Airbnb investors, of course, want to invest in a profitable property. The short-term rentals market is definitely a lucrative industry, but this isn’t a guarantee that any Airbnb investment property will be profitable. You need to use the right tools to accurately estimate what kind of Airbnb return on investment you’re looking at. So how do you find the Airbnb profit margin?
To answer that, we need to consider a couple of key factors:
Of course, there are more factors to take into account which will be discussed later, but these three are the main determinants of your Airbnb profit margin. We’ll talk about each factor and then talk about how our Airbnb rental income calculator will help you find your Airbnb returns in a matter of minutes. Do you have questions about Mashvisor? Read our FAQs and learn about our tools.
Study the Airbnb Rental Property Location
Making money with Airbnb is a lot easier when you invest in the right location. You can’t count on luck and take a chance on just any market; you need to do your research. But why is location so important for your Airbnb profits? Your Airbnb profit margin basically depends on the location of your investment property. This is because the location is what draws Airbnb guests to your rental property in the first place.
So when choosing a real estate market, investors should conduct a comparative market analysis (beginner tip) to see how similar properties (rental comps) performed. This is an important step for real estate investors because it will look at investment properties in the location of interest and will compare key factors, such as average Airbnb occupancy rates, property features, and other important factors.
While this analysis is done for long term rentals as well, with Airbnb rentals, real estate investors are looking at more than just the rental comps, the average rent in the areas, and cap rate. Because the short term rental rate is often higher, to get a clearer picture of your Airbnb profit margin, you need to also consider what you can get on a nightly basis, weekly basis, and monthly basis from renting out on Airbnb. This will help you estimate your Airbnb revenue. It’s important to also consider the effect of your local short-term rental regulations, as they can limit your investment property’s profitability (zoning laws, capping the number of days you rent out your Airbnb, etc.).
Start with the Airbnb Rental Income
The amount of revenue generated by your rental property is obviously a key factor in calculating your Airbnb profit margin. To make sure you’re getting the most rental income from your investment property, strategically set your pricing; this traces back to looking at rental comps and comparing the appropriate rental rates. When talking about income it’s important to differentiate between gross rental income and net rental income. Your gross rent is the complete amount of income the property generates before any expenses are deducted. So your net rental income would be the amount minus all the operating expenses.
Factor in Airbnb Rental Expenses
In addition to the regular expenses that come with any rental property (repairs, maintenance, utilities, cleaning fees, etc.) there is one key expense any Airbnb investor must take into consideration when trying to find their Airbnb profit margin- vacancy rate. To avoid a high vacancy rate, you need to make sure your Airbnb investment property is in an area that has high tourist-attraction or is just generally busy all year round. This again reiterates the importance of location.
Calculating Monthly Airbnb Profit Margin
So when it comes down to how much you’ll be making every month, the accuracy of your answer will differ depending on a couple of things. First, whether you’re trying to find the Airbnb profit margin for a prospective investment or an operating rental. The latter is easier because the actual numbers like rental income and expenses are already there, you just deduct the expenses from the income for the month. However, if you’re trying to estimate Airbnb monthly returns for a potential investment property, take into consideration the following:
- The going rental rate for the market you’re in
- The number of days you’ll actually be able to host in a month (depending on how hot the market is, this can range from lower to higher)
- Seasonal variance (a market that’s hot in the summer won’t be as desirable in the winter)
Now, Airbnb itself offers an income estimate tool that finds your weekly expected return, which you can then multiply by four for the monthly rate. However, it doesn’t take into account all of the important factors and oftentimes significantly underestimates the return rate. So what’s a better option?
Finding Your Property-Specific Airbnb Profit Margin
So far, we’ve given you general knowledge on what your Airbnb profit margin depends on. But how can you get a reliable calculation of your actual return on investment? Well, by using the best real estate investment tool out there- Mashvisor’s calculator. Here are some of the things this tool will calculate for you:
- Cap Rate: Short for capitalization rate, this ratio results from dividing the net operating income of your rental property by the property’s market value.
- Airbnb Income Estimate: Our calculator removes the need for conducting your own comparative market analysis, as it does that work for you. When analyzing your Airbnb investment property, comparable rental income and expenses are already provided.
- Cash Flow: Quickly know what Airbnb profit margin to expect by looking at the monthly and annual cash flow calculation. A positive cash flow property (revenue exceeds expenses) is a clear sign of profitability.
- Occupancy Rate: You want a high occupancy rate and an accurate estimation of it. The occupancy rate is the ratio of time in which a property is rented as opposed to when it’s vacant. A couple of the factors that can determine occupancy rates include location, Airbnb guest reviews, and real estate marketing strategies.
The best thing about using Mashvisor’s calculator is the abundance of Airbnb rental data that is readily available. We pull data from reliable sources like MLS, Redfin, and Airbnb directly and use predictive Airbnb analytics to give you accurate projections. Having timely information is key to outperforming the competition in your local real estate market. Mashvisor’s tools can turn three months of research into just fifteen minutes! This is true, not only for Airbnb rental properties but also for traditional long term rental properties.
Don’t Forget the Financing Method
Another great feature our calculator has is the ability to modify analysis results based on the financing method. By choosing mortgage or cash, the calculator will take into account monthly mortgage payments to give you a more accurate Airbnb profit margin. So what are you waiting for? It’s time you start using our real estate investment tools to make profitable investments now. To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.