Before finalizing your purchase of an investment property, you must first make sure that it will earn a sufficient Airbnb host income. This article discusses how you can estimate that.
As you might’ve guessed and seen while researching the US real estate market, the Airbnb hosting business has become a very tempting opportunity for investors. They are using the favorable situation on the market to invest in Airbnb short term rentals.
Those that haven’t had the chance to invest in real estate have asked themselves—or even googled—the following question:
“How much is the Airbnb host income?“
Your colleagues and the Internet likely opened your eyes to the possibilities of this business, and you talked numbers, but the doubt is still there.
To finally resolve the issue and give you a verdict, we’ve devoted our time to answering the question of how to estimate Airbnb host income before buying a rental property and present you with accurate numbers.
If you want to find out if this is just a glorified job or the real deal and how to make the most out of it, continue scrolling.
Making Money in the Airbnb Business
Let’s get to the point and discuss the crucial aspect of every business—the anticipated income.
The returns on investments you make as a real estate investor can be pretty rewarding, but this responsibility comes with a certain amount of risk—primarily financial. One wrong move can easily navigate an even worse investment plan and cause a major fallout.
However, what is certain about real estate is that it won’t go “out of style” any time soon. The US real estate market is growing steadily and promising more than adequate Airbnb host income.
The moral of the story is:
Suppose you are 100% sure that you want to redirect your funds to a specific investment property. In that case, it’s highly advisable to delve into the core of the business and inquire about possible profits.
What Is the Average Annual Income for an Host in America?
The highest average income of Airbnb hosts is in America. Compared to other continents—Asia, Europe, and Africa— North America, in particular, has the leading numbers.
Before the pandemic, Airbnb hosts could expect annual revenue of around $25,553.
Now, back to the present day:
According to the latest estimates, the average annual income for Airbnb hosts in America is $44,235.
It seems tempting, right?
In that case, let’s look at specific parts of the US housing market.
Host Income By State
Now that we’ve established that North America has the leading numbers, let’s look at a couple of concrete examples of states with the highest average Airbnb host income.
Here are the states in which the Airbnb business thrives:
- Hawaii – $73,247
- Arizona – $60,448
- California – $54,461
- Florida – $53,209
- South Carolina – $49,641
Host Income By City
And if you’re focused on channeling your finances towards an investment property, here are a few locations that offer a high average rental income:
- Miami, FL – $48,708
- Las Vegas, NV – $35,405
- Los Angeles, CA – $34,129
- San Francisco, CA – $30,732
- Philadephia, PA – $26,423
- Huston, TX – $21,763
- Atlanta, GA – $19,692
Selecting the location is half of the job. However, there are still a lot of other equally relevant factors that you need to consider when deciding on investing in real estate.
Luckily, Mashvisor’s Rental Property Calculator is ready to do the hard work for you.
Our Airbnb Calculator is designed to help investors navigate the most lucrative location for investing in Airbnb, build a strong rental strategy, and significantly increase revenue.
Take advantage of Mashvisor’s high-end features and generate a high Airbnb host income by signing up here.
Estimating Airbnb Host Income: Follow the Steps
The question of how to invest in real estate and not lose your hard-earned money is far more complicated and demanding when you’re not familiar with the matter.
But we’re here to share our knowledge and experience and help you make a well-calculated decision. Here’s what you should do:
Real Estate Market Analysis
Before you say “Yes” to Airbnb hosting, you should first decide where you want to invest. So, the first step would be to perform a thorough real estate market analysis.
The US real estate market is all-encompassing and offers Airbnb hosts a handful of options on how to maximize their profits by investing. The key here is not getting blindsided by the less relevant factors.
Your primary focus is profitability and a lucrative location. And with that in mind, you should conduct your research.
A successful real estate market analysis can help future investors to:
- Find out more about the location (neighborhood, proximity, amenities, appreciation rates, notable improvements)
- Assess the demand for that location (perhaps the area is favorable for traditional renting instead of Airbnb)
- See the original listing price (if most properties are overrated, you have a chance to strike a balance)
Investment Property Analysis
After you’ve found the perfect location that will boost your Airbnb host income, you’ll need to embark on another research. But now, it’s time to look into that same property and assess its potential.
How do you do that?
By calculating the following:
Essentially, cash flow represents the money you will get as an investor, and it can be the breaking point in your investment plan.
The 1% rule tells you whether you should cash out your investment—or turn a blind eye and continue your research.
As a matter of fact, this rule can determine whether your investment will generate a positive cash flow, which is preferred. It stipulates that the property’s rental rate should be (at least) 1% of the purchase price.
If the purchase price on your Airbnb property was $300,000, then the monthly rental income should be (at least) $3,000.
The acclaimed cap rate is yet another parameter you must focus on here. It can be summed up with this straightforward formula:
Cap Rate = Net Operating Income (NOI) / Property Value
Where: Net Operating Income = Gross Income – Operating Expenses
That will tell you whether you’ll be able to get the anticipated profits for your investment plan or not. The question is—what is a reasonable capitalization rate?
Here are a few indicators to help you navigate this question:
If you’re selling a property, aim for a lower cap rate because that indicates how much the property’s value has increased. But if you’re buying a property, a higher cap rate means it requires a low initial investment.
The third situation involves searching for a market-based cap rate based on recent sales, so you should aim for a cap rate derived from properties that are similar and in the same location.
Cash on Cash Return (CoC)
Calculating CoC will help investors determine whether the cash they have invested will be returned. Or, in other words:
Can investors expect a positive cash flow in return for their investment?
If you were to talk to experts, they’d argue that good cash on cash return is somewhere between 8% and 12%. While this is a good benchmark, you have to do your research to find out the highest possible cash on cash return in the area you wish to invest in.
Comparative Market Analysis
Lastly, you’ll need to engage in a comparative market analysis. In the simplest context, this helps investors choose the best listing prices.
The term “comparative” pretty much explains the whole point—this analysis compares the value of your property to other available properties in the area. Technically speaking, it’s a way to spy on the competition publicly.
How to perform this analysis?
There are a few steps:
- Evaluate the neighborhood and assess its overall quality
- Go over the information and details about the property (its liveability, for example)
- Find other properties in the area that are similar to the listing that you are looking at
- Take note of their property price, rental income, and other metrics that you think will help you with your analysis
Why Airbnb and Not Traditional Renting?
If you look back, especially in the last five years, you will see a preference for Airbnb instead of traditional renting, and there’s a good reason behind it.
In fact, there’s not one but multiple reasons why Airbnb long term rentals are taking the spotlight.
Here’s what we can tell you regarding this preference towards Airbnb host income over the “traditional way” of earning money from renting.
(Preferably) More Income
You can look at this as a reference to the previously mentioned earning, which is one of the main reasons hosts opt for long term Airbnb.
Exploring the market and taking advantage of the Airbnb calculator helps investors generate more profit from their Airbnb listings all year round.
If you’re a traveler, you’re familiar with the fluctuation of prices.
If you went through the costs, you could notice that a week in a hotel is almost equal to your monthly mortgage payment. It’s evident that they’ve increased their prices due to the impact that COVID-19 had on the hospitality industry in general.
Nonetheless, their price increase is actually a window of opportunity for Airbnb host income.
Suppose that you invested in an area with a high demand for tourism. You can expect a high return on your investment because people would rather stay in a well-preserved Airbnb than pay a small fortune to stay in a hotel.
It’s no secret that many landlords go through a lot of stress when they are collecting monthly rent. This job requires you to be a bit tough at times, and not all of us are cut out for that.
In all honesty, nobody wants to be seen as the disgruntled and grumpy boss who is chasing their tenants for money whenever the 1st of the month rolls around.
The good thing about Airbnb is that you can determine how you want to be paid. In the best-case scenario, your guests will pay you the money before arriving at the property.
It’s a win-win situation.
Long-term rentals mean that you will have tenants that will spend quite a lot of time on your property—some even up to 6 months.
It’s completely up to you which strategy you’ll go with—long term or short—but you should know that there’s a lot more flexibility if you opt for short-term Airbnb rentals.
Airbnb hosts that remain loyal to the short-term strategy have much more flexibility in the sense that they can:
- Take their Airbnb off the listing and enjoy their vacation without dealing with tenants, upkeep, or any other hassles
- Invite their friends or family to stay in their Airbnb for the weekend or during the holidays (instead of paying for a hotel)
- Put repairs on hold until they collect the money or find the right repairman
If it were traditional renting, none of the above would be available to you, and you’d spend more money than you would possibly earn.
Let that sink in.
What Should You Watch Out for?
Airbnb host income brings a lot of prospects and possibilities. However, you should not get blindsided by this attractive business. This job requires 100% dedication by the hosts, and you should be aware of some potential obstacles.
If you hope to reach “the top of the pyramid” and maintain that enviable reputation, you must be willing to sacrifice free time.
Well, a bit more than just your free time:
Airbnb hosting generally means having several separate conversations with potential guests (that is if your Airbnb has a good rating). In essence, the success of your Airbnb depends on your diligence and willingness to engage with incoming inquiries.
- Talking to interested guests and tenants and answering their questions
- Providing necessary information to the guests that will arrive at the location soon
- Resolving issues and requests from your current tenants
Airbnb calculators may be able to help you find the ideal location for your investment and increase revenue, but you will still have to deal with the “social” side of Airbnb.
That bit comes with the job description.
Estimating Income for Airbnb Hosts: Summing Up
That’s about everything on estimating the average income for Airbnb hosts.
From what you had the chance to read here, becoming an Airbnb host is rewarding—that is, if you stick to the rules of the market and do your research.
The average annual income for Airbnb hosts in America in 2021 was approximately $40,000, and we think that this number alone indicates how lucrative this rental strategy can be.
However, before you hurry and invest, you need to find a lucrative location that will help you increase your revenue. You can do this by using investment tools that help perform all kinds of real estate, comparative, and investment analyses.
The entire investing process is more accessible when you have software that does the math for you.
And that’s exactly what Mashvisor does.
Our job is to help investors find the most profitable investment property and develop a robust strategy that will ensure high returns as soon as possible.
That would be all for now. To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.