Managing your own family finances can be a challenge. What happens when you add a business (or two or three) on top of it?
Since we’re already transparent with our finances and many of you have been asking how we handle our Airbnb finances, we figured it was time we show you how we do it!
This isn’t the “one and only” way to handle your budget as an Airbnb host, but hopefully it will give you some insight into one way to successfully manage your finances when you have a short-term rental. Each family and each business is unique, so the bottom line is that you’ll have to figure out what works for you.
If you are an Airbnb host, I would love to hear how your financial system is similar or different! Please share your thoughts down in the comments! Your ideas might be just what another host needs to hear!
If you want to be an Airbnb host, don’t hesitate to sign up and get the process started. I’m happy to answer any of your questions along the way. In fact, I have some upcoming posts answering all sorts of questions. Just leave a comment below or email me directly.
Okay! Let’s talk finances! First I’ll give you an overview of our Airbnb income and expenses, then I’ll show you how it all comes together in our YNAB budget and how we handle tax time.
With Airbnb, you get paid in real time. When a guest is scheduled to check in, Airbnb deposits that guest’s payment into your account right then. It will, of course, take a day or two to actually show up in your account, but the payments are quick.
This is good and bad.
The good is that you get your money fast! There’s no waiting for a monthly check or for your balance to reach a certain threshhold before they’ll pay out. What’s not to love about that?
Not much, but from a bookkeeping perspective, it can be a little tedious. In a given month we may have a dozen guests, which means we have a dozen separate deposits into our account.
With our affordably priced 1-bedroom aprtment in a non-touristy area, our income (before expenses) has averaged just over $1,400 per month over the past 5 months.
To help you think through your own short-term rental expenses, we’ll divide our Airbnb expenses into several categories. I’ll mention both costs that apply to us and ones that don’t, but might apply to you!
Initial Set-Up Costs
The bulk of our Airbnb expenses came as we were setting things up. We had previously only rented our one-bedroom unit out as a regular long-term unfurnished rental, so we needed furniture, dishes, small appliances, and decor in addition to bedding and consumables. I already shared all the details of the cost of setting up our Airbnb rental.
Short-Term Rental Insurance
We did get new homeowner insurance to expressly cover the additional risks of a short term rental. Our previous insurance carrier had already chosen not to renew any policies in this high-fire danger part of California, so we had to find a new insurer anyway. Mike will be describing the insurance issues and costs in a separate post.
The ongoing costs of running a short-term rental are pretty minimal on most months, but they are still real costs. We have to buy toilet paper, paper towels, hand soap, dish soap, and trash bags, as well as some other consumables that we provide like coffee, tea, hot cocoa, and instant oatmeal. We need to buy cleaning supplies, too, including more laundry detergent than you might think, as we launder all the bedding and towels between every guest.
We also occasionally have to replace things, like sheets and towels, due to normal wear and tear.
Some people who have a larger scale Airbnb business will hire people to clean and/or manage their rental. In our case, we do it ourselves, so we don’t have any of these expenses. The cleaning fee that renters pay (more on that in a future post) is just lumped together with our income.
One of the more complicated questions for our Airbnb rental is how to divide the expense of the utilities shared by our rental and our own home.
Our rental started with a propane furnace for heat in the winter and an evaporative cooler for summer. Since our home is completely electric, it was easy to attribute all propane expenses to the rental. When the furnace needed repairs of the tune of $1,000+ we opted to replace the heating unit with a mini-split HVAC unit (costing $5,500), so we don’t have to deal with propane anymore at all and we have a much more efficient and effective unit for heat and AC.
We pay the full amount of our shared utilities (electricity, water, trash, Internet, and Netflix) from our household budget. We do however, attribute a portion of those expenses as rental expenses for tax purposes. We’ll get to those details in a minute.
I’ll explain how we divide up each of the different expenses. Talk to your tax professional to decide how you should/could allocate your expenses at tax time. It can get especially tricky when the expenses include both your regular household and your rental.
Here’s how we divide the expenses for Electricity and Water:
If we add the square footage of our rental to the square footage of our house and figure out the rental’s percentage of the total square footage.
(rental ft²) / (rental ft² + house ft²)
Mulitply that by 100 to get a percent.
For us, that’s 21%.
We use that percentage for our electricity and water. For example, if we get a $335 electricity bill, 21% of that is the rental’s portion for tax purposes. That would be $70.35.
Here’s how we divide the Airbnb expenses for Internet:
The internet bill is divided a little differently. It is based on use. For us 30% is for Mike’s business, 30% is for my business (this blog!), 20% is family use, and 20% is rental use. Our internet charge is $69.99 each month. My blog business pays $21, Mikes’ business pays $21, our family pays $14, and the rental pays $14.
As with other shared utilities, the total shows up in our monthly transparent family budget reports because we pay it all out of family accounts, but for tax purposes, this is how the cost is divided.
Here’s how we divide the Airbnb expenses for Trash and Netflix:
We split the trash cost 50/50 with the rental. Our family actually produces very little trash. We give any food scraps to our animals and we primarily cook from scratch, so there isn’t a lot of packaging. This 50/50 division is based on the amount of trash produced by our household versus the amount produced by the rental.
We didn’t have Netflix before becoming Airbnb hosts. We currently have it split 50/50 with the rental, even though we barely use it. We didn’t feel right about having it be 100% a rental expense because we will use it occasionally, but it’s definitely less than 50%.
Like I said, these aren’t the only ways to divide up utilities and bills. They certainly aren’t perfect ways, though without separate meters or accounts there really isn’t a perfect way. Your tax professional can help you decide what division makes sense for your specific situation.
Now that you have an idea of what our Airbnb expenses are and how our Airbnb income is distributed, let’s talk about how we manage it all.
We don’t have a separate YNAB budget for our Airbnb business. We use our normal family budget.
Does that surprise you?
In fact, we don’t use a separate checking account for Airbnb either. Even with all of the income deposits, it’s not worth it for us to keep the rental finances separate because all of the expenses are done within our normal spending. For example, I’ll pick up toilet paper for the rental when I’m at the store buying our normal household purchases. Plus, all of the utilities already come out of our family checking account.
When we receive Airbnb income, I treat it like any other income we get. You can see in this video, using the new YNAB we track all of our earned income in one budget line which I call “Money Earned THIS Month.” My husband’s regular paycheck goes in that category, as does my blogging income. It all sits there until the end of the month when I zero it out so I can budget that money for the next month. For all the details, watch the video.
As described earlier, utilities and bills that are shared with our regular household come out of our normal family budget and are only treated specially when they are included as deductible business expenses at tax time. The expenses you see in our transparent family budget update each month are the actual bills that covers both our house and the rental.
In another budget category I keep track of rental expenses that are exclusively for the rental. Most months these expenses are minimal. I don’t budget any money to this category, so for most of the month, this category is in the red. Since we are a month ahead, I know there is more than enough money to cover this “overspending.”
At the end of the month, I use the “Money Earned THIS Month” category to cover the rental’s expenses (which takes that category out of the red). The rental’s expenses are subtracted from the income, leaving just profit in the “Money Earned THIS Month” category.
For my blog and for my husband’s private law practice we track income and expenses in completely separate accounts and budgets, and just distribute net profit to the household budget at the end of teh month. It’s kind of nice to have our Airbnb bookeeping be simpler.
What about Taxes?
For the last few years we have used a professional tax preparer. At tax time we make sure our Airbnb spreadsheet is updated for him and we’re set.
In the first tab of the spreadsheet, we have a list of all of our Airbnb income. In the Airbnb dashboard you can download the CSV data, so in less than a minute you have all the income details that you need for tax purposes.
The next tab has all of our expenses. There is a table that has all of the past year’s utility bill totals and the proportion attributed to the rental. I have listed on the spreadsheet how we determined the proportion attributed to the rental, just as a reminder.
We also provide a table with dates, amounts, and memos for each of our “other” expenses. It’s really simple to create the expense list, since I have recorded all of that spending in the “Rental Expenses” category of the household budget in YNAB.
Our tax guy also needs to know how much we paid in mortgage interest, PMI, and in relevant years, any loan origination or refinancing costs. We give him copies of the forms we get from our mortgage servicer for all those numbers.
Whether you do your own taxes or hire a professional, having all of your Airbnb income and expense details in one place will make your life much easier when tax time comes around!
Do what works for you
What you do will depend on your situation and your preferences. If our rental was in a separate location and had its own bills and utilities we would handle the bookeeping differently. Hopefully, it’s at least a little helpful for you to see one way to do it that works well for us.
More Airbnb Questions?
I have heard from many of you who are planning to start your own Airbnb businesses/side hustles, so I have several posts in the works to answer your questions. If you have any questions about how to run a successful Airbnb, just leave them in the comments below (or email me) and I’ll be sure to cover them!