcome mat.

At one time I worried that collecting tax would cost me guess but they still book. You have to do what you have to do. Collect tax from them, don’t pay it yourself!

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I hear you, but as I said above, i) im hosting remotely so collecting cash is not possible and ii) very few hosts in my area (and none of my direct competitors) collect TOT, so explaining this process on my profile would make me stick out like a sore thumb :frowning:

I’m glad it works for you! But, damn, wouldn’t it be so much better if AirBnB could just collect it like they do for so many cities :pensive:

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Yes, and here I am just outside ‘our nation’s capitol’, in a large metropolitan area, but they don’t collect my taxes. Whereas in other, little podunk locations, they do. (No offense to you beautiful hosts who live in a podunk location!). I’ve actually emailed my tax contact in my county and told them to get on it!!

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From my limited knowledge, the way to split the utilities is to calculate what percent of your home’s square footage is for rental and what is for you. Yes, some will overlap - just use the area specifically for rental. In my home it’s 29% of the total. My mortgage interest, utilities, property tax, insurance - all are split using this percent. Some expenses, such as internet, don’t change with the added usage, but it still gets split.

I also need to split my cell-phone, which I hadn.t

For you, @brook2adks you’ll have to also calculate the portion of the year it is 100% rental.

You can set aside the granola bars that will be just for guests. I finally got smart and bought toilet paper, etc., just for guests. But I wouldn’t worry about the ones you eat because they are old. That’s a cost of business.

I don’t think you can expense your labor. That’s paid for by your net earnings - does that make sense?

Don’t forget to factor in self-employment tax and income tax.

Dang, now I know why there are frequently stories in the news about how difficult it is to make money with a small business!!!

@felixcat, 70,000 gallons?!?!?! To get my ‘real’ cost I would have to compare bills, but I’m not yet that ambitious. I just allocate 29% to airbnb.

@Lucy_R the only other thing I see, which I thought of since you made that list, is a portion of cell phone. Also our tax guy told us about mileage. That won’t be useful to us now, but for all those trips to TJ Max, Marshalls, etc., outfitting the space last year it will be a bit of deduction.

But don’t forget the dreaded self-employment tax! 15.2% And for tax purposes, depreciation.

Anyone have anything else? I’m not a tax expert, I’m just learning-on-the-go.

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