Airbnb real estate investing is getting more popular by the day as Airbnb rentals are increasingly becoming more appealing to travelers than hotels. In fact, in the last decade, Airbnb investment has generally tended to bring a higher return than traditional investment. If you are looking to acquire an Airbnb rental property, it’s definitely a smart move. However, not everyone that invests in Airbnb rentals generates a good return. To get a good return on investment, you should know how to find profitable Airbnb properties for sale. And this boils down to how you evaluate Airbnb investment opportunities.
When it comes to Airbnb investment analysis, many beginner real estate investors end up making wrong decisions because they don’t know what exactly to look for. There are usually some key property metrics that you need to consider. Understanding these key Airbnb metrics allows you to assess whether putting your money into a particular Airbnb investment makes financial sense or not. The metrics are also used to compare the profitability of multiple Airbnb properties for sale in a particular real estate market.
Watch our video below to learn about the most important real estate investing metrics:
In this blog, we show you these key Airbnb investment metrics and how you can easily calculate them.
Related: Four Things to Consider Before Purchasing an Airbnb Investment Property
4 Key Airbnb Investment Metrics
1. Airbnb Occupancy Rate
Airbnb occupancy rate is the ratio of the number of nights an Airbnb rental is booked to the total number of nights it was made available for booking and reservation throughout the year. It is usually determined by factors such as location, seasonality, level of customer service, and reviews.
If you are looking to invest in Airbnb, Airbnb occupancy rate data is crucial for determining your potential rate of return. It will have an impact on your Airbnb rental income, Airbnb cash flow, Airbnb cap rate, and Airbnb cash on cash return. Generally, a good Airbnb occupancy rate is anything above 65%.
2. Airbnb Rental Income
Before you invest in Airbnb, you should know how to estimate Airbnb income. Airbnb rental income is the amount of money that an Airbnb investment property will generate on a periodic basis. One of the main benefits of buying Airbnb rentals over long-term rentals is their higher rental income potential. The higher the Airbnb rental income, the higher your rate of return.
However, Airbnb rental income is influenced by a number of factors including the Airbnb occupancy rate, the nightly rate, seasonality, and the location. This metric is used in the calculation of other ROI metrics.
3. Airbnb Cash Flow
Airbnb cash flow is one of the most important Airbnb investment metrics. It is the difference between the total rental income and the total rental expenses. An estimate of the Airbnb cash flow gives you a more accurate value of the actual profit you are likely to generate from your Airbnb rental property. As a real estate investor, you should aim for positive cash flow.
4. Airbnb Return on Investment
While cash flow is a significant metric when buying Airbnb property, you shouldn’t rely on it alone. Another key metric that savvy investors use to estimate the profitability of Airbnb for sale is the Airbnb return on investment. Airbnb ROI is a measure of how much profit a short-term rental makes as a percentage of its cost.
A higher Airbnb ROI shows that the returns generated by the Airbnb property compare favorably to its cost. However, a higher Airbnb ROI could suggest that the Airbnb investment comes with a higher risk. While a good ROI will vary depending on factors such as location and property type, generally, it should range from 8% to 12%.
To account for different variables, Airbnb return on investment can be calculated in two ways:
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Airbnb Cap Rate
One significant Airbnb ROI metric to take into account when evaluating Airbnb investment opportunities is the Airbnb cap rate. It is the net operating income (NOI) of an Airbnb rental property as a percentage of its fair market value or price.
NOI refers to the difference between the annual Airbnb rental income and the annual Airbnb operating expenses. What distinguishes NOI from cash flow is the exclusion of financing costs.
Airbnb cap rate is used to show the profitability of an Airbnb property when bought fully in cash. It does not take into account the method used to finance the rental property. Therefore, it’s a crucial Airbnb investment metric for comparing multiple Airbnb properties for sale.
Related: The Cap Rate Formula and How It Helps Find Profitable Investments
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Airbnb Cash on Cash Return
Airbnb cash on cash return is used to determine the return on investment of Airbnb for sale when paid for using a mortgage. It is the annual pre-tax cash flow of an Airbnb rental property as a percentage of the total cash you have invested. It is the most used metric for determining Airbnb ROI.
The Easiest Way to Calculate Key Airbnb Investment Metrics
As we have seen, it’s important to figure out the key Airbnb investment metrics if you want to have a profitable investment property. However, savvy real estate investors know that how you calculate them plays a big role in your success too. For years, investors have been using Airbnb investment analysis spreadsheets to do the calculations. However, the problem with this method is that it is time-consuming and susceptible to human error. Collecting all the required Airbnb data manually can also be very tiresome.
The most efficient and reliable way to do your Airbnb investment analysis is to use Mashvisor’s Airbnb profit calculator. The calculator uses Airbnb rental data from reliable sources, Airbnb analytics, and machine-learning algorithms to calculate the key Airbnb investment metrics in a matter of minutes. Be sure to use our calculator to forecast Airbnb cash flow, Airbnb cap rate, Airbnb cash on ash return, and Airbnb occupancy rate to find the best performing Airbnb rental properties.
Mashvisor’s Airbnb Profit Calculator
Related: Airbnb Profit Calculator: The Ultimate Real Estate Investment Tool
The Bottom Line
Airbnb real estate investing can be a lucrative strategy if you know the key Airbnb investment metrics to take into account and how to calculate them. For first-time real estate investors, Mashvisor makes it easier for you to compete with experienced investors for profitable Airbnb investments. With Mashvisor’s Airbnb profit calculator, you can do property analysis easily and more accurately.
To start analyzing the best Airbnb investment properties in your city and neighborhood of choice, click here to sign up for a 7-day free trial with Mashvisor.
