Renting your house through Airbnb has many advantages.

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While staying at an Airbnb in the Hudson Valley a couple of years ago, Kathy Corby realized she would love to own a home there and share it as an Airbnb.

She soon bought an 1890s Cape Cod with four bedrooms and two bathrooms in Saugerties, N.Y. And in early 2021, she hosted her first Airbnb guests.

Today, the rental is not only paying its own way, from mortgage to utilities, but also generating income for the retired physician. Plus, it’s a regular getaway for her. “I have my cake and can eat it, too,” Corby said.

Renting out your house through Airbnb, the online home-sharing reservation service that connects hosts and guests, has many advantages.

But make no mistake: As a host, you are running a business with all the risks and rewards that go with it.

Understand the legalities

Before shopping for luxury bedding, make sure you can create a short-term rental legally. Many cities have introduced tougher restrictions for short-term rental properties to protect their community’s quality of life and housing market.

Once you accept Airbnb’s terms of service and activate a listing, you agree to comply with its policies and follow your local laws and regulations.

Don’t overlook the covenants, conditions and restrictions of your homeowner’s association. If you violate those, the HOA could fine you or place a lien on your property, said Stephen Fishman, a lawyer and author for legal publisher Nolo Press.

Local governments typically require you to register your Airbnb, obtain a permit and a business license, pay fees ranging from $100 to several hundred dollars, and renew those annually. You may be required to pass an inspection and notify your neighbors of the rental.

Pricing it right

You can charge whatever nightly rate you want, but be realistic. Many guests choose Airbnb because it’s cheaper than a hotel.

Airbnb suggests starting with a lower-than-average nightly rate until you glean a positive review or two.

Airbnb’s optional Smart Pricing Tool helps you match your price to demand, and you can set custom prices, such as a lower rate during the week and a higher one on weekends or during special events.

Paying the tax man

In many cities, Airbnb will collect and remit some of the local occupancy taxes for you.

If you rent out part or all of your home for more than 14 days during the year, you must report your rental income and expenses on Schedule E of your 1040, with income taxes owed on any profit.

You can deduct mortgage interest, property taxes, maintenance and other ownership costs for the portion of the property rented out.

Making sure you’re covered

Airbnb provides up to $1 million of host liability insurance to cover liability claims for injury to a guest or property damage to their belongings.

Its host damage protection policy ostensibly provides protection for every booking at no additional cost, of up to $3 million in property damage.

But don’t rely on those protections alone. Ask your home insurer about what property damage and liability coverage it offers for short-term rentals by paying guests, which could be excluded as a business activity.

Your insurer may cover home-sharing up to certain limits as a standard endorsement or you may need to buy a supplement.

Patricia Mertz Esswein is a contributing writer at Kiplinger’s Retirement Report.

© The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency LLC.