Personal Finance

Share your home for rental income

Meera Siva | Updated on July 01, 2018 Published on July 01, 2018

Owners can earn money by hosting tenants for short-term stay

The renting landscape is changing. Rather than stay in hotels, travellers are looking at alternatives to either reduce cost or have a different experience. Home owners can cash in on this growing segment of short-term stay by renting out individual rooms in their houses, even as they continue to live in the house.

How it works

To start earning rental income from short-term stays, the first step is to get the property listed. A popular option is Airbnb, an online marketplace for hospitality properties.

To list, you need to specify the number of rooms, number of guests you want to accommodate, any features such as private balcony that you want to mention and the daily rent you expect. This varies, based on location, features and season. Look through hotel rates and other properties in listing sites such as TripAdvisor to arrive at a price that is not only attractive to guests but also worth the time and effort you put in.

The platforms where you list will alert you when a guest shows interest or makes a booking. Most platforms also handle payments, but if you list on travel sites, you can opt to be paid directly. If you receive payment through the platform, there is a handling charge (3-5 per cent) and you may be paid after the guest checks out. Travel sites could have different deals with those who list properties, for instance fixed payments.

Guests may typically expect food to be provided — complementary or for a charge. This is particularly important if the home is in a remote location where other options for food may not exist. You must make necessary arrangements for food and housekeeping.

What to expect

You can get an idea on what you are likely to earn per month. For example, a private room (for two guests) in Mumbai can get you ₹38,000 a month (as per Airbnb estimates) compared with ₹10,500 in Chennai. This is based on the average per-day rent for the city and the likelihood of finding a guest. In places such as Goa, where the tourist season is year-round, you may find better bookings all through the year. Likewise, guests to destinations such as Coorg tend to prefer cozier options rather than a hotel; this increases the host’s revenue.

There are two ways to increase your earnings — by charging more per night and/or increasing the odds of getting a booking. To catch the attention of guests, it helps to highlight the salient points of your property — for example, if it is near a consulate; whether the house is located in a scenic spot and has good view, unique architecture, or is near an attraction.

Also, being responsive to guests and good maintenance will help you get good reviews, repeat customers and word-of-mouth referrals. In Airbnb, for example, those termed ‘super hosts’, based on guest feedback and other metrics, are said to earn about a fifth more than others.

What to watch

Before you list, look at the regulatory aspects of running the operation. A homestay is not considered a commercial business, but it must qualify as a homestay. The basic requirement is that the host must reside on the premise and must let out 1-6 rooms.

There is a registration process, and authorities such as the District Tourism Promotion Council could inspect the home before certifying. Rules on requirements such as size of rooms vary from State to State. A part of the inspection process requires that there is a CCTV camera and enough security.

If the house does not qualify as a homestay, the operations will be considered commercial, and various registrations will have to be done. Rules regarding property tax rates, etc, vary with the location. Take insurance to guard against accidental damage to the property, including furniture and appliances. Platforms such as Airbnb offer protection of $1 million for damages to the house or accidents to the guests.

When taking insurance, cover the property and possessions owned by you. Disclose in the proposal form to the insurance company that some sections of the home will be given on rent. Be sure to include such areas as car park that may not be owned by you, but being used by you. Keep a copy of the acknowledgement for your records. A home insurance policy of ₹10 lakh may not cost over ₹2,000 per year.

It is prudent to add public liability to cover any accidents to the guests in your premises. A safe limit is about ₹30 lakh of cover, which may add about ₹200 per year as part of the home owners’ package policy.

Report the income received to the taxman. Talk to a tax advisor on how to account for the expenses and what records must be maintained.

The writer is co-founder, RaNa Investment Advisory.

Published on July 01, 2018
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