While short term rentals can be a great way to make money, there are Airbnb expenses that investors need to consider before buying a property.
Vacation rentals have become one of the most popular real estate investing strategies in recent years as they offer a lucrative opportunity to earn high profits if done right. There have been numerous stories of Airbnb hosts claiming to earn thousands of dollars in rental income, but this is only one side of the story. When purchasing a property, owners should factor in Airbnb costs in the investment property analysis.
Table of Contents
- 7 Airbnb Expenses to Calculate When Purchasing a Short Term Rental Property
- Is Airbnb Profitable Considering the Expenses?
- How to Calculate Airbnb Costs to Owner
- 20 Best Locations for Airbnb Rental Investments
In this article, we’ll provide you with all the information about the expenses associated with owning a short term rental needed to ensure a profitable Airbnb business.
We’ll look at the major costs that you have to include in your analysis before even buying an investment property and the costs that you can claim back on your tax reports. Importantly, these expenses vary by location, property type and size, amenities, and management style.
We’ll also offer you tips on what expenses you can write off and deduct from taxes in order to boost your profit. Last but not least, we’ve ranked the 20 best US markets to invest in Airbnb, where rental revenue significantly exceeds rental expenses to provide hosts with strong, positive ROI. The ranking is based on Mashvisor’s nationwide vacation rental market analysis.
Without further ado, let’s dive right in!
7 Airbnb Expenses to Calculate When Purchasing a Short Term Rental Property
When one plans to invest in a vacation rental, the first question is: “How much can you make on Airbnb?” Though the initial considerations include the sale price of the property and the potential nightly pricing, there is a lot more to take into account.
From buying the property to renting out, there are a ton of Airbnb expenses that include various fees and costs. As a savvy real estate investor, you need to track these and factor them in your analysis to guarantee a positive cash flow and a good return on investment. Keep in mind that all ROI formulas in real estate include startup and operating costs in one way or another.
Here is a list of the most important Airbnb costs and expenses that you need to know before you buy an investment property to rent out on a short term basis:
1. Airbnb Service Fee
There are many different ways to list and market your short term rental, but listing your property on the Airbnb platform is a must. With over 150 million guests, Airbnb is the largest short term rental website, so it can give your property more exposure than any other platform.
However, while this is likely to boost your Airbnb occupancy rate, you will have to pay fees for using the website. So how much does Airbnb take?
Airbnb charges hosts a service fee of 3% of booking revenue which includes the daily rate plus any additional fees like a cleaning fee, a pet fee, and a late check-out fee. There is no way to avoid these types of expenses, so you need to calculate them in your analysis.
Let’s look at an example. If you rent out your property for 15 days at an average nightly rate of $200 per night, you will earn $2,910 instead of $3,000 after the 3% service fee deduction. This is $90 less than the expected revenue. While the 3% Airbnb cost may not seem like a lot, it will add up and should be taken into consideration when you are calculating your rental rate, cash flow, and return on investment.
2. Airbnb Insurance
Another must-have on our list of operating Airbnb expenses that are often overlooked is the short term rental insurance. Although Airbnb provides some insurance to hosts in the event of guest injury or property damage, you still need to make your own third-party arrangements to ensure complete coverage. This includes both personal liability and property damage.
First of all, just like with any other property, you need to stay on track and have basic homeowners insurance for rental property. But this is not enough to cover all potential scenarios where something goes wrong during a guest stay at your vacation rental. In most cases, an extension of your homeowner’s insurance will not suffice either.
There are multiple companies across the US market that have developed special vacation rental insurance packages to cover the needs of Airbnb hosts and their properties. Usually, they provide coverage of up to $1 million, whether in liability in case of guest harm or in property damage.
The Airbnb insurance expenses can vary a lot based on location, property type, property size, and other factors. The average range to consider is between $1,500 and $3,000 per year, but this can reach up to $9,000 in hot destinations like Florida and California.
So, before you choose a property to invest in, make sure to do some research on the prevailing insurance rates in the local market. Then include the numbers in your rental property analysis spreadsheet to ensure good profitability.
3. Homeowner Association (HOA) Dues
Most condos and some communities require homeowners to pay HOA dues. These expenses are meant to cover fees associated with common area maintenance like patios, elevators, and swimming pools and other bills like common water consumption or garbage disposal fees.
If you plan to buy an investment property that is part of a homeowner association, you need to track and analyze the potential cost, whether you use an Excel spreadsheet or an online calculator. On average, HOA dues can range anywhere from $100 to $1,000 per month, which can make it one of the more expensive Airbnb costs to hosts in the long run.
4. Taxes
When learning how to account for Airbnb expenses, there are a few different types of taxes that hosts need to track and take into consideration.
First, since you are buying a real estate property, you will need to pay a property tax. The size of this tax depends on the location and the property market value. To lower this cost, you can look into states with no property tax, but you need to make sure that the rest of the numbers (income and ROI) make sense.
Second, if you rent out your Airbnb property for more than 14 days a year, you’ll need to pay income tax on the rental revenue. Once again, the rate depends on the market, your income size, your legal situation (individual vs company), and your tax brackets. In case this is your primary source of income, you may need to file for self-employment taxes, which can amount to more than 15% of your Airbnb income.
So, this is yet another number that needs to go into the list of expenses and your analysis spreadsheet.
Third, most US counties and cities require hosts to pay transient occupancy tax, which can vary widely depending on the location and the local regulations. Usually, this is calculated as a percentage of the income that you generate. Some local authorities also ask Airbnb hosts to pay sales and use tax, so you need to check the requirements in this regard before buying a property in any market.
Can You Write Off Airbnb Expenses?
The good news for an Airbnb host is that there are many tax deductions they can claim. As a vacation rental business owner, you can deduct and claim back the following expenses when filing for taxes:
- Mortgage interest
- Mortgage insurance premium (MIP)
- Property tax
- Utilities
- Supplies to guests
- Property maintenance and repairs
- Cleaning supplies and services
It’s important to know how to claim these costs back as they can add up to a significant amount of money in the course of a year. All these expenses—and whether you claim them properly—can easily make the difference between starting an Airbnb business that makes or loses money.
To be able to take full advantage of this benefit for investors, you should keep track of all operating expenses year-round.
5. Repairs and Maintenance Costs
Like with any other rental business, you need to factor in the expenses related to maintaining and upkeeping your property. However, with Airbnb, these expenses can be even higher than with long term rentals because of the frequent turnaround and the wear and tear associated with this.
First of all, to be able to claim that you are a good Airbnb host with a top listing, you need to take good care of the property itself. Be ready to provide a good curb appeal and repaint the interior every few years, especially the kitchen and the bathrooms.
Second, you need to keep the furniture in good condition, which also adds up to the maintenance expenses. You’ll also have to replace sheets and towels on a regular basis, if you manage to get strong occupancy.
Third, if you have amenities like a swimming pool or a hot tub, their maintenance is another cost to consider. While they will be able to boost your potential income and profit by a lot, you cannot skip the expenses they incur.
The range of these costs will vary based on your property and the amenities you provide, so factor in a few thousand dollars per year as the bare minimum.
6. Utilities and Supplies
A major difference between an Airbnb investment property and a long term rental is that hosts need to cover the utility bills and provide supplies for each guest.
In your spreadsheet calculations, make sure to include an accurate estimate of the monthly electricity, water, gas, cooling/heating, Wi-Fi, cable, and streaming service bills. All these should be of high quality for your guests to be happy and to write you positive reviews.
Additionally, you need to furnish your property with at least the minimum supplies like shampoo, soap, paper towels, tissues, and dishwashing detergent. It’s also highly recommended to supply things like coffee, tea, oil, vinegar, salt, and pepper to cover the basics for Airbnb guests who prefer to cook their own food.
If you’d like to cater to traveling businesspeople and professionals, you also need to factor in the expenses related to offering printing services like ink and paper.
Once again, how much you’ll need to spend on utilities and supplies depends entirely on the size of your property, the quality of the services you offer, and the occupancy rate. The good thing is that you can claim many of these costs back when filing for taxes as they count as business operating expenses.
7. Property Management Expenses
How to manage your Airbnb property business is a personal decision you need to make, but you have to come up with an estimate of the related costs before purchasing a property.
If you’d like to be a DIY Airbnb host, you need to consider expenses like cleaning, laundry, restocking, and traveling to the vacation rental. You can hire local professionals to help you out with things like cleaning, or you can do all of these on your own if you have the time and desire.
Alternatively, you can work with a professional rental property management company for passive Airbnb income. In this case, you’d need to pay the company a monthly fee which usually ranges between 20% and 40% of your revenue.
Again, that’s something that needs to go into your Airbnb analysis spreadsheet with a list of business expenses. Moreover, you have to check which of these costs you can claim back.
Is Airbnb Profitable Considering the Expenses?
With all of these Airbnb costs, aspiring hosts are wondering if short term rental properties are actually a good investment. There is no straightforward answer to this question, as there are numerous factors that need to be taken into consideration.
However, the truth of the matter is that Airbnb properties for sale can be one of the best and most profitable real estate investing strategies as long as it’s done right. There are many Airbnb hosts who are able to generate thousands of dollars in profit each and every month. That’s why vacation rentals have become a more popular strategy than long term rentals.
To invest in Airbnb the right way, the most important factor is to conduct careful Airbnb market research and investment property analysis before buying a property. You need to find reliable estimates of both the startup and recurring business operating expenses and the rental income you can expect. The latter is the product of the average daily rate and the occupancy rate that your property brings.
In your analysis, whether using a spreadsheet or an Airbnb calculator, you need to ensure positive cash flow and good return on investment. If you’re looking at cap rate, you should aim for 8-12%, while if you’re looking at cash on cash return, a higher value is considered good.
To maximize the profitability of your Airbnb property, it’s important to minimize expenses without compromising the experience that you provide to guests, of course. The best way to do that is to track and claim any tax deduction that you qualify for.
How to Calculate Airbnb Costs to Owner
The Mashvisor Airbnb Investment Calculator estimates the expenses you may encounter when setting up and running your Airbnb rental.
Learning how to calculate Airbnb expenses is a must in order to achieve positive cash flow and good ROI. This entails performing both a real estate market analysis and an investment property analysis, as expenses vary by location and by property.
For efficient and accurate estimation of expenses before even buying a property, savvy Airbnb hosts should not use an Excel spreadsheet but an Airbnb profit calculator, like Mashvisor’s. This advanced real estate tool provides readily available estimates of all the startup and operating expenses related to starting and running a short term rental business.
The startup costs included in the Mashvisor calculator are:
- Home inspection
- Repairs
- Furniture and appliances
Meanwhile, the recurring expenses include:
- Insurance
- Utilities
- Property management
- Property maintenance
- Property tax
- HOA dues
- Rental income tax
The best part is that the values for all these fees and costs are preset, based on average values in each investment market and for each property type. However, an Airbnb host like you can adjust all numbers based on your own analysis and strategy, and you can add custom expenses. As soon as any value has been changed, the calculator will automatically recompute all other numbers.
In addition to cost estimates, the Mashvisor investment property calculator provides the following Airbnb data points:
- Nightly rate
- Monthly income
- Cash flow
- Cap rate
- Cash on cash return
To start searching for properties with high Airbnb income and low Airbnb expenses, sign up for a 7-day free trial of the Mashvisor calculator.
20 Best Locations for Airbnb Rental Investments
Now that you know what Airbnb expenses to track, which to deduct and claim from taxes, and how to include them in your analysis, it’s time to take a look at the best markets for this strategy.
Our Data Team analyzed short term rental data from the entire US market to find the most profitable locations for Airbnb investments.
We focused on cities with median property prices below $1 million to assure affordability, even for a beginner host. We selected markets with an active vacation rental market (100+ active Airbnb listings) and strong demand for Airbnb (50%+ occupancy rate).
With these criteria, we’ve ranked the 20 top locations for short term rentals as of this writing, where cash flow is positive and return on investment is good.
Note: These locations might face various Airbnb laws, so it’s your responsibility as a future host to look into them before buying a property. You can check out the Mashvisor short term rental regulations page for a quick reference as well as links to more detailed information on each market.
1. Northlake, IL
- Median Property Price: $323,180
- Average Price per Square Foot: $217
- Days on Market: 139
- Number of Airbnb Listings: 120
- Monthly Airbnb Rental Income: $4,269
- Airbnb Cash on Cash Return: 8.29%
- Airbnb Cap Rate: 8.44%
- Airbnb Daily Rate: $171
- Airbnb Occupancy Rate: 53%
- Walk Score: 33
2. Columbia Heights, MN
- Median Property Price: $294,482
- Average Price per Square Foot: $142
- Days on Market: 22
- Number of Airbnb Listings: 314
- Monthly Airbnb Rental Income: $3,742
- Airbnb Cash on Cash Return: 8.06%
- Airbnb Cap Rate: 8.21%
- Airbnb Daily Rate: $158
- Airbnb Occupancy Rate: 58%
- Walk Score: 82
3. Bridgeton, MO
- Median Property Price: $264,711
- Average Price per Square Foot: $136
- Days on Market: 23
- Number of Airbnb Listings: 120
- Monthly Airbnb Rental Income: $3,291
- Airbnb Cash on Cash Return: 7.69%
- Airbnb Cap Rate: 7.83%
- Airbnb Daily Rate: $154
- Airbnb Occupancy Rate: 58%
- Walk Score: 3
4. Rileyville, VA
- Median Property Price: $332,031
- Average Price per Square Foot: $192
- Days on Market: 15
- Number of Airbnb Listings: 155
- Monthly Airbnb Rental Income: $3,733
- Airbnb Cash on Cash Return: 7.57%
- Airbnb Cap Rate: 7.69%
- Airbnb Daily Rate: $236
- Airbnb Occupancy Rate: 56%
- Walk Score: 10
5. Harahan, LA
- Median Property Price: $398,200
- Average Price per Square Foot: $209
- Days on Market: 57
- Number of Airbnb Listings: 111
- Monthly Airbnb Rental Income: $4,022
- Airbnb Cash on Cash Return: 7.46%
- Airbnb Cap Rate: 7.57%
- Airbnb Daily Rate: $137
- Airbnb Occupancy Rate: 59%
- Walk Score: 56
6. Columbia, MO
- Median Property Price: $277,834
- Average Price per Square Foot: $144
- Days on Market: 81
- Number of Airbnb Listings: 252
- Monthly Airbnb Rental Income: $2,758
- Airbnb Cash on Cash Return: 7.16%
- Airbnb Cap Rate: 7.34%
- Airbnb Daily Rate: $138
- Airbnb Occupancy Rate: 58%
- Walk Score: 30
7. Lyons, IL
- Median Property Price: $269,543
- Average Price per Square Foot: $210
- Days on Market: 88
- Number of Airbnb Listings: 173
- Monthly Airbnb Rental Income: $3,164
- Airbnb Cash on Cash Return: 7.11%
- Airbnb Cap Rate: 7.27%
- Airbnb Daily Rate: $166
- Airbnb Occupancy Rate: 53%
- Walk Score: 65
8. Broadview, IL
- Median Property Price: $251,790
- Average Price per Square Foot: $208
- Days on Market: 83
- Number of Airbnb Listings: 307
- Monthly Airbnb Rental Income: $3,189
- Airbnb Cash on Cash Return: 7.04%
- Airbnb Cap Rate: 7.18%
- Airbnb Daily Rate: $164
- Airbnb Occupancy Rate: 59%
- Walk Score: 77
9. Crystal, MN
- Median Property Price: $272,519
- Average Price per Square Foot: $165
- Days on Market: 56
- Number of Airbnb Listings: 208
- Monthly Airbnb Rental Income: $3,110
- Airbnb Cash on Cash Return: 6.95%
- Airbnb Cap Rate: 7.08%
- Airbnb Daily Rate: $163
- Airbnb Occupancy Rate: 52%
- Walk Score: 59
10. Bellwood, IL
- Median Property Price: $242,956
- Average Price per Square Foot: $213
- Days on Market: 98
- Number of Airbnb Listings: 175
- Monthly Airbnb Rental Income: $3,416
- Airbnb Cash on Cash Return: 6.93%
- Airbnb Cap Rate: 7.07%
- Airbnb Daily Rate: $166
- Airbnb Occupancy Rate: 60%
- Walk Score: 83
11. Villas, NJ
- Median Property Price: $341,278
- Average Price per Square Foot: $347
- Days on Market: 72
- Number of Airbnb Listings: 100
- Monthly Airbnb Rental Income: $3,580
- Airbnb Cash on Cash Return: 6.91%
- Airbnb Cap Rate: 7.02%
- Airbnb Daily Rate: $289
- Airbnb Occupancy Rate: 51%
- Walk Score: 59
12. Maywood, IL
- Median Property Price: $225,855
- Average Price per Square Foot: $171
- Days on Market: 76
- Number of Airbnb Listings: 332
- Monthly Airbnb Rental Income: $3,078
- Airbnb Cash on Cash Return: 6.91%
- Airbnb Cap Rate: 7.09%
- Airbnb Daily Rate: $163
- Airbnb Occupancy Rate: 57%
- Walk Score: 58
13. Hialeah, FL
- Median Property Price: $471,121
- Average Price per Square Foot: $438
- Days on Market: 88
- Number of Airbnb Listings: 140
- Monthly Airbnb Rental Income: $4,985
- Airbnb Cash on Cash Return: 6.86%
- Airbnb Cap Rate: 6.94%
- Airbnb Daily Rate: $161
- Airbnb Occupancy Rate: 50%
- Walk Score: 73
14. Bar Harbor, ME
- Median Property Price: $590,000
- Average Price per Square Foot: $402
- Days on Market: 85
- Number of Airbnb Listings: 136
- Monthly Airbnb Rental Income: $5,707
- Airbnb Cash on Cash Return: 6.83%
- Airbnb Cap Rate: 6.90%
- Airbnb Daily Rate: $206
- Airbnb Occupancy Rate: 77%
- Walk Score: 77
15. Schiller Park, IL
- Median Property Price: $306,433
- Average Price per Square Foot: $232
- Days on Market: 45
- Number of Airbnb Listings: 132
- Monthly Airbnb Rental Income: $3,628
- Airbnb Cash on Cash Return: 6.73%
- Airbnb Cap Rate: 6.85%
- Airbnb Daily Rate: $167
- Airbnb Occupancy Rate: 57%
- Walk Score: 63
16. West St. Paul, MN
- Median Property Price: $274,467
- Average Price per Square Foot: $155
- Days on Market: 36
- Number of Airbnb Listings: 350
- Monthly Airbnb Rental Income: $3,126
- Airbnb Cash on Cash Return: 6.73%
- Airbnb Cap Rate: 6.86%
- Airbnb Daily Rate: $149
- Airbnb Occupancy Rate: 61%
- Walk Score: 75
17. Hummelstown, PA
- Median Property Price: $355,606
- Average Price per Square Foot: $624
- Days on Market: 155
- Number of Airbnb Listings: 101
- Monthly Airbnb Rental Income: $3,764
- Airbnb Cash on Cash Return: 6.69%
- Airbnb Cap Rate: 6.78%
- Airbnb Daily Rate: $242
- Airbnb Occupancy Rate: 51%
- Walk Score: 67
18. Irondale, AL
- Median Property Price: $263,118
- Average Price per Square Foot: $179
- Days on Market: 69
- Number of Airbnb Listings: 262
- Monthly Airbnb Rental Income: $2,638
- Airbnb Cash on Cash Return: 6.68%
- Airbnb Cap Rate: 6.83%
- Airbnb Daily Rate: $139
- Airbnb Occupancy Rate: 54%
- Walk Score: 48
19. Franklin Park, IL
- Median Property Price: $299,155
- Average Price per Square Foot: $231
- Days on Market: 66
- Number of Airbnb Listings: 189
- Monthly Airbnb Rental Income: $3,559
- Airbnb Cash on Cash Return: 6.68%
- Airbnb Cap Rate: 6.80%
- Airbnb Daily Rate: $165
- Airbnb Occupancy Rate: 59%
- Walk Score: 64
20. Gulfport, FL
- Median Property Price: $542,786
- Average Price per Square Foot: $380
- Days on Market: 55
- Number of Airbnb Listings: 177
- Monthly Airbnb Rental Income: $5,097
- Airbnb Cash on Cash Return: 6.63%
- Airbnb Cap Rate: 6.71%
- Airbnb Daily Rate: $134
- Airbnb Occupancy Rate: 50%
- Walk Score: 66
Click here to start searching for the most profitable Airbnb rental properties for which expenses are significantly below rental income.
The Bottom Line
Successful Airbnb investing means finding a property that will not only generate high income but will also incur low Airbnb expenses. Otherwise, you risk negative cash flow and poor ROI, which is the last thing that any Airbnb host wants.
When buying a property, there are a number of startup and operating costs that an Airbnb host needs to track and take into consideration. The best way to account for all of them is with the help of a short term rental property calculator like the Mashvisor one.
You will not only get access to accurate estimates of all costs that you need to track when running a vacation rental business. But you will also get the possibility to adjust them in a way that fits your business—as well as tax claims to deduct—in the most precise manner.
This will ensure that you end up with a top-performing Airbnb property each and every time, whether you’re purchasing your first investment or expanding your portfolio. And all this without the need to use Excel spreadsheets ever again.
Sign up for a free demo of Mashvisor to see how our calculator will help you find and analyze rentals for which Airbnb expenses are much lower than Airbnb revenue.