About this Article
The Airbnb and short-term rental industry has created tremendous opportunity for Property Managers, Accountants and Renters alike, but getting your numbers precise is more important than ever before. In this article, we will discuss the Rental Arbitrage business model as it relates to an Airbnb and short-term rental business. We will present an example business and discuss the Chart of Accounts, Product/Service codes and Classes/Locations to consider for a proper QuickBooks Online setup and preparation for a full Bnbtally integration.
Rental Arbitrage Business Model Example
Renting Property & Subleasing on Airbnb
In this example business, you have signed a lease agreement with an owner of real estate for a two-year term. In the lease agreement, the owner has granted you the right to sublease the property to short-term guests. You are responsible not only for paying the agreed rent to the owner, but also responsible for all utilities, cleaning & turnover costs. The owner is responsible to pay for any major fixes in the property.
In this model, you are taking on full risk of the lease, with the hope that you'll be able to fulfill enough short-term occupancy necessary to cover all costs, rents, as well as produce a profit.
Owning Property & Renting Directly on Airbnb
The Chart of Accounts for this Rental Arbitrage business model example is very similar to the business model of owning the property yourself. Whereas, instead of renting a property from an owner and subleasing, you own the property yourself and are renting it out on Airbnb. Rather than paying a rent to an owner, you are paying a mortgage principal with interest. You can still use the Chart of Accounts in the example below to account for your Airbnb reservations, you would just apply your mortgage differently in other parts of your accounting.
Chart of Accounts to Create
Following are the accounts we'll create in your QuickBooks' Chart of Accounts for this example. In this article, we're mainly focusing on the accounts related to the Airbnb reservations, as this is what's being integrated with Bnbtally. There are other operational activities that will need accounts, which we can discuss in another article.
For simplicity, we've compiled a CSV for you to import the following accounts, which you can download here:
If you were to manually create the Chart of Account codes in QuickBooks Online, you would select an Account Type, a Detail Type and would enter a Name for the account as shown here...
For readability, we will present the Chart of Accounts codes in the following format...
- Account Type (Detail Type): "Name"
Accounts to Create
- Income (Service/Fee Income): "Airbnb Income - Accommodation Fare"
- Income (Service/Fee Income): "Airbnb Income - Cleaning Fee"
- Income (Service/Fee Income): "Airbnb Income - Resolution Adjustment"
- Income (Discounts/Refunds Given): "Airbnb Refund - Accommodation Fare"
- Income (Discounts/Refunds Given): "Airbnb Refund - Cleaning Fee"
- Income (Discounts/Refunds Given): "Airbnb Refund - Resolution Adjustment"
- Costs of Goods Sold (Other): "Airbnb Direct Cost - Host Fee"
- Current Liability (Sales Tax Payable): "Custom Taxes Payable"
We've created income accounts for the accommodation fare, cleaning fee and resolution adjustments. We've also created their refund accounts to track respectively. The host fee is accounted as a a direct cost of the reservation, this is the 3% fee Airbnb charges you (the host) for the reservation. The Tax account is optional, it's only necessary if you've set up custom taxes for your Airbnb listing. For most places, Airbnb collects and remits taxes on your behalf and therefore it usually isn't required.
One account that we're not including is the Airbnb Payment Clearing Account. This is a special account you can select within Bnbtally to make payments to invoices (automatic payments to invoices are optional, but we recommend it). For more information about the Payment Clearing Account, read the following article: Payment Clearing Account Overview for Airbnb & QuickBooks
Create Product/Service Codes for Invoices
Once you've set up the above accounts in your QuickBooks Chart of Accounts, you'll also need to set up a Product/Service code for each of the accounts (except for the Airbnb Payment Clearing Account). This is necessary since QuickBooks' invoices require Product/Service codes for each line item in the invoice (as of this writing).
For simplicity, we've compiled a CSV for you to import the Product/Service codes, which you can download here:
If you prefer to create these manually, for each Chart of Account code created above, create a Product/Service code of type Service with the Name set to the same exact name as the Chart of Account code. Under the Description, select "I sell this product/service to my customers," and then select the Income Account to be the same Chart of Account code. See below (do this for each Chart of Account code above)...
Create your Classes or Locations for each Property
If you have more than on property to account for, we highly recommend using classes or locations to distinguish accounting between properties and for proper reporting. First, be sure to enable classes or locations for your organization by going to your "Company Settings" and selecting to track classes and/or track locations.
Now, you can either use classes, locations, or a combination of both. We usually recommend just using classes. Either way, be sure to create a class or location for each of your listings with either the address of the property or a distinguished listing name.
Listing Setup in Bnbtally
Now it's time to integrate your Airbnb listings and your QuickBooks Online organization using Bnbtally. If you haven't already set up your connection, follow this link here:
Once your connection is established, navigate to the Listing Manager and follow these instructions for configuring each listing...
For "Event: Reservation Income" create an Invoice
Set the following allocations to fulfill the Rental Arbitrage example for your reservation income...
In this example, 100% of the Airbnb Accommodation Fare is parsed into the "Airbnb Income - Accommodation Fare". 100% of the Cleaning Fee is placed into the "Airbnb Income - Cleaning Fee" code while 100% of the Host Fee is placed into the "Airbnb Direct Cost - Host Fee" code. We also parse 100% of the Resolution Adjustment into the "Airbnb Income - Resolution Adjustment" code.
You can choose the customer of the invoice to be a custom customer for the property or you can select to set the guest as the customer, either will work and is of your preference. Remember to set each class or location properly based on the listing you're configuring and what you've set in your QuickBooks Online account. If you need more specifics about setting up your listings in Bnbtally, read our article here:
For "Event: Reservation Refund" create a Refund Receipt
Set the following allocations to fulfill the Rental Arbitrage example for your reservation refunds. You'll notice that the reservation refunds are setup very similar as the reservation income, the only difference is that we're using the refund accounts for the accommodation fare and cleaning fee.
In this article, we have covered the Rental Arbitrage business model as it relates to an Airbnb and short-term rental businesses. We have presented an example business and discussed the Chart of Accounts, Product/Service codes and Classes/Locations to consider for a proper QuickBooks Online setup and preparation for a full Bnbtally integration.
Disclaimer: Each business can be highly customized and there is no single model of accounting that covers all businesses in any industry. This article is for informational purposes only and we recommend that you speak with your CPA or an Accountant who can consult with you about your specific business.