If you want to invest your money in short term rentals, Airbnb occupancy rate is one of the most important metrics for you to consider.
Table of Contents
- What Is Airbnb Occupancy Rate?
- Other Airbnb Metrics That You Must Also Consider
- What Is a Good Airbnb Occupancy Rate?
- Top 10 Cities With the Highest Airbnb Occupancy Rates
- Key Takeaways
Investing in short term rentals basically involves buying a property and renting it out for a minimum of one night. Airbnb rentals are becoming increasingly popular since they potentially offer more profitability.
There are mainly two factors to look at when investing in Airbnb rentals: nightly rate and Airbnb average occupancy rate. The two factors will help you determine how much income the investment can generate for you.
In today’s article, we’re going to look at what Airbnb occupancy rate is and what a good occupancy rate is. Since we want you to succeed, we’ll also recommend some of the best cities with the best occupancy rate Airbnb for you to consider.
What Is Airbnb Occupancy Rate?
Whether you’re investing in the traditional or short term rental strategy, occupancy rate is one metric you can’t ignore. We recommend you get a good understanding of the metric before you can invest in a vacation rental.
Airbnb occupancy rate is simply the percentage of nights or days your short term rental is likely to be booked by guests in a year. Typically, every investor wants their rental to be occupied for the most part of the year. You miss out on potential Airbnb income for every single day your Airbnb rental is vacant.
From that description, we can reason that occupancy rate Airbnb is calculated by dividing the total number of booked nights by the number of available nights. The number of available nights refers to the number of days your short term rental was available for booking. In short, available nights include both booked nights and available but unbooked nights.
Why would Airbnb rentals not be available for booking sometimes?
It is due to a couple of reasons. The Airbnb rental market is highly affected by seasonality. For example, let’s say you invested in a beach house and turned it into a vacation rental. You’ll experience high demand during summer, but the business may become more dormant during the winter months. Ensure you analyze your market well before investing so that you don’t make unrealistic expectations.
Another reason Airbnb rentals may not be available for the entire year is Airbnb regulations. Some local governments impose a limit on the number of nights you should make your rental available per year. Also, ensure you’ve understood your market’s Airbnb regulations to avoid surprises.
Other Airbnb Metrics That You Must Also Consider
It’s important that you access a property’s Airbnb occupancy rate data before you can invest your hard-earned money. However, it’s not the only factor you should consider. It goes hand in hand with other vital factors. The metrics help you answer the question, “How much does an Airbnb host make?” They include:
Average Daily Rate
The metric reflects the property’s average nightly rate. The average daily rate shows you the daily income you can expect to make from the short term rental. Its formula is quite straightforward:
Average Daily Rate = Total Income Generated / Total Number of Booked Nights
You can calculate the above metric for whichever period, whether monthly, quarterly, or annually.
Also, keep in mind that the average daily rate metric may not accurately reflect what you may earn. It doesn’t account for property expenses, such as taxes, cleaning, and maintenance.
Airbnb Rental Income
Airbnb rental income is the amount of money that the short term rental can generate on a periodic basis. Remember, one of the main reasons why Airbnb investments are becoming more attractive than traditional rentals is because they offer higher income potential.
Calculating the average Airbnb income lets you know whether the revenue makes financial sense. The higher your Airbnb rental income, the higher the return on investment. Use Mashvisor’s Airbnb calculator to estimate how much rental income your property will generate.
Remember, Airbnb rental income is influenced by various factors, such as occupancy rate, average daily rate, location, and seasonality. The metric is mainly used to calculate other return on investment metrics.
Airbnb Cash Flow
Cash flow is one of the most important metrics to consider before making any kind of investment. Airbnb cash flow is the difference between the total Airbnb rental income and total property expenses.
Airbnb cash flow calculation gives you a more accurate representation of the profit you’re likely to make from your short term rental. Your main aim as a real estate investor is positive cash flow.
Airbnb Return on Investment
While Airbnb cash flow is an important metric to consider before investing in a short term rental, you shouldn’t solely rely on it. Another vital metric for you to consider is Airbnb’s return on investment.
Airbnb ROI is the measure of how much profit a short term rental can generate as a percentage of its expenses. A high Airbnb ROI signifies that the returns an Airbnb rental generate compare well to its costs.
However, a higher Airbnb ROI can mean that the property also comes with a higher risk. Airbnb ROI depends on a number of factors, such as property type and location. Generally, a good Airbnb ROI should range between 8% and 12%.
Below are two different Airbnb return on investment variables that you can calculate:
Airbnb Cash on Cash Return
Airbnb cash on cash return is used to determine a short term rental’s return on investment when paying for financing, such as a mortgage. It is the annual Airbnb rental cash flow before taxes as a percentage of the total cash invested.
Airbnb cash on cash return is the most commonly used metric to determine Airbnb ROI.
Airbnb Cap Rate
Airbnb cap rate is the net operating income (NOI) of a short term rental as a percentage of its fair market value. For starters, NOI is the difference between annual Airbnb rental income and annual Airbnb property expenses. NOI and cash flow are different in that NOI doesn’t factor in the financing costs.
In short, Airbnb cap rate is the measure of a property’s profitability if fully bought in cash. Unlike the Airbnb cash on cash return, it doesn’t account for the method of financing used to acquire the property. It is crucial when comparing numerous short term rentals for sale.
What Is a Good Airbnb Occupancy Rate?
Naturally, many people would think that investing in an Airbnb property with a high occupancy rate is the best investment decision. However, it isn’t always the case.
A high average occupancy rate Airbnb doesn’t necessarily translate to more Airbnb rental profits. Properties with higher occupancy rates may generate lower incomes. The inverse is also true. Occupancy rates that are too high may mean that you’re leaving some money on the table.
Airbnb occupancy rates and rental rates demonstrate an inverse kind of relationship. It means that a 100% occupancy rate isn’t the point at which you’ll generate the most profit. You need to strike just the right balance between the occupancy rate and rental rate.
To answer the question, a good average Airbnb occupancy rate is one that allows you to charge an average rental rate that translates into the highest possible Airbnb rental income. In addition, a good occupancy rate also depends on a number of factors that we’re going to look at in a short while.
Sometimes, a lower average occupancy rate Airbnb may be ideal for maximizing Airbnb rental profits. For example, neighborhoods that are close to tourist hotspots can have both high rental and occupancy rates and generate a lucrative Airbnb rental income. Other neighborhoods have lower occupancy rates but higher rental rates. You can have a high rental income in such a neighborhood if the rental rates more than make up for the low occupancy rates.
Of course, you want to stay away from neighborhoods with low occupancy rates and low rental rates.
That said, let’s now look at some of the factors affecting occupancy rates.
Factors That Influence the Airbnb Occupancy Rate
We quickly mentioned that there are some factors that determine the best occupancy rate for you. It is because occupancy rates vary from location to location and property to property. Such factors include seasonal changes, location, guest reviews, marketing strategy, and other factors that vary depending on your situation.
Let’s now look at two main factors that determine your average occupancy rate:
Seasonal Markets
Seasonality is one of the main factors new short term rental investors must deal with. If you intend to invest in a market that becomes most active during the holiday season, your Airbnb occupancy rate calculation needs to account for the seasonal changes.
Remember, we said that a low occupancy rate doesn’t necessarily mean a low income. You can apply it here since the income made during high seasons could be enough to more than make up for the low seasons.
There are also Airbnb locations that are busy all year round where you can experience a constant flow of visitors during all seasons. In this case, Airbnb hosts can set a sustainable nightly rate for the high occupancy rate.
Now, if you’re in a location that experiences seasonal changes, you only have a few months every year to generate a bulk of your revenue. This is where the next point comes in:
Strategic Pricing
Before investing in any real estate market, you need to carry out research to help you set the right nightly rate. It influences your Airbnb occupancy rate. A high nightly rate will mean that most guests will book your competitors’ rentals, and a low rate means that you’re leaving some money on the table.
One of the best ways of setting smart rates is looking for Airbnb comps. It gives you an idea of the typical pricing for comparable rentals in your market. However, rental comps alone won’t cut it when setting competitive rates.
Sometimes, a high nightly rate may be justified by the kind of amenities you need to offer. Also, you need to implement a dynamic pricing strategy. This is where you lower your nightly rate during the low season to attract more bookings and increase it during the high season when demand is much higher.
Airbnb comps can help real estate investors set the right rental rate for their short term rental properties.
Top 10 Cities With the Highest Airbnb Occupancy Rates
We mentioned that we want you to succeed. As such, we’ve compiled a list of some of the cities in the US with the highest Airbnb occupancy rate by zip code. The following list is derived from Mashvisor’s latest Airbnb statistics.
Remember, a high occupancy rate doesn’t automatically mean you’ll enjoy high profitability. Make sure you carry out adequate market and property research before investing in any of the cities.
Before we can go any further, make sure you book your demo and see how Mashvisor tools can help you in your real estate investment journey.
Here are some of the best short term rental markets, arranged from the highest to the lowest Airbnb occupancy rate:
1. Bloomington, CA
- Airbnb Daily Rate: $245
- Airbnb Occupancy Rate: 70%
- Monthly Airbnb Rental Income: $5,323
- Airbnb Cash on Cash Return: 6.34%
- Airbnb Cap Rate: 6.44%
2. Kailua, HI
- Airbnb Daily Rate: $494
- Airbnb Occupancy Rate: 66%
- Monthly Airbnb Rental Income: $10,101
- Airbnb Cash on Cash Return: 5.91%
- Airbnb Cap Rate: 5.96%
3. Lake Villa, IL
- Airbnb Daily Rate: $206
- Airbnb Occupancy Rate: 70%
- Monthly Airbnb Rental Income: $4,666
- Airbnb Cash on Cash Return: 7.59%
- Airbnb Cap Rate: 7.79%
4. Plymouth, IN
- Airbnb Daily Rate: $171
- Airbnb Occupancy Rate: 74%
- Monthly Airbnb Rental Income: $3,495
- Airbnb Cash on Cash Return: 6.42%
- Airbnb Cap Rate: 6.59%
5. Abita Springs, LA
- Airbnb Daily Rate: $168
- Airbnb Occupancy Rate: 73%
- Monthly Airbnb Rental Income: $6,036
- Airbnb Cash on Cash Return: 7.15%
- Airbnb Cap Rate: 7.27%
6. Crofton, MD
- Airbnb Daily Rate: $247
- Airbnb Occupancy Rate: 78%
- Monthly Airbnb Rental Income: $4,786
- Airbnb Cash on Cash Return: 6.72%
- Airbnb Cap Rate: 6.85%
7. South Portland, ME
- Airbnb Daily Rate: $272
- Airbnb Occupancy Rate: 72%
- Monthly Airbnb Rental Income: $4,319
- Airbnb Cash on Cash Return: 7.21%
- Airbnb Cap Rate: 7.37%
8. Rockwood, MI
- Airbnb Daily Rate: $106
- Airbnb Occupancy Rate: 89.43%
- Monthly Airbnb Rental Income: $3,301
- Airbnb Cash on Cash Return: 5.41%
- Airbnb Cap Rate: 5.52%
9. Buffalo, MN
- Airbnb Daily Rate: $174
- Airbnb Occupancy Rate: 76%
- Monthly Airbnb Rental Income: $4,842
- Airbnb Cash on Cash Return: 6.50%
- Airbnb Cap Rate: 6.62%
10. Richmond Heights, M0
- Airbnb Daily Rate: $110
- Airbnb Occupancy Rate: 75%
- Monthly Airbnb Rental Income: $4,757
- Airbnb Cash on Cash Return: 4.89%
- Airbnb Cap Rate: 4.97%
Key Takeaways
When investing in a short term rental, it’s important that you look for Airbnb occupancy rate data. Pay close attention to the said metric since it determines a property’s profitability. However, a high occupancy rate doesn’t always mean you’ll see a high Airbnb income. You must consider various other factors.
Mashvisor’s tools provide you with Airbnb occupancy rate data, as well as other relevant Airbnb data to help you make smart business decisions.
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