As a beginner real estate investor, you don’t have to reinvent the wheel. You can simply follow the successful examples set by others in the field.
This holds true when it comes to investing in Airbnb rental properties as well. There’s plenty you can learn from what more experienced Airbnb hosts have done to make money with short term rental properties. In this article we’ve outlined the main aspects of the successful Airbnb business model which ensures a high return on investment even for beginners.
Watch our video for a quick overview of how to start a successful Airbnb business:
Factor #1: Profitable Airbnb Rentals Are Located in Top Locations
The first thing that any successful Airbnb host will tell you is that location is crucial for an Airbnb business model destined to make money.
Where you buy a vacation home determines a lot of key indicators such as the Airbnb daily rates which you can charge, the Airbnb occupancy rate which you can expect, and ultimately the Airbnb income which you can make. The real estate market where your Airbnb property is located also defines the price of rental properties for sale as well the recurring rental expenses including property tax, home insurance, property maintenance, rental property management, cleaning fees, and many others. As return on investment in real estate is defined by the rental income and the expenses, the US housing market where you buy a short term rental ultimately turns into the most important factor for the rate of return you can expect, whether you look at the Airbnb cash on cash return or the Airbnb cap rate.
Related: What Airbnb Occupancy Rate Can You Expect in 2020?
To establish a profitable Airbnb business from the beginning, you should look for a location with affordable home values and strong demand for vacation home rentals. Don’t forget to check out the local Airbnb laws and regulations as many US cities and towns have fought back to limit the evasive spread of the homesharing industry over the past few years. Buying an investment property for the sole purpose of renting it out on Airbnb has become impossible in many previously top Airbnb locations such as Airbnb Miami, Airbnb Los Angeles, Airbnb New York, Airbnb Chicago, Airbnb San Francisco, and more.
To help out beginner real estate investors, we’ve put together this list of the most profitable Airbnb locations for 2020 based on cash on cash return.
Factor #2: Positive Cash Flow Short Term Rentals Are Affordable and Simple
Another lesson which first-time Airbnb hosts can learn from more experienced real estate investors is that the best vacation home rentals are relatively cheap and basic.
Similar to when buying a traditional rental property, your Airbnb rental property should be aligned with your budget. Buying an investment property which you cannot afford is a grave mistake which many commit when first getting into real estate investing. The price of your short term rental property will determine many important factors which are included in the return on investment calculations. For example, the home value defines the size of the down payment, the closing fees, and to some extent the price of the fixes and repairs. In the long term, how much an investment property costs affects property tax, home insurance, property maintenance, cleaning fees, and most importantly – the monthly mortgage payments. To run a successful Airbnb business model, you should buy a rental property which you can afford.
Meanwhile, don’t go for a distressed property as a beginner real estate investor just to lower the price. The money you pay for your investment property should be at the fair market value. Thus, you should look at some of the cheapest housing markets across the US and focus on small, simple properties to minimize the price.
This brings us to the next characteristic of the best income property to rent out on a short term basis. Namely, as a beginner investor, you should limit your investment property search to simple real estate properties for sale. Don’t go for a luxurious house which will cost you a fortune to maintain and repair. Instead, choose a small condo or apartment in a top neighborhood in the market of your choice. Remember that the area where your Airbnb rental is located is as important as the city or town.
Related: Neighborhood Analysis in Real Estate Investing
If you don’t know where to start your Airbnb rental property search, sign up for Mashvisor. On our real estate app you can search for investment properties for sale in any US real estate market based on your own criteria. Some of the filters we offer include property price, property type, Airbnb rental income, Airbnb cash on cash return, and many others.
Factor #3: A Successful Airbnb Business Model Is All About Research and Analysis
In the 21st century, all real estate investment decisions should be based on big data, AI, and predictive analytics. Guesswork has no place in the choices of a real estate investor, including investors in Airbnb rental properties.
Buying positive cash flow properties to rent out on a short term basis requires all sorts of real estate research. First, you need to conduct real estate market analysis to find the best places to invest in a vacation home. This includes a neighborhood analysis as different areas within the same market can bring very different rate of return in terms of Airbnb cash on cash return and Airbnb cap rate.
Second, you need to perform investment property analysis on the most promising rental properties for sale within your budget. You have to come up with reliable estimates of the rental expenses and the rental income to ensure positive cash flow and good rate of return. You need to factor in both the prevailing Airbnb daily rates and Airbnb occupancy rate within the neighborhood.
Third, once you’ve selected the most profitable Airbnb rental property, you need to do comparative market analysis. CMA – based on real estate comps – will help you make sure that you are paying a fair market value for the property. That’s very important as the lower the price of your investment property, the higher the return.
Experienced Airbnb hosts will confirm that a successful Airbnb business model is based on real estate research and analysis.
Factor #4: The Use of Real Estate Investment Tools Is Crucial
As a beginner real estate investor, you might have started despairing after reading about the types of real estate analysis which you need to do in order to buy a money-making Airbnb investment property. The strong competition in the world of real estate investing seems to put additional pressure on first-time investors with still insufficient experience and weak networks.
However, what you should know is that even the most experienced Airbnb hosts don’t rely on an Airbnb spreadsheet and manual calculations to analyze the investment potential of real estate listings. It’s all about using the best real estate investment tools.
The arsenal necessary for building and running a top Airbnb business model requires a number of different tools all of which are available on the Mashvisor real estate investment software platform.
Real Estate Heatmap
The heatmap is a real estate investing tool which helps investors conduct quick neighborhood analysis to determine the best areas for buying an Airbnb rental property. The heatmap provides a color-coded overview of any real estate market within the US to highlight areas with low median property price, high Airbnb income, good Airbnb cash on cash return, and above-average Airbnb occupancy rate.
Related: Real Estate Heat Map: A Revolutionary Tool for Neighborhood Analysis
Rental Property Finder
The Property Finder is yet another tool which was designed with busy, part-time real estate investors in mind. It allows you to set up your criteria such as a housing market, budget, and rental strategy among others in order to provide you with a list of investment properties for sale which match your requirements.
Investment Property Calculator
The investment property calculator, also known as a rental property calculator, is the cherry on top of all real estate investment tools. This tool has eliminated all need to conduct manual investment property analysis. Mashvisor’s rental property calculator analyzes Airbnb data from rental comps in the area to provide accurate estimates of all key figures for a property. These include but are not limited to:
- Property price
- One-time startup costs
- Airbnb rental income
- Airbnb occupancy rate
- Airbnb rental expenses
- Cash flow
- Airbnb cash on cash return
- Airbnb cap rate
To learn how to use all the features available on the Mashvisor real estate app, read our article on the must-have real estate investment tools in 2020.
Based on the way in which the rental property industry has involved, how successful your Airbnb business model will be depends mostly on the tools that you use.
Factor #5: An Airbnb Business Model Has to Remain Flexible
The last thing which you should hear as someone aspiring to start a real estate investing business in short term rentals is that setting up a profitable Airbnb business model is not a one-time thing. The Airbnb rental industry is changing all the time, and investors have to adapt to the new realities emerging all the time in order to succeed.
One simple example is the fact that seasonality plays a huge role when it comes to vacation home rentals. Depending on your location, you might see stronger demand on weekdays (business hubs) or on the weekend (holiday destinations). Similarly, a beach house will face more demand in the summer, while a house in a sky resort will be able to welcome more Airbnb guests in the winter.
As an aspiring real estate investor, you should take all these factors into consideration and be ready to adapt your pricing strategy all the time. You should ask for higher Airbnb daily rates when demand is high and for lower Airbnb daily rates when demand is low in order to achieve good Airbnb occupancy rate.
That’s just one example. The point is that as an Airbnb host, you have to be willing to be more flexible than a landlord of long term rental properties.
Related: How to Start an Airbnb Business in 9 Steps Succeeding with short term rentals is easy when you follow the successful Airbnb business model established and proven by other investors. All that’s left for you now is to sign up for Mashvisor to start searching for the best Airbnb rental properties across the US.
