The sharing economy is the core of many side hustles today.  One that that brings in revenue in exchange for borrowing your extra space is Airbnb. It is easy to sign up as a host, and it turns into a low maintenance side hustle with a high return on investment.

Where I live in China, Uber broke into the market in 2011 and ended up exiting because of local competition. Airbnb entered China in 2016—the same year Uber pulled out—and has steadily grown ever since. Just like Uber’s ride sharing spawned rivals around the world, Airbnb now competes against local companies in almost every market where it operates. 

In China, the three biggest competitors are Tujia, Xiaozhu and Meituan-Dianping.  Unlike Uber, which took a stake in its largest local competitor as it fled the market, Airbnb ultimately decided to stick to its guns and continue to go it alone in China. It continues to see strong growth, with usage up 131 percent in 2018.

Currency conversion?

Indulge me for a moment as I delve into a meandering tangent, I promise to return to the topic at hand. 

China’s central bank imposes restrictions on how much of the local currency, the Renminbi (RMB), can be converted into other currencies. By restricting the free conversion of currency, the central bank resists the market forces that would increase volatility and the value of the currency. In essence, capital controls (as this system is called) allows the central bank to dominate the trade of RMB. 

Every person is limited to converting $50,000 into another currency each year. There is also a daily conversion limit of $500. There are some exceptions, like presenting income tax receipts with your conversion request, but generally it is inconvenient to convert.  

Ok, Mr. FIRE Power, what does China’s capital controls have to do with Airbnb? So glad you asked. One unique aspect of Airbnb’s payment system is that it allows a guest to rent a listing in RMB but payments to the host can be made in USD. Allowing for the convenient conversion of small amounts to RMB into USD.

Rent your home on Airbnb

Renting your home is a great side hustle. It also has the helpful benefit of serving as a currency conversion tool. 

A few months ago, my girlfriend, Abby, realized she spent around half the month sleeping at my apartment. On those evenings her place was empty and underutilized. She wondered if she could monetize those wasted nights to help contribute to the bottom line. 

Costs

Abby rents her Far East Retreat one bedroom, one bathroom apartment for RMB 8000 ($1150) a month. The apartment is in a desirable location close to a major cultural district in downtown Beijing.

When she first started listing her apartment on Airbnb, she set the price herself. Looking at the other listings in her neighborhood, she came to a price of RMB 588 ($84) per night. This seemed completely reasonable based on comparable properties in the area. And yet, not a single person booked in the first month. The price was clearly too high. 

Smart pricing

Following this initial disappointment, she turned on the Airbnb smart pricing. This automated system lowered the cost per night to RMB 385 ($55). Immediately she received three new bookings. 

A newly listed property lacks credibility with Airbnb and the user community.  It shows up lower in the search index and is punished by Airbnb’s algorithm.

High reviews over time gradually improve the listing’s prominence in search and potentially increase the rental rate.  

Getting started, a new host should set Airbnb pricing well below market price to capture the first several bookings. Reviews are the lifeblood of the sharing economy; after the average rating increases, so too will the nightly rate. 

Become a Super Host

After the home is listed for a time and the positive reviews roll in, the host can think about becoming a super host. There are many benefits to this certification. It increases rental costs by as much as 22 percent, the property is prioritized in Airbnb searches, and referral bonuses for super hosts are increased 20 percent. 

Super hosts are selected based on a defined set of criteria:

• Star rating: A 4.8 or higher average overall rating based on guest reviews from at least 50% of their Airbnb guests in the past year. 
• Number of stays: At least 10 stays in the past year or, if they host longer-term reservations, 100 nights over at least 3 stays. 
• No cancellations:Generally no cancellations in the past year. 
• Responsive: Respond to 90% of new messages within 24 hours.

This criteria is transparent. It can be met after a month or two of part time rentals.

For comparison, a regular host makes on average $6000 per month on Airbnb. Some superhosts are making well over $100,000. 

Abby’s numbers

Abby is not yet a Superhost, but she is well on her way. Her goal is to make a little side income to help defer her rental costs. She also benefits from converting her rent payment from RMB to USD. Lets take a look at the numbers to see how things are going.

	Monthly (RMB)	Monthly (USD)	Daily (RMB)	Daily (USD)
COSTS
Rent	8000	1143	258	37
Service fee (10%)	672	96	22	3
Maid	640	91	21	3
Time	1050	150	34	5
Sub Total Costs	10362	1480	334	48
REVENUE
Rental (15 days)	6720	960	448	64
Cleaning (7 days)	490	70	70	10
Sub Total Revenue	7210	1030	518	74
TOTAL (costs)	3152	450	-184	-26

Looking at Abby’s costs, we can see that she pays her landlord $1143 per month to rent the apartment. She employs a maid who comes twice a week to help with cleaning, that costs $91 a month. 

For the pleasure of listing the apartment on Airbnb, Abby pays the company a 10 percent service fee. Airbnb indicates the average service fee is about 3 percent of the net cost, but it varies from location to location. This includes both the rental rate and the cleaning fees charged to the guest. 

Time is a cost category many people forget, but your time has value! If you are spending time managing a property that is time that cannot be spent doing something else. Figuring out what your hourly rate is offers a truer picture of the costs of managing a property. In Abby’s case, I have assigned a value of $10 per hour. 

Once all the revenue and costs are accounted for, Abby covers just about 60 percent of her monthly rent. But the benefits go beyond just the savings, she also converts her RMB into USD. This avoids the long lines at the bank, the time getting income tax receipts, and the consternation of dealing with the Chinese bureaucracy. Those big time benefits are worth a lot more than money.