5-Step Guide to Becoming an Airbnb Real Estate Investor

You want to become an Airbnb investor, but don’t know where to start? Read this guide to help find the right Airbnb investment opportunity.

As an investor, there are a few steps that you will need to do in order to be able to make profits without getting lucky and underpricing your property. In this article, we will discuss the following steps on how to start a successful Airbnb real estate business.

Table of Contents

1. Step #1: Finding the Right Market
2. Step #2: Stand Out
3. Step #3: Calculate Cash on Cash Return
4. Step #4: Price Your Airbnb Correctly
5. Step #5: Provide Superb Service

With its launch in 2007, Airbnb revolutionized the traditional hotel industry by providing a platform where anyone can rent their Airbnb property to other people with relative ease for a small fee. It continues to grow in popularity among many people, both those who just want a small boost to their earnings and those whose main income comes from renting properties.

While Airbnb becomes popular among real estate investors, it also gives more people a way to make a profit in return. So, let’s learn how to become an Airbnb real estate investor, or in other words, how to become a profit-making Airbnb investor.

To prepare yourself to start an Airbnb business and make money, you will need to find the right market to buy a property, find a few features that will make it special for the Airbnb renter, calculate the prices for the property, and provide the best service you can. But the very first step would be finding Airbnb for sale.

Pricing an Airbnb seems easy at first, but there are a lot of small factors that you will need to know. We’ll discuss every single subtopic in detail below.

Step #1: Find the Right Market

The right start to becoming an Airbnb real estate investor is to find the right market for you to make profits. It means locating an area with the highest possible Airbnb cash on cash return for short term rentals while still being within your budget.

People often make the mistake of believing that short term Airbnb rentals won’t be as profitable as long term rentals. They think the rental unit won’t be booked for the whole month, as is the case with long term rental. But an informed Airbnb real estate investor knows it’s a matter of being able to book the rental at least 50% of the time.

As a beginner investor, the hardest part of starting your Airbnb rental business is that you can’t be sure you can get it booked without working with statistics. It depends mostly on the location, not on your property. You need to find an Airbnb location where enough people visit to book a large part of the month and make a profit.

How do you do it? Look through the list of best short term rental markets and research real estate statistics. Remember that you’re looking for short term rentals specifically, not all places where long term rentals are profitable are good for Airbnb business.

Related: 40 Best Cities for Airbnb Rental Income in 2023

How to Find the Right Market

How to start an Airbnb business as an investor? Unless you’re a data scientist, you probably can’t parse large amounts of publicly available real estate data on your own. You need a real estate tool that’s tailored for the exploration of opportunities for Airbnb investing.

A tool that will allow you to do everything you need to find, vet, and buy the best Airbnb investment property in the area that you choose. Mashvisor’s Market Finder is the right find.

Market Finder is a tool that lets you discover new real estate markets and measure possible returns on Airbnb investment. It will help you figure out how to become an Airbnb investor and where to invest. You can also find properties for sale right on this analytics app and explore a sale.

Market Finder makes it easier for you to find great areas to invest in Airbnb by letting you visualize real estate statistics on a heatmap. It works like an overlay on the map that highlights areas with higher and lower stats with a specific color. The heatmap allows an investor to see the top-performing and bottom-performing markets, as well as everything else in between.

Mashvisor provides a free trial for people who want to become a real Airbnb investor, in which you might try and test for yourself if that’s what your kind of deal is, no strings attached.

Step #2: Stand Out

The next step in our how to become a real Airbnb investor guide is making your business stand out. In crowded areas like Los Angeles or New York City, short term renters like to house at properties that offer something unique about them. People tend to go for the eye-catching Airbnb properties that are a treat to stay in, not just another lazily furnished apartment.

If you want your Airbnb business to thrive, you will need to think about the unique features of your property, because unique Airbnb homes are more likely to get a higher-than-average occupancy rate, especially if they are in areas with high rates of competition.

For instance, the tiny house below is in LA, where competition for Airbnb hosts is high. It may not be the most spacious or the most comfortable location to stay, but it’s sure different.

Source: Airbnb

And guess what, the said Airbnb property is booked months in advance.

Source: Airbnb

Getting Creative

In order to get more profits from your Airbnb real estate, you may need to get creative and find a way for your home to be even more special than other Airbnb businesses have. Consider investing in your Airbnb real estate’s furniture and overall design.

We’re looking at a slight renovation that won’t set us back a whole lot while making the Airbnb home look unique, not an artsy project. After all, the aim here is to maximize Airbnb cash on cash return, and if you spend too much money on the renovation, it may bring that statistic down.

Don’t forget another thing to consider when you’re investing in Airbnb real estate. It is good to get your Airbnb real estate business to look unique. However, if it’s too far away from points of interest or it doesn’t offer amenities like Wi-Fi or is noisy, it will also affect your occupancy rates. Your Airbnb real estate is also likely to receive unsatisfactory reviews from guests.

If you are interested in buying an Airbnb real estate property in an area with high competitiveness, check out our guide on where to buy vacation rental property.

Related: How to Go Green With Your Exterior Renovation

Step #3: Calculate Cash on Cash Return

Now, what you will need to do, is calculate (as in virtually any business) cash on cash return for your Airbnb real estate. Location means a lot in the real estate business, but simply making an investment into a prime location without doing your math at the start may hurt your business.

The number one thing you need to become an Airbnb real estate investor is to make sure the numbers add up. You need a rental unit that offers the perfect balance of cash investment to estimated income. Otherwise, it will only bring you a negative cash flow and a huge headache.

Airbnb cash on cash return may differ from house to house and investor to investor. For example, you find a lender that offers lower yearly interest rates. It means you’ll need to pay less money each month for the mortgage, which also means that your cash flow increases.

Or, you might invest an additional $30,000 into renovating an Airbnb, driving the cash investment up.

Your overall investment will increase, but your Airbnb rental income will stay the same, which would mean that it’s not that profitable. Notice that while it may not be profitable in the short term, such a strategy might result in better reviews from tenants and a generally better reputation.

How to Perform Real Estate Calculations

To do an Airbnb real estate calculation that is as close to reality as possible, you need two things: data and an analytics tool that helps you process that data.

With enough knowledge in the matter, an Excel document can be your analytics tool because the formulas used aren’t a secret and can be easily found online. What can’t be found online that easily is Airbnb rental data.

It’s hard to find a reliable source of data on long term rental income, but it’s even harder for short term rentals. You’d need to parse Airbnb for that and estimate things such as nightly fees and occupancy rates in different areas.

Mashvisor will provide you with Airbnb real estate comps. It gathers data from Airbnb and carries a historical database of data and rental estimates based on it for every location in the US. With this data, you can use Mashvisor’s calculator to estimate how profitable your property can be.

You will need to do some work on your own, though. With Mashvisor’s Airbnb calculator, you can calculate the Airbnb cash on cash return, Airbnb cap rate, and cash flow for a potential Airbnb real estate that you are interested in buying.

Related: How to Conduct Airbnb Rental Analysis

Step #4: Price Your Airbnb Correctly

Another element that is crucial to starting an Airbnb real estate business is pricing your rental unit correctly. At first glance, it might seem like an easy task. And it’s not astronomically hard, but still, there are a few tips that may maximize your cash on cash return.

How to Price an Airbnb

Your goal for pricing an Airbnb unit is optimizing the price to not be so cheap you lose profit or so high you lose customers. To price your Airbnb real estate and to be a masterful investor, you need to follow the steps below:

1. Research the market. Look around the area and estimate the price, then narrow down to properties that are similar to yours in size, location, and furnishing.
2. Take into consideration your Airbnb real estate condition and amenities. The price may change drastically if your Airbnb real estate offers all the things that a tenant might need, compared to only providing the basic necessities.
3. Expenses. Assess the amount of money you’ll spend on the upkeep of your Airbnb and reflect that in the pricing as an added charge or a part of the general price.
4. Demand and supply. Sometimes, there are just not enough people that need a place to stay at the time. That’s why many Airbnb real estate properties that are placed in moderate climates are cheaper in the winter while increasing in price in summer.
5. Use dynamic pricing. Adopting a dynamic pricing model can be very helpful for you as an Airbnb host.

Dynamic pricing is an algorithm-based approach to pricing that calculates the optimal price for each given day and changes it on Airbnb automatically. Mashvisor’s Dynamic Pricing tool does it based on actual market data and insights.

All you need to do to get value from it is connect to your Airbnb account, set a couple of manual settings if you want, and let it suggest daily prices for your listing.

Step #5: Provide Superb Service

The last point may be obvious to some Airbnb real estate investors, but it’s a very important point to remember. If you find the best real estate market for short term rental, bargain down the price of the rental, and do a nice renovation, but don’t provide a good service, your rental isn’t going to do very well.

Running a successful Airbnb business requires a bit more active effort than long term rentals. Unless you manage to find long term Airbnb tenants, you’d need to clean up the rental after each guest. You will be required to restock some basic necessities like dishwashing supplies and give keys to the new tenants.

With several tenants moving in and out of an Airbnb during any given month, it becomes rather hard. Plan the way you’re going to provide such services, either yourself or with the help of a rental proerty manager. Not thinking it through may lead to poor reviews, and your rental may be out of the Airbnb business for a long time.

Conclusion

Becoming an Airbnb real estate investor can be a lucrative business model, with cash flow sometimes 50% higher than with long term rentals. However, it requires a lot of planning for both the investment you make and the way you’re going to price and market it.

Here are some key points to follow as an Airbnb investor:

• Find an area where short term rentals offer a good cash on cash return.
• Upgrade the property to stand out.
• Calculate Airbnb cash on cash return before making a purchase.
• Set up the right pricing.
• Give your guests a great experience and they’ll thank you with a good review.

With most of the above points, Mashvisor can help an Airbnb real estate investor out.

Market Finder can help you or any real estate investor locate the right market to invest in Airbnb in accordance with your budget and prevailing real estate market trends.

The Airbnb calculator can help you do your math before committing to a purchase. It is essential to predicting Airbnb rental revenue and making sure you are investing in a property that’s going to multiply your money.

As a real estate investor, Mashvisor’s Dynamic Pricing feature can help you make that Airbnb investment even more high-yielding by optimizing rental rates (and profit), depending on the time of year.

If you want to give this multi-functional real estate tool a try, get a 7-day free trial, and explore what Mashvisor can do for your real estate business.