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Forget Airbnb. I’d rather generate a second income stream through dividend stocks

One contributing factor to the recent collapse of holiday firm Thomas Cook was the huge rise in popularity of Airbnb. Despite being only 11 years old, the site already has over 150m users worldwide. Last year, roughly 2m people stayed in an Airbnb rental somewhere in the world on an average night, according to muchneeded.com.

But it’s not just independent, budget-conscious travelers that like what they see. Many of us are now renting out our own properties for a few days a year to make extra cash. Despite this, there are some very valid reasons why you should think twice before joining them.

More trouble than it’s worth?

Think the taxman won’t be bothered by the fact that you’re considering making money on your property as a side hustle? Think again. Unfortunately, the £7,500 tax-free allowance given to those renting out their rooms is now only available to those still living in the house/flat at the same time. If this isn’t the case, then you can only claim relief on £1,000 a year under a separate allowance.

On top of tax considerations, you also need to make sure your mortgage provider is happy for you to let your (their) property. Keeping schtum is fraudulent. Even if you do tell them, they may refuse, or slap you with a fee.

All this comes before we’ve even considered your guests. While most are unlikely to cause problems, expect a minority to leave your property in a bad state. Some may steal from you. Regardless, it’s your job to clean up afterwards, or hire someone else to do it. Like eBay, how much money you make can also depend on the feedback you receive. 

Taking these issues into account, I don’t think hosting is worth the hassle, particularly when you can make money from doing a lot less. Yes, I’m talking about the stock market and, specifically, dividend-paying stocks.

Get paid for less

The beauty of generating an income from shares is that it can take only a few minutes to set up. Track an index like the FTSE 100 through a cheap, exchange-traded fund from the likes of Vanguard or iShares, and you’ll receive regular dividends. Right now, these funds yield approximately 4.6%.

You could just leave it there. For those willing to hunt for specific companies offering great yields, however, the process takes a bit longer. The key here is to steer clear of those offering the highest yields and focus instead on firms that have low payout ratios, a history of consistently raising their dividends, and whose profits are sufficient to ensure cash returns aren’t cut. 

Unlike Airbnb, dividend stocks also won’t give you a tax headache. So long as you hold everything in a Stocks and Shares ISA or a Self Invested Personal Pension (SIPP), you won’t be liable to give back any of the income you receive. Should your shares rise in value, you won’t pay tax on any profits when you sell either.

And while stocks can go up and down in value, they’ll never post nasty comments about their owners. Truth is, stocks don’t care who owns them. All told, generating an income from investing is both easy to instigate and fuss-free to maintain, compared to Airbnb. Why not use some of the former on a nice break instead?

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.