How to Make Extra Money by Allowing Tenants to Sublet with Airbnb

Written on March 4, 2015 by , updated on April 23, 2015

sample-featureBoth forward-thinking landlords and entrepreneurial tenants are using Airbnb to make extra money. Are you?

Airbnb is an online marketplace that helps people looking for hotel alternatives rent guest rooms from regular people.

Airbnb is Here to Stay, Like it or Not

Travelers love Airbnb because it gives them the option to stay at a nice place at less than hotel rates. As the idea grows in popularity, more and more tenants are jumping into becoming hosts.

Yep, you’ve got tenants making good money as Airbnb-landlords and real landlords (you) are struggling to adapt.

The biggest objections that landlords cite include the violation of subleasing clauses and not being able to contact occupants in the case of an emergency or noise complaint. Essentially, if the actual tenant temporally moves out and leases their entire home to an Airbnb’er, the landlord has an unvetted person in control of their asset. And that is something to be very concerned about.

The “problem” is so widespread, there is even a website called Huntbnb to help landlords find out if their tenants are subletting on Airbnb without their knowledge.

But instead of hunting down and evicting entrepreneurial tenants, we landlords should collaborate with them.

Innkeepers in the Collaborative Economy

In an Innkeeper model, the landlord handles the Airbnb financial interfaces and the tenant, the innkeeper, handles the physical aspects of hosting.

Jeremiah Owyang, a Collaborative Economy thought leader, predicts many businesses will soon collaborate so closely with their customers that their clients might be mistaken for their employees. And this innkeeper concept where a tenant pays rent as normal, but receives a payment from the landlord when they host an Airbnb guest, is a perfect example.

Instead of fighting the change that is upon us, we should construct joint ventures with tenants that want to Airbnb their homes. This collaborative approach is a way to generate rents that easily exceed market rates with just a little more effort on the landlord’s part.

Joint ventures with residents can be a very profitable for the landlord.

Under this scenario, the tenant would perform housekeeping, bellhop and information desk services; the landlord would handle front desk financial matters.

In other words, the innkeeping tenant pays rent as normal, but receives a payment back from the landlord when they actually host an Airbnb guest.

My Upcoming Experiment

I plan to rent my 2 bedroom 1 bath apartment unit that rents for the $625/month to a collaborative tenant who will manage the Airbnb guest room. I will handle the bookings and financials and he is going to handle the check-ins, housekeeping, etc.

If we are able to rent 10 days per month via Airbnb at $70 per night, we would gross $700 per month. Splitting the proceeds 50-50, I would write him a check for $350 (off-setting his rent by 56%) and collecting an effective rent of $975 for the unit.

We would need to split utilities and other expenses as well, but this a sustainable win-win in my book.

Breaking Down the Innkeeper Model

Let’s drop this idea into the breakdown table.

The Innkeeper Model
What: Profit share with a tenant that hosts short-stay customers you find on Airbnb.
Difficulty:●●○○○
Time Commitment:●●○○○
Why:Instead of fighting tenants wanting to sublet their homes, landlords should collaborate with them to capture above market rate income.
Increase Net Income By:Marketing a room on Airbnb and splitting the profits with the Innkeeper.
Basic Components:

  • A nicely furnished

  • A tenant willing to fulfill housekeeping, bellhop, and information desk duties

The Extreme Version:Allow tenant opportunity to share their way to “free rent” – enough shared income to completely offset their monthly rent obligation.
Possible New Income Streams:

  • Premium pricing when your area sees a seasonal demand for hotel alternatives.

  • Additional charge per person

Nontangible Benefits:Innkeeper business model may allow you to purchase trophy properties that might otherwise be unaffordable.
Steps to Implement/Test:

  1. Find a collaborative tenant

  2. Post photos of a furnished room on Airbnb

  3. Start fine tuning your offering to collect more positive reviews

  4. Stay in control of the funds but split as agreed with tenant. Keep good records so you can issue your tenant-partner the property income tax documentation.

Evaluate Your Potential

  1. Go to Airbnb.com and see how many available units there are in your area.
  2. Pay attention to where the other offerings are located and determine why people are selecting those locations.
  3. Learn about local ordinances that you would need to observe as an Airbnb host.

The Downside

This idea does require some up front expenditures. You will need to:

  1. Furnish the room in an attractive manner and possibly even provide complimentary toiletries. This can be costly.
  2. Hire a professional to photograph your place – don’t skimp on quality photos. If you’re eligible, Airbnb will even give you a free photo shoot.
  3. You will need to write a new contract with your tenant, the innkeeper, to spell out every detail of the joint venture.

Final Thoughts

A world of possibilities is open to landlords who are willing to collaborate with their tenants.

This collaborative approach flies in the face of the stereotypical landlord approach. Many traditional landlords will likely dismiss this idea and continue to settle for market rate rents. That’s ok. I’ll continue using Airbnb and other ancillary income tactics to be 56% more profitable than the owners of similar properties in my area.

Having a trustworthy relationship with your tenant is critical to the success of this collaborative model. In fact, trust is the underlying currency of the collaborative economy. However, the need for well written agreements and accurate bookkeeping cannot be over emphasized.

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17 CommentsLeave a Comment

  • Laura Agadoni

    Interesting! I immediately went to Airbnb to see if my tenants were doing this without telling me.

  • DAN HUNTER

    1) WHO GETS SUED AND HAS TO PAY ASTRONOMICAL ATTORNEY FEES ALONG WITH THOUSANDS OF DOLLARS FOR THE ENSUEING JUDGEMENT IF THE COLLABORATIVE TENANT UNWITTINGLY DISCRIMINATES AGAINST A MEMBER OF A PROTECTED GROUP ?
    2) IN CASE OF A RENT STRIKE, WHO SETTLES THE CASE, LAND LORD OR COLLABORATIVE TENANT ?

    • Al Williamson

      Dan, thank you for commenting.
      1) Landlord handles Airbnb selection and all financial transactions. Landlord remains in a proactive CEO position.
      2) Landlord handles all financial and legal transactions. Collaborative tenant handles labor.

  • Terri

    Might consider a background check on the “trustworthy collaborative tenant”.

    • Al Williamson

      Absolutely. Might consider recruiting for the position instead of entering into the joint venture by default.

  • Dale Carlson

    Might be wise to check your insurance policy as well. Most underwriters consider Airbnb rentals a commercial activity that isn’t covered by standard apartment liability contracts. In addition, many cities prohibit or restrict short-term residential rentals to tourists. Violators can face substantial fines.

  • Kevin Dickson

    Al, once again, I love the way you think! I’ve been working on this as well, and am on the verge of doing it.

    Denver, for example, plans to eliminate my ability to do this without my tenant’s cooperation. In other words, the ordinance they are currently proposing requires that it must be the person’s primary residence.

    Most cities are also planning to force permitting and lodging tax for this activity, which is nuts. It’s not a hotel, it’s one apartment. It’s causing very few problems, so why the heck regulate it? Just monitor it for now.

    • Al Williamson

      Kev, the system is looking for a new equilibrium. Just like with drones, laws have to catch up to tech by over reacting then dialing back.

    • Dale Carlson

      In most cities, ‘hotel taxes’ are defined as Transient Occupancy Taxes. You may not be renting hotel rooms but you are most certainly renting to transient occupants. And those taxes are tacked onto hotel bills and paid by tourists. You’re just collecting and remitting the revenue.

      • Kevin Dickson

        Dale,

        The hotel industry definitely wants this tax paid to “level the playing field”. I’m against that for two reasons, the hassle for the small time one-unit operator, and I don’t believe that hotels are even on the same playing field.

        Airbnb is more than willing to collect the tax, so that eliminates that hassle factor. They are collecting hotel tax in Portland, SF, Chicago and others. But the tax plus all the other hassle factors, fees, licensing, inspection, and permitting, have caused 90% of the Portland hosts to ignore all the regulations thus far.

        • Dale Carlson

          And we’re seeing the same pattern here in SF, Kevin. As of March 1st, a month after the new Airbnb law took effect here, only 159 people had applied to register, yet there are more than 5,000 SF listings on Airbnb.

          In Portland, Airbnb can now be fined for listing units that aren’t registered with the city — $500 per day per listing. I’m expecting SF to amend its law to follow that standard.

  • Joe Shoemaker

    Interesting, but how do you justify the 50/50 split though. I like the forward thinking, but it seems unfairly stacked in your favour.

    1) The tenant is already paying you for the privilege to stay ion the unit (paying rent).

    Many AirBnB renters can make a month’s worth of regular rent for 10 days worth of Air BnB bookings. So, you could instead rent a vacant unit directly to AirBnB users yourself and if you rent for 10 days then you’ve made what you would have made in regular rent.

    A tenant is already paying rent and on top of that will sacrifice space as well as do cleaning, etc, but for only 50% of the value. In this way you are having your cake and eating it too.

    From a tenant’s perspective, a 70/30 split seems more fair. How would you go about justifying the 50/50 split to the tenant? Also, please keep in mind there are merman jurisdictions in which the tenant can lawfully have short term stays without requiring the consent of the landlord.

    • Al Williamson

      The split can be negotiated in many ways based on 1) who buys the guest furnishings 2) who pays the any additional insurance cost 3) who manages dynamic pricing updates 4) who pays for consumables, etc.

      I would encourage all to grasp the concept, springboard off it, and customize the idea to be useful to your situation.

  • Dale Carlson

    @Kevin Dickson I believe Portland has the same requirement. Why is it ‘ridiculous?’

  • Kevin Dickson

    Dale,

    I think that requirement is based on some very unscientific assumptions:

    http://greenbuildingindenver.blogspot.com/2015/04/denver-is-getting-it-wrong-on-short.html

    It reminds me of how we used to treat medical patients before we applied true scientific principles:
    http://www.bcmj.org/premise/history-bloodletting

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