Is Airbnb considered passive or active income?
Owning and operating an Airbnb property can be either passive or active income. Whether it’s the former or the latter depends on your level of involvement. If you hire others to manage the property for you, you’re earning passive income.
But if you’re involved in the day-to-day upkeep and taking care of guests’ needs, the IRS considers it active income.
For those hoping to turn Airbnb properties into passive income operations, this article is for you. Let’s dig into how to make it a reality.
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Is Airbnb Considered Passive or Active Income?
The truth is income from your Airbnb rental can be either passive or active. When you have a direct hand in checking in guests, taking payments, and maintaining the property, it’s a full-time job. You’re actively involved in managing the business.
According to IRS stipulations, being hands-on means you’re doing more than earning income on the side. In the agency’s eyes, you’re actively self-employed and you have to claim that income on Schedule C.
However, you’re not directly involved if you hire a property management company to take over. It’s passive income, even if you just hire regular maintenance and housekeeping staff while automating the check-in and payment process.
You might be in the same city or across the world.
Many Airbnb owners rent out their properties on a short-term basis to help classify the income as passive. Owners testify that short-term rentals result in less wear and tear on properties, Plus, it’s easier to automate guest access, check-ins and departures, and payments.
Platforms like Smartbnb.io generate touchpoints and other communications to your guests. Smart locks also help guests get in and out of the property without someone having to hand them a key. Technology can go a long way in automating solutions to common scenarios.
How to Make Airbnb Passive
To generate passive income from your Airbnb, you need to rely on a few strategies. The first is to remove yourself from the day-to-day operations of the business. Second, you need to decide whether you’ll rent out your property short-term or long-term.
1. Selecting a Property
As previously mentioned, many experts highly recommend the short-term rental strategy. But first, you need to decide what property you’re going to rent out. It could be a guest or pool house adjacent to your main home. A short-term rental could also be another house in a different city.
Some people also rent out extra rooms in their main residence. In some cases, guests share bathroom and kitchen facilities. Other properties might have separate bathroom and kitchenette areas near the rented rooms.
Regardless, you’ll want to check with local business codes before you convert a property into an Airbnb rental. Make sure it’s legal to rent out portions of a residence and double-check parking regulations.
Also, look over any applicable HOA bylaws. Some have renting, parking, and home-based business restrictions.
2. Making the Property Turnkey
You’ll recall from previous sections that indirect and minimal oversight is key to making an Airbnb qualify as passive income. Once you’ve chosen a property, it’s time to get it ready for guests. You’ll need to make it functional, inviting, and turnkey.
This means you’ll want to hire vendors to help you get the property in tip-top shape and keep it that way. Hiring a property management company is the most streamlined solution since the company handles everything. They take care of guest needs, cleanup, and maintenance.
If the rental needs renovations or upgrades, a property management company can also take care of these items. The only catch is that hiring one will cut into your profits. You’ll pay a management fee to the company. Most charge a percentage of your rental fees.
You can skip the management company for smaller or local properties and hire individual vendors. Interview housekeeping and handyman services to help out.
Just be sure to take a step back and let the vendors handle things. Your job is to pay them and evaluate their recommendations.
3. Rely on Technology
Minimizing your involvement in an Airbnb rental means leveraging technology. Solutions like PriceLabs.com help you price your rentals accordingly. You won’t have to make manual adjustments for seasonality and demand changes.
Instead, the platform will monitor going rates in your markets and supply and demand changes. Prices on your rentals will go up and down based on these dynamics. And you won’t have to pour over comps or lift a finger to make adjustments on the Airbnb platform.
Additional automation techniques include customer relationship management solutions for customer communications. Smart devices can also help you change guest access codes from afar. Reset them once a guest checks out and provide separate codes for vendors.
Can I Earn Passive Income from More Than One Airbnb Property?
As long as you maintain your distance, you can scale your passive income strategy to more than one Airbnb rental. You can either apply an identical approach or mix it up a bit. Maybe you rely on several vendors for a rental located in the same town as your residence.
But for a rental in a nearby state, you hire a local property management company. Another possibility is to use a real estate agent who’s also a skilled property manager. However, remember that you can’t participate in managing the property.
This means that you should refrain from assisting guests, cleaning after guests leave, and preparing properties for guest arrivals. You’re also limited to what decisions you can make with passive income. Let the property managers and vendors make most of them.
Summary: Is Airbnb considered passive or active income?
Earning passive income from Airbnb rentals is possible as long as you remain distant and mostly silent. Think of your rentals as portfolio investments you buy, let sit, and sell when it’s a good time. Meanwhile, an investment manager takes care of daily oversight and optimization.
You can legally declare passive income on one or more Airbnb rentals by taking an indirect approach. Many entrepreneurs have found the pursuit to be more lucrative than traditional real estate investments.