As an Airbnb real estate investor, you probably know about the Airbnb rental income calculator. Is it really that important for your business?
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One of the things that help successful Airbnb investors are the real estate investment tools they use. The Airbnb rental income calculator (also known as the Airbnb profit calculator) is no exception.
Still, the question of its importance arises when you are trying to cut down on costs. Hopefully, this blog post will be able to answer this particular question once and for all.
You see, owning an Airbnb investment property is no easy responsibility. It often comes with more duties than privileges for you as the landlord. Moreover, it becomes a nightmare for most Airbnb investors when the time comes to manage the financial aspects of the business.
Perhaps, the biggest problem is when a real estate investor fails to deal with the financial part and struggles to make ends meet.
Why does it happen? Because every transaction that’s related to the investment property affects the process of making money in real estate through short term rentals.
To answer the main question, however, you must first know what’s good about the Airbnb rental income calculator. Additionally, understanding how Mashvisor’s Airbnb calculator works will give you an advantage over the competition.
So, sit back and enjoy this learning experience!
How Much Profit Do Airbnb Owners Make?
When it comes to how much Airbnb owners and hosts make on their vacation rental properties, it depends on several factors.
In the US, the average monthly rental income for Airbnb properties is $3,337, according to Mashvisor’s data as of August 2022. The state-level median for monthly Airbnb rental income from the same source is $3,533 (Oregon). Hawaii tops the list with a $5,288 average monthly income on Airbnb, while the lowest is from North Dakota at $2,302.
A property’s location is one of the primary drivers of Airbnb rental income. Where it is located is affected by the weather and the attractions in the area. Seasonality plays a huge role in an area’s Airbnb occupancy rate.
The occupancy rate simply accounts for how often a property is rented or booked versus the entire time it is available for booking. For an Airbnb property to be successful, it needs to achieve an occupancy rate of more than 50%.
On top of the location and seasonality, you must also consider the quality of your rental property and the services you provide. While guests’ preferences vary, they are all likely to book clean properties with at least the basics down to pat.
You can increase your chances of getting bookings by using professional-grade photographs and an accurate description of your property and services.
The Pros and Cons of Airbnb Rentals
An Airbnb property is both laden with rewards and risks. For investors like you, it is very important to know the advantages and disadvantages of Airbnb investing so you can make a well-informed decision.
Here are some of the benefits of owning an Airbnb property:
- It offers a potentially higher income compared to a long-term rental.
- You can pick your hosting dates, giving you greater flexibility in your calendar.
- There is a frequent inspection of the property due to guest turnovers.
On the other hand, it also comes with certain risks like:
- You are not guaranteed a fixed, regular income.
- It is a bit more high-maintenance due to guest turnover.
- You face a greater risk of property damage as guests come and go.
Generally, when it comes to Airbnb hosting, your occupancy rate will significantly affect your Airbnb rental income. This is why it’s important that you set out to do extensive research on the neighborhood first before you buy an investment property.
This is where a real estate company like Mashvisor comes in. You can use Mashvisor’s tools like the Property Search tool and its Airbnb rental income calculator to find the right area and property.
4 Reasons You Need to Use an Airbnb Rental Income Calculator
As mentioned in the previous section, Mashvisor is very handy in helping you locate the right area for investing and spot the right property to help you achieve your goals.
The Property Search tool allows you to find rental properties that can provide a substantial income based on cash on cash return. The cash on cash return metric is quite similar to how a cap rate works. The former takes the rental property’s net operating income and divides it by the total amount invested in the property.
However, it is not synonymous with property price. We’re talking about determining the potential rental income with how much cash you spent on purchasing the rental property.
Unlike the cap rate, cash on cash return divides the NOI by the total amount of cash invested in the property at the time of purchase. It takes into account financing methods since not everyone can afford an all-cash purchase.
Most investors take out loans to make a property purchase. If you are one of them, it would be wise to use cash on cash return when you use your calculator to determine how profitable your rental property is.
Even without a calculator, you can easily compute your cash on cash return using the following formula:
Cash on Cash Return = Net Operating Income (NOI) / Total Cash Invested
It doesn’t end there, though. Several factors still affect how much rental income you can make. It is why you need a good Airbnb rental income calculator like the one provided by Mashvisor.
1. Mashvisor’s Airbnb Rental Income Calculator Can Help You Find the Best Location
As an Airbnb investor, you know that any property investment heavily depends on the location. The best rental locations mean the best real estate investments. Therefore, using the Airbnb rental income calculator is vital in this case.
Aside from calculating the dollars, the Airbnb rental income calculator performs a rental market analysis. This analysis is vital to finding the best Airbnb locations in the country. It starts with choosing a certain Airbnb investment property, and it automatically looks into its location.
The criteria for the best Airbnb locations are based on the appreciation potential and turnout. As mentioned above, Airbnb investments depend heavily on locations with popular tourist attractions. Be it a beach, an archaeological site, or even a picturesque landscape, people are always looking for places that can offer them a unique experience.
The Airbnb rental income calculator works in a quite similar manner. No, it does not precisely tell you what a certain location offers. However, as a rental property investor, the calculator still provides you with the numbers you need to see how profitable a location is.
The numbers represent the Airbnb rental income, cash on cash return, and cap rate—all of which indicate whether or not an Airbnb rental is the optimal rental strategy in that area.
2. The Airbnb Rental Income Calculator Can Help You Set Reasonable Rental Rates
The question that every Airbnb rental investor wants to find the answer to is “How much should I charge for rent?” We’re sure that is a worry of yours as well. After all, you want to get a feel of how profitable what you’re getting into is.
Remember the rental market analysis in the previous section? That is exactly what’s going to help you find out how much you should charge for rent.
By using the Airbnb rental income calculator, real estate investors are able to compare their rental properties to other similar ones within their location. These properties are also known as real estate or rental comps. In other words, you can see how much other Airbnb hosts are charging for a similar rental property and base your pricing on that.
Say, for example, your investment property is a two-bedroom house with a swimming pool and a private parking lot. With a rental market analysis, you may find a couple of potential rental properties that are very similar and are renting for $50 a room/night.
For instance, you find three similar rental properties that are renting out for $45, $50, and $55 a night. To determine a reasonable rental rate, take your calculator and get the average rate of the three properties. You can still adjust the rental price depending on your property’s features.
It is very helpful because now, you’ll have the basis that will help you decide how much you should charge a night. Additionally, rental comps give you a sense of what is too cheap or too expensive so that you can find a middle ground for your pricing strategy.
3. The Airbnb Rental Property Calculator Can Show You the Positive Cash Flow Properties
Income properties are meant to provide a rental income for the real estate investor. The same goes for an Airbnb investment property. Thus, the Airbnb rental income calculator is your best friend in this case.
You see, part of investing in rental properties is the rental expenses. Also, in order to calculate the cash flow and make sure it is a positive one, you must take into account every penny that goes in and out of your business on a monthly basis. But why is generating positive cash flow very important in real estate?
First of all, it is important in order to keep track of your rental expenses. Airbnb property management, repairs, and welcoming guests are all part of such expenses.
Another reason is the return on investment. The top indicators of a high rate of return are the capitalization rate (cap rate) and the cash on cash return. A positive cash flow will guarantee higher figures, as that is your goal at all times!
4. The Airbnb Rental Income Calculator Gives You an Idea of the Area’s Airbnb Occupancy Rate
It’s time to get real here. Your whole Airbnb investment business depends on what we call the Airbnb occupancy rate. What does it mean? Simply the percentage of the times when your investment property is occupied with Airbnb guests.
Why it should be a concern for Airbnb hosts is simple. The higher the occupancy rate, the more cash flows into your pockets! After all, it does not make any difference whether you are renting out a room or an entire house. What matters is the number of days you manage to rent out the investment property.
How is the Airbnb rental income calculator useful for the Airbnb occupancy rate? When you start analyzing an Airbnb rental property, look into the location. Aside from the appreciation rate and rental rate, the tool also presents the exact rate of occupancy for an area on an annual basis.
To Sum It Up
An Airbnb rental’s success depends on how profitable it is for the investor. It will depend on several factors like location, occupancy rate, and dollar-for-dollar return. You may own a vacation rental property that gives you close to $5,000 a month. However, the property cost you over a million dollars, and the area only provides less than a 2% cash on cash return rate.
In contrast, you may own an Airbnb property that generates less than $1,500 a month, but the property only cost you around $250,000, plus it gives you a 3.5% cash on cash return. Between the two, the lower-income property is considered more profitable than the one that generates five grand a month.
It is why you need an Airbnb rental income calculator (the Airbnb profit calculator). It is a powerful real estate investment tool in the hands of the most successful property investors. If you want to learn how to make money in real estate, consider investing in one.
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.