Starting an Airbnb business is a profitable strategy in real estate investing. Thanks to Airbnb and other vacation rental websites, the market for short term rentals is booming. But how do you get off on the right foot when it comes to an Airbnb rental property business? By creating an Airbnb business plan you will not only mitigate the risks, but you will also know what to expect. In this article, we provide a beginner investor’s guide on how to write an Airbnb business plan.
Creating an Airbnb business plan is very similar to developing a real estate investing business plan. However, for an Airbnb rental business, there are a few extra points that you must learn in order to come up with a solid plan. Given the specificity of vacation rental properties, extra measures should be considered before buying an investment property. Such measures cover everything from location analysis to property management structure to how to improve your ranking as an Airbnb host.
Step #1: What Location Fits Your Business Plan?
The success of an Airbnb rental property depends mainly on its location. Airbnb users, who are mostly tourists and vacationers, search for Airbnb rentals close to points of interest within a built-up urban area. Therefore, the first step of creating an Airbnb business plan is to assess the profitability of a location to make sure it matches your return on investment aspiration.
Analyzing the real estate market allows you to better understand the Airbnb rental industry. How big is the local market? Should I invest in short term rentals away from home? Real estate market research will give you an idea about the current home prices and your chances of securing a profitable investment property.
Our heat map analysis tool is an excellent way to get a visual overview of how different neighborhoods perform when it comes to real estate investment properties.
Step #2: Legal Requirements Checklist
The major advantage of investing in an Airbnb rental property? High Airbnb revenue. A major disadvantage? It is not always legal or can be complicated. An Airbnb business plan should include a checklist of the legal requirements expected from you as a real estate investor. Do you need a business license? How long will it take to get one? How much will it cost? Are there annual fees you will have to account for in your plan? Do the zoning districts allow for short term rentals?
Many states are moving towards regulating the short term rental property market by either asking for special business permits or allowing them if you plan to reside in the property. As a real estate investor, you want to avoid cities were Airbnb rentals are illegal or heavily regulated. Check out these Airbnb friendly cities and incorporate one into your plan.
Step #3: Analyze the Investment Property
An investment property analysis will give you an idea on how your income property is going to perform as an Airbnb rental. By analyzing what goes out and comes into your pocket, you can calculate important real estate metrics such as cash flow and return on investment. This step of creating an Airbnb business plan is crucial to accurately predict the performance of your investment property.
Mashvisor’s Airbnb profit calculator is a tool developed to perform investment property analysis. These calculations can be complicated and time-consuming, but thanks to the special algorithms used by this unique rental property calculator, investment property analysis becomes simple.
Step #4: Set Your Financial Plan
To start with a business financial plan for an Airbnb rental, first ask yourself: How are you going to finance the investment property? The choice between Airbnb financing with cash vs debt is a debate that will never end in real estate investing. Both methods have their pros and cons, depending on where you stand financially. Either way, it is important to include the property financing method in your Airbnb business plan in order to accurately estimate cash flow and the net operating income.
A solid Airbnb business plan should clarify exactly how are you going to finance the real estate investment. Additionally, you will have to include a financial plan that covers cash flow for the next year at least and a growth analysis to see where you will stand as a real estate investor in 5 years. What are your long term financial goals? The plan needs to outline this.
Step #5: Marketing Strategies and Your Target Market
The Airbnb rental market is growing at a fast rate, which means the competition is fierce. When starting an Airbnb business, you need to clearly identify the selling points of your short term rental property in order to create an efficient Airbnb marketing strategy. The strategy for marketing a vacation rental property should be included in your Airbnb business plan if you want to grow your business and compete in the short term rental market.
Step #6: Which Airbnb Management Structure Can You Afford?
How are you going to manage your Airbnb business? Can you do it on your own? Is hiring professional Airbnb management feasible? Developing an Airbnb management structure will help you draw out an accurate financial plan that takes into account property management costs. Many real estate investors don’t have time to welcome their guests or clean their rental property. Therefore, opting for professional Airbnb management can be a great solution to maintain a high occupancy rate.
Step #7: Airbnb Rankings to Meet Your Financial Plan
To meet your planned Airbnb revenue, you need to know about Airbnb rankings and how they work. Airbnb rankings work like internet search rankings. But how do you make sure your rental property appears in the first rankings? Improving your host rankings comes last when creating an Airbnb business plan. Take professional photos of the rental property in good lighting, update your profile and verify it, and last but not least, learn how to build trust with your tenants so you can get positive reviews!
The Bottom Line
Drafting an Airbnb business plan is a crucial step if you want to invest in short term rental properties. A lot of beginner real estate investors make the mistake of not creating a real estate business plan and end up losing money or making much less than they had expected. Be sure you aren’t one of them by following the steps above.