Airbnb Costs and Chart of Accounts to Consider
Why read this article?
In my journey working on Bnbtally, I’ve come across many Accountants and Property Managers in the Airbnb and short-term rental industry. In this article, I’ve compiled a list of the most common costs involved in operating an Airbnb business. I present here a chart of accounts, which you can use to set up QuickBooks for your Airbnb and short-term rental organization.
This chart of accounts applies to several business models, including property owners and those involved in renting and subleasing on Airbnb. If you’re a property manager or co-host who manages listings on behalf of an owner, you may find many of these costs are absorbed by the owner and not your business. Regardless, understanding these costs will ultimately hone your decision making in each of these accounts in your business.
Following these numbers, you’ll be able to better negotiate new property deals, bargain keenly with suppliers and hold your ground with service providers in the industry. Knowing these numbers and keeping a close eye on optimizing these costs will lead you to great success on your journey.
NOTE: This article only covers costs, not income accounts. To view a list of common income accounts, see the following article “Set Up QuickBooks Chart of Accounts for Airbnb Income”.
Ongoing Operational Costs
Airbnb Host Service Fees
This account is the 3% service fee charged by Airbnb (in some parts of the world it may be 15%) and is a direct cost of obtaining a guest for each reservation on the Airbnb platform. It is also sometimes referred to as the “Host Fee”.
Keeping track of this cost will tell you how much you are paying Airbnb for their service. Some might also consider any Guest service fees as a cost of doing business with Airbnb as well, and if you use Bnbtally, you’ll be able to account for both Guest and Host fees automatically.
Either way, with this knowledge, you’ll be able to compare the cost of obtaining guests on Airbnb vs other platforms. You’ll also be able to more accurately assess the worthiness of advertising and obtaining guests directly on your own website.
Finally, it is important to note that you shouldn’t trust Airbnb to report any of your paid Airbnb Host Service Fees in their 1099-K filings to the IRS. You’ll need to keep track of Airbnb Host Service Fees to properly expense in your tax filings or else you may end up paying more taxes than you should. For more details about this, see the following article “What You Need to Know about Airbnb’s 1099-K IRS Filings for Hosts”.
Janitorial & Turnover Costs
In the accommodation business, it’s no secret that janitorial and turnover operations are considered a core component of your business, especially for larger operations. This account includes the cost of deploying staff to clean and prepare listings for the next guest after each checkout. You have only one chance to make a first impression on each of your guests when they check into your listing. Getting this operation correct will have a significant influence over your guest’s reviews and it will materially affect your brand over time. At the same time, you need to figure out how to keep these costs reasonable.
Some companies hire 1099 contractors and pay a fixed amount on a per-job basis while other companies hire full-time hourly employees on W-2s. In either case, having a precise knowledge of your janitorial and turnover costs on a per-listing and per-staff basis, will provide you with the metrics and benchmarks you need to hire and manage the staff you’ll want to retain while firing those who aren’t working out.
Depending on the size of your operation, you may be inclined to hire not only cleaning staff, but also supervisors and inspectors. Also, you may find yourself with a lot of common area cleaning which are shared between units. Given your situation, it may be appropriate to create a separate account for these particular activities.
Laundry Cleaning Costs
Going hand-in-hand with janitorial and turnover costs is the cost of washing bed linens. While some companies place this workload onto their janitorial and turnover staff, many other companies outsource laundry cleaning to a third party laundromat service.
When possible, it’s usually advised to track laundry cleaning costs separately from janitorial and turnover costs because laundry cleaning can easily operate separately from other janitorial operations. Therefore, when you get to a certain size, you may find yourself seeking a dedicated laundry service.
Knowing the exact amounts you’ve paid specifically for laundry cleaning will give you a baseline price you can optimize. You’ll be in a better place to negotiate and will be able to more accurately decide whether to pay a third party laundry company or hire a dedicated staff member for the task.
These are all the supplies consumed by guests during their stay. These include pleasantries like coffee, tea, snacks, as well as essentials like toilet paper and paper towels. Any welcoming gift baskets can be classified under this category as well.
For these costs, the common aspect is consumption by guests. It’s likely not the largest cost of your operations but keeping an eye on this cost will tell you when it’s appropriate to get a wholesale membership or when to get a dedicated supplier for specific items.
Electrical & Gas Utilities
As the name suggests, it’s important to keep track of your electrical and heating bill so that you can take measures to predict seasonal rises and take steps to further optimize.
Keeping an eye on this cost will give you the insight you need to decide whether it’s appropriate to invest in more energy efficient appliances, better insulate the home or invest in smart thermostats and space heaters.
Water & Sewage Utilities
Just like Electrical & Gas, it’s important to monitor water and sewage costs as well. With this item, you’ll be able to tell if there’s any odd activity such as a leak in the home that causes the water bill to go out of whack.
It can easily happen, one day you find out that your water bill is over $700. You find out that there was a water leak in a main line. If you’re in the rental arbitrage business, this would be a cost for your landlord, which you could formally report. If you’re a property manager, you’ll want to inform your home owner client. Either way, keeping an eye on this cost will give you a clue as to whether you need to place more attention on the matter.
Cable, Internet & Streaming Services
For the accommodation business, this is just as much a necessity as any other utility. Use this account for tracking cable and internet costs as well as any streaming subscriptions such as Netflix, Hulu and Amazon Video.
More recently, internet service providers have began capping their data plans and now charge additional fees as “data overages”. You’ll want to track this cost so that you can get the most appropriate data plan. Also, keep in mind that internet service companies tend to increase prices after a contract expires, so keeping your eye on this account will prompt you to renegotiate new terms when necessary.
For any operation greater than one listing, software becomes an important necessity to manage your operations as you grow. It’s appropriate to monitor the cost of software because there is a ton of bad software providers who charge way too much for their services.
We can go over software products more extensively in another article but I’ll give a few examples here: Smartbnb is a great product to automate Guest Communication. Breezeway is one of the best for managing janitorial and turnover operations. And of course, accounting software like QuickBooks Online used in conjunction with Bnbtally will keep you on top of your revenue and business profits for each listing as you build your organization.
Commercial General Liability Insurance
When you have many short-term guests as well as long-term occupants, it becomes appropriate to consider a commercial general liability insurance to protect yourself from personal injury claims from occupants.
More notably, this type of insurance can also help you in the event a guest makes a claim against you for faulty eviction. By all means, capturing the cost of the insurance premium will help you to assess better insurance brokerages and find better insurance packages as you grow.
Property Management Fees
If you decide to hire a third party property manager or co-host to manage your operations, this account would apply to you. Whether you’re getting assistance with guest correspondence, property maintenance or cleaner logistics — any part of your operations — you should track this cost not only to benchmark your property manager but to assess this activity all-together within your business model.
Listing Setup Costs
Move-In, Setup, Photography & Listing Costs
This is where all the magic and hard work begins. These are the costs (mostly labor) that are involved with setting up any new listings. Monitoring this closely will tell you how much upfront labor costs arise when you move in and set up a new property. Unlike other setup costs, once you spend your money in this category, the money is gone — refunds and returns are likely not possible since it’s all either labor or rental equipment.
Small Appliances, Furniture & Fixtures
This account is for smaller purchases that are expensed immediately and are too small to be tracked under a depreciation schedule. Toasters, microwaves, any purchased item that isn’t large enough to place into a depreciation schedule can fall under this category.
Most of these items can be returned to a vendor if dysfunctional or are unneeded. Many of these items can also be reused if you move into another place or can be sold if you decide to liquidate your business.
Since this is an accommodation business, purchasing linens deserves its own account. Linens can get costly if you become a larger operation and there are plenty of dedicated suppliers to consider when you grow in size. You’ll want to know how much you’re spending in this category so that you can optimize and negotiate with the most competitive suppliers.
Having a thumb on how much you’re spending on linens will help you to seek out better bargains or volume prices from better vendors. Besides, linens will get used, damaged and worn out, so finding a good supplier will ultimately prove beneficial over time.
Teardown, Moveout & Storage Costs
If you’re renting the property and your lease is finished or you own the property and you’ve sold it, it’s time to move your furnishings out of the property. Tracking this will keep you in tune as to what costs comes after a deal has ran its course.
For example, when negotiating the renewal of a lease with your landlord, you should have a good idea of the costs involved if the lease is not renewed. In negotiation texts, this is considered your “No-Deal” option. Knowing your No-Deal option gives you a baseline in your negotiation and you will better know when it’s appropriate to pull out of a deal.
Fixed Assets & Depreciation
Large Appliances, Furniture & Equipment Assets
Any large purchases for your business (such as refrigerators, washers, dryers, sofas, etc…), those that carry a larger value over the years. These assets are very likely to be considered fixed assets which many tax jurisdictions may require to be expensed under a depreciation schedule. You can consider this particular account code as an asset bucket to keep track of the current value of such purchased items over time.
Depreciation on Large Appliances, Furniture & Equipment Assets
Depreciation is a way of spreading the tax deduction for the cost of an asset over it’s lifespan. Use this account to extract the depreciation from the associated asset account for each given time period. There are also tax benefits depending on your current business stage.
For example, if you are in your first year of doing business, you might not plan on making a profit for the year. Therefore, rather than writing off the full amount the first year, if you set all of your larger purchases into a fixed asset account, you can depreciate those assets in future years. And assuming those future years are profitable, you can write off the depreciation within those profitable years for a tax deduction.
Property Level Costs
Rent Payments for Leases
If you’re renting the property from a third-party landlord and subleasing on Airbnb — a business model known as rental arbitrage — you’d consider rents paid to landlords as a cost of doing business. Additionally, this is likely the most significant cost of your entire operation and will have the biggest effect on your ongoing profitability over time.
Being in tune with this cost for each property and mapping out each location will give you an upper hand in seeking better deals and sharpening your ability to diligently negotiate with landlords.
Mortgage Loan Interest
If you own the property and have a mortgage payment, then any interest paid on the mortgage is considered a cost of doing business. While interest is a cost, this sort of business model is focused on building equity in the property at hand. Therefore, any payments made towards the principal of the mortgage would apply to paying off its balance. Although cashflow may be a concern, any payments applied towards principal is technically not considered a cost.
As a side note, the ownership business model may also include closing costs and brokerage fees which is out of the scope of this article. For example, if you’ve paid the minimum down payment on the house, you may be required to pay private mortgage insurance. Obviously you need to keep in mind any costs when finding/buying the property as well as any instruments involved in executing the purchase, which you may need to create other accounts to track.
This is another part of the home ownership business model. Just like any large asset, the building itself may be under a depreciation schedule, which will allow you to write off a set amount of depreciation each year and provide a sizable tax deduction.
If you own the home, you’re likely liable to pay property taxes to your state or local tax authority, which can be considered a cost of doing business.
Repairs, Maintenance & Gardening
Any major or minor electrical, plumbing or structural maintenance costs as well as gardening services absorbed on your behalf can be categorized with this account. Depending on the property, housing arrangement and the complexity of the gardening, you may want to consider tracking gardening separately in its own account.
Any large changes to the property for the sake of enhancing your Airbnb gains — such as the installation of a patio, bathroom remodeling or an addition to the house — can be classified and written off as a cost of doing business. Depending on the size of the renovation, tax situation or accounting preference, you may need to amortize and split this cost over a certain time period.
If you own the property, you should purchase an insurance policy to protect the house itself. Optionally, you can also get insurance policies to protect the furnishings and fixtures inside as well.
Property Automation, Locks and Security Costs
Home automation appliances such as automatic light dimmers, security appliances and locks, noise detection devices and any monthly ongoing security services can be captured into this account.
Home Owners Association Costs
If your property is part of a Home Owners Association, you’re likely liable to pay HOA fees along with any other costs directly related to maintaining compliance with the association. For example, if a guest parks in the wrong spot on the street, you may be responsible for paying the fine.
Getting your numbers precise is more important than ever before. In this article, we’ve covered an extensive list of costs to consider for your chart of accounts in QuickBooks. Tracking these costs will ultimately hone your decision making and build an intuition in your business. Following these numbers, you’ll be able to better seek and negotiate new property deals, bargain keenly with suppliers and hold your ground with service providers in the industry.
Knowing these numbers and keeping a close eye on optimizing these costs will lead you to great success on your journey.
This article is sponsored by BNBTALLY. Have Airbnbs and care about your numbers? BNBTALLY connects Airbnb & Vrbo with QuickBooks & Xero accounting software for automated importing, detailed bookkeeping and seamless reconciliation. Check it out!
Originally published at https://blog.bnbtally.com on December 18, 2020.