5 Ways Being an Airbnb Host Can Cost You Money

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If you’ve ever wanted to make a little extra money on the side by listing your sofa, spare bedroom, guest house or even whole house on a service like Airbnb, you’ve probably wondered just how much money you could make.

After all, there are all those stories of people paying their monthly mortgage payments or annual tax bills through their rental income. What a great way to put an asset you already have to good use, right?

Yes, if your situation is right for the opportunity. When managed properly, these rentals can end up bringing in more than a traditional monthly rent can, though it does require significantly more work due to the constant turnover of renters.

As with any business, though, there are risks that could end up undermining any money-making opportunity your spare sleeping spot might afford. That’s why it’s a good idea to exercise caution and do your due diligence before jumping in.

Here are five things that could end up costing you money as an Airbnb host.

1. Higher Insurance Premiums

Yes, it’s true that Airbnb provides Host Protection Insurance, providing primary liability coverage for up to $1 million per occurrence in the event of a third-party claim of bodily injury or property damage related to an Airbnb stay. But that doesn’t mean you’re not going to need to alert your homeowners insurer that you’re operating as a rental property, even on a part-time basis.

For example, I have a guest house that I considered making available on Airbnb and I talked to my insurer about how that would impact my coverage. In a nutshell, my premiums would have doubled, significantly impacting any income I would’ve made from listing on Airbnb. I decided it wasn’t worth the hassle. Now, sure, I could’ve chosen not to tell my insurer about the rentals and just contact Airbnb with any claims, but that left me feeling very exposed when it came to, well, a lot of things.

As Galen Hayesis, president of El Sobrante, California-based Hayes Insurance, recently wrote for PropertyCasualty360.com, the coverage leaves a lot of gaps for homeowners:

  • Coverage is limited to $1 million per occurrence, $2 million per location. The policy aggregate is $10 million for all insured locations in the U.S. Shared limits are not your friend.

  • Coverage is in excess of any other available coverage. The host must submit the claim to his homeowners insurance and the claim must be denied by that company before Airbnb’s insurance will pay. Presumably, the homeowners insurance may also be cancelled for business use.

  • The summary document lists these other “key” exclusions: (1) intentional acts (of the host or any other insured party), (2) loss of earnings, (3) personal and advertising injury, (4) fungi or bacteria, (5) Chinese drywall, (6) communicable diseases (7) acts of terrorism, (8) product liability, (9) pollution, (10) asbestos, or lead or silica, and (11) insured vs. insured (i.e., host sues Airbnb or vice versa).

  • The coverage is limited to an actual stay, not a booking. No show — no coverage. Overstay or early arrival? No coverage.

“What if a guest breaks into the host’s gun safe, steals guns and goes on a crime spree? Is there coverage for the host from any ensuing lawsuits? Probably not,” Hayesis wrote. “Vacation rental websites like Airbnb are doing their best to protect themselves by offering what looks like insurance to their hosts. But hosts are shouldering a lot of risks with limited protection. So before you sign up or rent your home again, you may want to think twice. The bottom line appears more red than green.”

Airbnb did not respond to Credit.com’s request for comment, but does provide the following on the Airbnb website:

Here are some examples of what the Host Protection Insurance program should cover:

  • A guest breaks their wrist after slipping on the rug and brings a claim for the injury against the host.
  • A guest is working out on the treadmill in the gym of the apartment building.
  • The treadmill breaks and the guest is injured when they fall off. They bring a claim for the injury against the host and the landlord.
  • A guest accidentally drops their suitcase on a third party’s foot in the building lobby. The third party brings a claim for the injury against the host and the landlord of the host’s building.

Some examples of what the Host Protection Insurance program doesn’t cover:

  • Intentional acts where liability isn’t the result of an accident.
  • Accusations of slander or defamation of character.
  • Property issues (ex: mold, bed bugs, asbestos, pollution). Auto accidents (ex: vehicle collisions).

2. Turned Down for a Mortgage or Other Home Financing

Banks also are closely scrutinizing how properties are being used when it comes to writing new mortgages and even refinancing. The issue is primarily about how to classify loans for homeowners hosting through Airbnb and other services Are they a primary residence? An investment property? Both? Mortgages on investment properties have traditionally been viewed as riskier.

One example is Brad Severtson, a resident of Seattle whom the Wall Street Journal recently profiled. Severtson had reportedly earned about $30,000 in 2015 renting out a cottage in his backyard. The Journal reported that he thought the extra income would work in his favor when he wanted to refinance a home-equity line of credit.

“The bank turned him down, saying it didn’t allow home-equity lines of credit on properties in which the homeowner is operating a business, including Airbnb,” the Journal reported.

3. Higher Taxes

Yep, if you’re making rental income, you’re going to be expected to pay taxes on it. Airbnb says on its website “as a host, your earnings may be subject to U.S. income taxes. To assist with U.S. tax compliance, we may collect your taxpayer information. Even if you’re not a U.S. taxpayer, we may still require certain information from you.”

There are some exceptions to keep in mind, though.

According to the Internal Revenue Service, if you use your home or vacation property as a personal residence and rent it for fewer than 15 days in a calendar year, you do not have to claim that income on your personal taxes. In this case, do not report any of the rental income and do not deduct any expenses as rental expenses.

Likewise, if you rent your home or vacation property to others that you also use as a personal residence, limitations may apply to the rental expenses you can deduct, according to the IRS. You are considered to use a dwelling unit as a personal residence if you use it for personal purposes during the tax year for more than the greater of 14 days or 10% of the total days you rent it to others at a fair rental price.

It is possible that you will use more than one dwelling unit as a personal residence during the year. For example, if you live in your main home for 11 months, your home is a dwelling unit used as a personal residence. If you live in your vacation home for the other 30 days of the year, your vacation home is also a dwelling unit used as a personal residence, unless you rent your vacation home to others at a fair rental value for 300 or more days during the year.

4. Losing Your Lease

If you have a landlord and want to host on Airbnb, the very first thing you should do is talk to your landlord and get their permission to advertise your sofa, your spare bedroom or the whole property. And get it in writing.

There are literally hundreds of horror stories of folks not talking to their landlords, only to be sued or have their leases terminated as a result.

5. Being Cited for City Ordinance Violations

Many cities have restrictions about hosting on sites like Airbnb, whether you are a homeowner or a renter. That’s why it’s a good idea to first check on the Airbnb site about what regulations may apply and then follow up with your local government. The last thing you want is to be cited for being in violation of local ordinances.

As Airbnb states on its site, “When deciding whether to become an Airbnb host, it’s important for you to understand the laws in your city. As a platform and marketplace, we don’t provide legal advice, but we do want to give you some useful links that may help you better understand laws and regulations in your town, city, county, or state.”

Remember, making a little extra money from a side gig is a great way to boost your savings abilities or help pay off any debts you might owe (you can see how your debt is impacting your credit by getting your free credit report summary on Credit.com). But, as this list, shows, it’s wise to do your research first. What might seem like a great opportunity can end up costing you big time. So, do your homework before your foray into renting your space and make sure your home can actually work for you.

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7 Ideas to Make Extra Money This Summer

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Summer is a great time to head to the beach, fire up the grill or go camping. But it’s also a terrific time to earn a little extra cash.

You can make money year round, of course. But the long days, warm weather and (for some) flexible schedules of summer offer some unique opportunities to cash in.

Despite recent ominous job numbers, prospects for summer employment remain pretty good.

Daniel Culbertson, U.S. economist for the online job board Indeed.com, recently told Forbes that retailers lead the way when it comes to summer employment:

“But they’re not the only ones hiring, as we see an increase in summer job postings overall in May as compared to last year, matching strong job demand throughout the start of 2016.”

Here are seven great ways to pad your bank account as the temperature rises.

1. Lifeguard

You probably won’t get rich doing this job. The average pay for a lifeguard is $8.92 an hour, according to PayScale. However, you will soak up the rays and have fun, and you may even save somebody’s life.

And on second thought, maybe you will get rich after all. A few years ago, CNBC reported that some California lifeguards make six figures.

The Red Cross offers training and certification courses.

2. House Painter

Summer’s great weather makes the season prime time for house painting. If you can paint like Picasso, get to work! If not, try a volunteer stint at Habitat for Humanity to bring your skills up to speed.

You can expect to earn around $17.50 an hour for your efforts, according to the U.S. Department of Labor. Not a bad gig if you can get it.

3. Ice Cream Truck Driver

Who doesn’t have fond childhood memories of hearing the familiar chimes of the ice cream truck on a summer day? Now, you can create those idyllic moments for the next generation of kiddos.

JobMonkey notes that ice cream truck drivers almost always earn their money on a commission basis and can expect to bring in between $300 and $600 weekly during the summer:

If it’s rainy and nasty out, you may not make much money, but if the sun is blazing and it’s the Fourth of July you may pull in big bucks.

And added bonus? You’ll never run out of sweet treats during the workday!

4. Lawn & Yard Care Servicer

During the dead of winter, people don’t typically worry much about their yards aside from the occasional need to shovel. But by summer, lawns, weeds and bushes are growing every day.

Some folks are simply too busy to keep up with the trimming. Others may be too old or ill. Regardless of the reason, you can help out and pad your pockets at the same time.

According to Angie’s List, the professionals charge between $35 and $50 just to mow the lawn. Plus, it can be a great — and free — workout.

5. House & Pet Sitter

People often travel throughout the summer, and many need someone to look after their homes and pets. The work is relatively easy and can be fun, especially if you love animals.

Kimbirly Orr of Denver is a house sitter who told U.S. News and World Report that she charges $50 a night for up to two small pets.

If you land a longer-term project, house sitting can be a bigger boon for those trying to save money rather than earn it.

For example, agree to house sit for someone who will be gone all summer long and you may get free lodging. House-Sitters America says gigs as long as six months are not unusual.

6. Tutor

Kids who struggled during the school year often use the summer to sharpen their skills in time for the coming fall. That means a plethora of parents may be searching for a private tutor.

If tutoring sounds interesting, you can find clients by posting fliers or advertising on online classifieds sites. Or, you could work for a local tutoring agency for a year or more to build your credentials before moving out on your own.

Care.com says high school students who tutor during the summer can expect to earn $10 to $15 an hour. Certified teachers can earn as much as $75 an hour — that’s big bank during their off-season.

7. Bottled Water Seller

When investing legend Warren Buffett was a kid, he would buy chewing gum from his grandfather’s store, then turn around and sell it door-to-door at a markup.

You can follow in the footsteps of the Oracle of Omaha by selling bottled water (buy it in bulk at a warehouse club) on hot summer days at parks and outdoor events.

Just check with local ordinances to make sure you are not running afoul of the law.

[Editor’s Note: Whatever summer income you pull in, it’s a good idea to try to save it or use it to strategically pay off your debts. Paying down debt can also boost your credit scores. You can get your credit scores for free on Credit.com to track your progress.]

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Image: Roy Pedersen

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