You want to get in on the sharing economy but your goal is to make more than the pocket change that occasionally renting out a spare room on Airbnb may bring. Enter: Mashvisor’s Airbnb Formula for Success.
Before we dive into our Airbnb formula any further, we won’t be talking about the famous formula for Airbnb arbitrage. But if you’re wondering how to make money on Airbnb without owning property, we already put together a helpful guide for you: Learn How to Make Money with Airbnb Rental Arbitrage.
No, the Airbnb formula we’ll be walking you through today involves buying and owning real estate. Because, if you want to truly become a successful real estate investor, you’ll need to eventually take the first step and buy an investment property.
Let’s take a look at the 5-part Airbnb formula for success:
Part 1: The Airbnb Laws and Regulations
Do you live in a city where Airbnb is legal? If so, this Airbnb formula will be a breeze for you to follow. Check your local government’s website for short-term rental regulations:
- You want to check if non-owner occupied Airbnb rental properties are legal. But even if they’re not, find out if you can live on the premises and still rent out a full unit on Airbnb.
- Find out what kind of permits or licenses you need to operate an Airbnb rental and how much they cost.
- Check zoning laws and take note of the neighborhoods where Airbnbs are allowed.
- How much will you have to pay in terms of Airbnb taxes (if any) to both the city and the state?
- Are there any other key Airbnb regulations outlined by your local government? For example, is there a limit on how many days out of the year you can host guests in your rental property?
Part 2: The Financing
The reason Airbnb arbitrage is such a popular real estate investment strategy is that it promises that you’ll put no money down. But because our Airbnb formula requires that you buy a rental property, you’ll need some cash. However, there are plenty of ways to invest in real estate with no money. Today, we will only focus on one – House Hacking.
House hacking is a great real estate investment strategy because it allows you to:
- Buy investment property and a primary residence rolled into one with little money down
- Use the rental income to pay down your mortgage
- Build equity
- Eventually move out, double your rental income, and own a fully-operating rental property
The key to this strategy is that it opens up the door to low down payment loans. Real estate investors who buy 2-4 multi unit properties, live in one unit and rent out the rest (house hack) qualify for an FHA loan. FHA loans come with a very low, low down payment of around 3.5%.
Let’s explore an example to work out how much you’d actually end up putting down on a multi family home for sale. Airbnb investment properties are legal in the Gatlinburg real estate market. Using Mashvisor’s Real Estate Investment Search App, we quickly found this duplex for sale in Gatlinburg that costs $220,000. A 3.5% down payment would be $7,700. Compare that to the traditional 20% down payment which would amount to $44,000!
There are some requirements for landing an FHA loan (learn about them here) but they are more lenient than those for a conventional mortgage. One requirement is that you live in the rental property for a set amount of time, usually up to 1 year. In the meantime, you live in one unit and use the other(s) as your Airbnb rental property.
What If Airbnb Is Illegal in Your City?
As mentioned, if you cannot rent out an Airbnb property in your hometown, house hacking is a lot more complicated because you’ll have to move. If you have the freedom to do so, then, by all means, start searching for one of the best cities for Airbnb investment. If not, you can still make this Airbnb formula work with little money. Read our full guide on How to Buy Multi Family Property with No Money.
Part 3: The Search for the Perfect Neighborhood for Airbnb Investment
The next key to this Airbnb formula is choosing the right neighborhood. Buying Airbnb property in any old neighborhood is a huge mistake. You need to find an area where Airbnbs cash flow.
Don’t try guessing. Use Airbnb analytics – it’s the best way to conduct neighborhood research for your Airbnb investment. And the best tool that gives you access to the Airbnb analytics you need? Mashvisor’s Real Estate Heat Map. The Heat Map will show you the best areas for making money with Airbnb in your city of choice. It lets you conduct a neighborhood analysis using the following Airbnb investment metrics:
- Listing Price
- Airbnb Cash on Cash Return
- Airbnb Rental Income
- Airbnb Occupancy Rate
Say you want to focus your neighborhood analysis on Airbnb occupancy rate. Select the filter (pictured above). Any areas highlighted in green are the best neighborhoods with high Airbnb occupancy rates. Go ahead and give it a try yourself. You’ll find a top-performing Airbnb neighborhood in just a few minutes.
Part 4: The Airbnb Investment Analysis for Cash Flow
Cash flow properties are, of course, the main component of the Airbnb formula for success. You need to find an Airbnb investment property for sale that promises positive cash flow. This means that the Airbnb rental income will be more than enough to cover the rental property expenses and mortgage payments. That way, you’ll have some income left over for you to spend however you choose.
So how do you find positive cash flow properties? Beyond an online investment property search, you need to conduct an Airbnb investment analysis for cash flow. Any investment properties for sale you find within your budget need to be analyzed. And not only for cash flow but for other Airbnb investment metrics like cap rate, cash on cash return, Airbnb occupancy rate, and more.
Knowing this now, you may be imagining all the Airbnb data you need to collect on prospective properties. You may even be overwhelmed by the idea of stuffing all this data into Airbnb spreadsheets and working with equations, adjusting variables, etc. But this isn’t part of our Airbnb formula. Our formula calls for the Airbnb Profitability Calculator. Mashvisor’s Calculator uses data from rental comps and Airbnb predictive analytics in order to show you everything you need to know about a particular property and how it will perform as an Airbnb. And it’s all available instantly, as soon as you view a listing on the Mashvisor platform. You’ll also be able to account for your mortgage payments and down payment to see how they will affect your Airbnb return on investment.
It’s one of the best Airbnb tools on the market today. You’re sure to succeed with this tool in your arsenal.
Part 5: The Airbnb Property Management
If you’ve followed the Airbnb formula thus far, you’re at the point of owning an Airbnb now. The property and neighborhood data promise that you’ll be making money in no time. But part of the formula will rely on you and your ability to manage your brand-new short term rental property.
You might consider hiring professional Airbnb property management. Plenty of people who own even just one Airbnb find it’s worth it to do so. You can also consider working with a co-host to help lessen the workload.
However, the key is to manage the Airbnb rental property well. Sounds like a no-brainer, right? But it takes a lot of work. Luckily, the Airbnb website helps you with marketing and managing bookings and such. But you’ll need to write your listing, handle guests’ questions, prepare your rental property, check guests in and out, take care of clean up, and handle finances. You can also consider using Airbnb property management software to streamline most of these processes.
A lot goes into Airbnb property management and our formula wouldn’t be complete without mentioning it.
Follow This Formula and Find Airbnb Success Today
To invest in Airbnb successfully, follow this formula:
Airbnb-Friendly City + House Hacking + Perfect Neighborhood + Cash Flow Property + Good Management = Airbnb Success
Yes, it’s not easy and it’s definitely not a get-rich-quick scheme. But is it a fail-proof formula that, if applied to your Airbnb investment strategy, will allow you to enjoy cash flow.
Don’t Forget! Tools like those Mashvisor provides are an important part of the formula. Get access to all of them now by signing up for a 7-day free trial.