7 Things to Know Before Investing in Airbnb Business In Kenya

The digital economy continues to disrupt many of the traditional business models. From online media houses, to social media, to digital taxi-hailing-platforms, to accommodation - the list is endless. One of the areas where Kenyans have invested with gusto is the online-supported accommodation units, popularly known as Airbnbs. 

What is an Airbnb?

Airbnb is an American multinational that operates as an online marketplace for short term homestays and serviced accommodation. Airbnb is considered the market leader in the homestay business, although there are multiple platforms that offer the same-or-related service, including Booking.com, VRBO, Agoda, among others. In Kenyanese, Airbnbs have taken a new meaning of their own - the same way Kiwi and Omo are peculiarly used by Kenyans to describe all brands of shoeshine and detergents, respectively. 

To understand how Airbnbs work, we will make reference to the story of how the American company was started. The year is 2007 - Brian Chesky, Nathan Blecharczyk, and Joe Gebbia - had just graduated from college and were struggling with paying rent for their shared apartment in San Francisco. 

It happened that around the same time, the Industrial Designers Society of America was holding a conference in San Francisco and most of the hotel rooms were fully booked. Chesky and his team decided to create room in their apartment by inflating air mattresses and cost-sharing with guests - at a lower rate than the hotels were charging. Their idea birthed the company that is now Airbnb, with over 6 millions listings around the world. 

In Kenya, Airbnbs have particularly become popular over the past decade - making it a regional hub. Until 2015, there were only 1,400 Airbnbs in Kenya, about 700 of them in Nairobi. In that year, Chesky came to Kenya as part of US President Barack Obama’s business entourage - the visit helped open up more visibility for the company and by 2018, the number of listings had clocked past 6,500.

In 2023, there are more than 6 million listings worldwide and more than 4 million hosts globally. In Kenya, there are over 10,000 Kenyan listings on Airbnb. 

The growth of Airbnbs has come amid a background of declining rental prices in uptown estates in Nairobi - prompting some landlords to use the vacant units as short-term rentals. According to data from Hass Consult, the average rent for residential space decreased by 1.2% in March 2023, the sharpest decline since 2018 when the prices fell by 2.5%.

Detached homes recorded the largest price decline, dropping 2.5%, followed by semi-detached homes with a 3.2% decline.

"We have noticed a trend where Airbnbs are picking up in middle class estates, but also in the upmarket areas of Karen, Lavington, Runda. Some landlords prefer them because they offer better returns and are much easier to manage. A 3 bedroom cottage in Karen will fetch from Ksh15,000 to Ksh35,000 a night. The long term monthly rent would be around Ksh100,000," Alfred Simmantoi, a property agent in Karen notes.

Despite their growing popularity, Airbnbs have been welcome in some quarters. The Kenya Association of Hotelkeepers and Caterers (KAHC) has been calling for Airbnbs in Mombasa to be subjected to the same tax and levies that apply to hotels. The association has decried declining business due to competition from short-term rentals which are able to compete on price - since they are exempt from some of the taxes such as the tourism levy and licensing from the Tourism Regulatory Authority (TRA).

What Location Works for an Airbnb

The homestay business is a lot like real estate - the location is an important factor of business success. People do not just visit homestays for the sake of it - they often pick the home stay that offers them a certain experience - or allows them affordable hospitality as they go about their business or social errands. 

For instance, Chesky’s apartment, the very first Airbnb booking, was made by guests who were attending the conference in San Francisco but could not be accommodated in hotels. 

The location of an Airbnb business has to be strategic and tailored to meet the targeted customers. For example, some Airbnbs in Kenya are located in tourism-heavy areas such as the Kenyan coast, Mt Kenya, Naivasha, and other areas because where there is demand for accommodation and the hotels fail to meet the demand - either due to low space, poor service, or costs that are too high. 

As a rule of thumb, ten nights should be enough to settle your operational costs including rent, cleaning, and advertising.

Other units are located in urban areas targeting business people who need a private space for meeting or layovers as they go about their business. The ideal location changes based on the target group. 

For example, urban travellers may consider factors such as availability of taxis, airports, railway stations, home office, etc. The location amenities will vary markedly for travellers who are seeking a vacation experience - say in Mombasa, close to the beaches, malls, nightclubs, etc. 

Regina Maina, an Airbnb host in Nairobi, recalls that her first Airbnb was her personal house in Roysambu. Her work required frequent travel which meant the one-bedroom unit would go unoccupied for weeks.

"I realised that this would be a great business opportunity if I listed the house. When I finally decided to have the house fully dedicated to the business, I had to relocate to Ngong Road to accommodate many of the amenities that my clients frequently asked for," she remarked.

What You Need to Start an Airbnb

According to multiple hosts who spoke to Money254, the homestay business service is pretty straightforward to start. All you need is a room or a house that has basic amenities needed to comfortably accommodate your guests.

It is more like hosting a visiting relative but since they are paying for the service, you have to ensure the amenities are up to standard and serve a specific clientele. You could use a house you own or live in - or you can rent one for this specific purpose. The choice on the type of accommodation is largely a strategic business choice. 

In the US and Europe, it is common to find units where the space is shared between the host and the guest for instance, a two bedroom unit where one bedroom is listed on Airbnb. However, in Kenya, due to cultural adaptations and other considerations such as security, it is quite rare to have shared spaces being listed to guests. 

Thus, most people who operate the business in Kenya have a dedicated unit where guests have the entire space to themselves. 

After picking the unit, the next step is to tastefully furnish the unit in line with your business model. The type of furnishing is also a strategic business choice and has to match the location and the pricing model. 

If you are targeting international travellers, for example, where your competition is 3 and 4-star hotels, your furnishing will need to be more premium and high-end compared to a person who is targeting domestic tourists who are turned off by the quality of services in local lodgings. 

How Do I Make Money Through Airbnb

The trick to making money is to get the pricing model right. The pricing model is a shifting target that requires you to keep adjusting it until you find the right fix. However, as you price your room or home, consider the following:

Airbnb (the website) charges a brokerage commission of about 3% of the total paid by the guest. Thus, if you have listed your property at Ksh10,000 per night, about Ksh300 will automatically be deducted by Airbnb. 

The website also has great tools that suggest to you a competitive price for your listing, based on the performance of units that are similar to yours. 

How Often Are Kenyan Airbnbs Booked

Experts advice that while you hope for a 100% occupancy, do not price your unit on this assumption. Make sure that you are able to break even - even when the occupancy rate is low. 

According to Phyllis Mutie, a businesswoman who has been operating Airbnb units in Naivasha and Nairobi for the past six years, the pricing is largely dependent on the costs associated with running the business and the prevailing rates in the market.

"As a rule of thumb, ten nights should be enough to settle your operational costs including rent, cleaning, and advertising. If you are listing a unit you fully own, say an apartment that you bought, you will have more flexibility in the pricing - compared to those who rent to list,"

Nelson Kahuthia, an Airbnb host in Nyali, Diani, and Mtwapa, notes that the hospitality business is seasonal and the pricing has to reflect this reality.

"We seek to maximise income during the peak season, and ensure we remain afloat in the low season. Thus, you may find a 3-bedroom unit going for 25,000 a night during the Christmas week, but as soon as we cross the year, the price falls to Ksh10,000. In June and July, you may find the same house going for Ksh5,000 a night.

An example of a peak season is the festive season for Airbnb units at the Kenyan coast, which also face a downtime between May and July. Some units, however, are so unique that they are able to get nearly 100% occupancy throughout the year - someone being fully booked for up to six months in advance. 

Are Airbnbs Taxed by KRA?

For a long time, Airbnbs were not formally incorporated into the tax system, unless for hosts who run their units as registered limited liability companies. However, from January 2021, the Kenya Revenue Authority started implementing the Digital Service Tax that requires online businesses to pay VAT for services rendered in Kenya. 

Since then, Airbnb automatically deducts 16 percent VAT on top of the 3% commission it charges. Since most Airbnbs in Kenya are run as individual units, the owner also has a responsibility to submit income tax while filing his or her individual returns. 

President William Ruto in April 2023 indicated intention to scrap off the Digital Service Tax (DST). The president's directive was reflected in the proposed Finance bill 2023.

Challenges of Running An Airbnb 

Like any business, the Airbnb business has a fair share of its challenges. The challenges will often vary with the business model and the level of attention that the owner is able to dedicate. 

A conversation with hosts, many of them who run them on a small scale, listed the dominant challenges to include unruly guest behaviour, management and cleaning of the units, insecurity, inconsistency in guest flows, and competition from other businesses. 

Unruly guest behaviour is a complex and broad challenge that also incorporates other challenges such as high maintenance challenges and evictions by landlords. The main premise in the Airbnb businesses is that the guest will treat your space the same way they would treat their homes. 

However, human beings, and some Kenyans, have peculiar behaviour that changes the dynamics. For example, Caroline Kendi, an Airbnb host in Nairobi has been evicted on two occasions due to guests’ misconduct. 

“The first time, two guests booked my unit but more than eight people showed up. They made so much noise throughout the night that tenants asked management to intervene and I was given an eviction letter. I decided to have a strict policy on the number of guests but in my second unit, one of the guests became drunk and invaded a neighbour’s house. The neighbour threatened to sue the management and that is how I was asked to vacate,” she recalled. 

Some other hosts have complained of guests using resources carelessly, eating away the profit margins. One Airbnb host recently went viral after complaining that some guests had booked her budget apartments - only to start boiling cereals and other gas-consuming units. There have also been cases of guests defecating on the sofas and other common areas, destroying electronics, and escaping before making payments. 

“Some guests can be unreasonable and that can drive you out of business. I once had Ksh5,000 worth of electricity tokens depleted within two days because guests were misusing amenities such as AC and electricity.” 

“It helps that I am always around the house so I came up with mitigation structures where I load a reasonable amount in tokens at the beginning of the guest’s stay and if they deplete, they self-cater,” Claver Juma, a host in Shanzu - intimated.