Finding the right investment home can help you get ahead with your Airbnb business. You can do this by performing a comprehensive Airbnb analysis.
Table of contents
- Step 1: Identify a Good City to Invest in
- Step 2: Learn the Airbnb Regulations in the City
- Step 3: Evaluate the Airbnb Rental Market in the Neighborhood
- Step 4: Find Rental Comps
- Step 5: Calculate and Adjust Your Airbnb Daily Rate
- Step 6: Determine the Costs of Running a Rental Property
- Step 7: Project Your Investment Payback and Decide on Which to Purchase
Investing in Airbnb is a great way to earn additional income. With the return of local and international travel after a couple of years in lockdown, the short term rental business is booming once again. This is why buying a property is usually the biggest investment you can make, especially if you will use it to earn money on Airbnb.
If you invest in the right location, you can get a chance to earn generous returns from a short term rental investment. However, not all locations are good for Airbnb investing. Because of this, it is crucial to do in-depth research and conduct a comprehensive rental market analysis. This allows you to find the property that has the potential to generate the most profit.
In this article, you will learn how to accomplish an Airbnb investment analysis in seven steps. You can do this using two methods: manually or using a real estate investment tool like Mashvisor. With Mashvisor’s Airbnb analysis tool, you’ll see how a particular investment property will perform and how much returns you can potentially earn.
To learn how to analyze an Airbnb market in the most efficient way, check out our video below:
Step 1: Identify a Good City to Invest in
The first step in doing an Airbnb investment analysis is to find a good city for Airbnb investment. Keep in mind that not all locations are optimal for short-term rental investing, so it’s essential to study the market first before deciding to buy a property in any location. Finding the right Airbnb location can be tricky, but it is not that difficult if you know what to look for.
To do this, you can start by analyzing the city you are currently living in. If you are planning to manage your own investment property instead of hiring someone to do it on your behalf, then your expertise as a local will provide great value to your guests. But if you find out that your city is not a good location for Airbnb rentals, it’s best to consider other options and look elsewhere.
Here are some factors you should look into when doing an analysis to decide on which city to invest in:
Airbnb is such a seasonal business. That is why when performing an Airbnb analysis for a particular city, you need to understand when the peak and low seasons are. While it would be nice to find a location that has a high number of inbound travel all year, this is not always the case for all cities.
If the town that you are looking into has peak seasons, then you need to make sure that you will still be able to make money during the off-season to stay in the green. You don’t want to have very long vacancies, because you still need to pay your bills even during the low season. The best city for Airbnb investment is the one with peak seasons that outweigh the off-seasons.
Most Airbnb guests are local and international tourists who travel for leisure. If you should pick a city for your vacation rentals, it’s important to consider the attractions that are located within or close to the city of your choice. This is because many vacationers prefer to stay somewhere convenient and near where they will do their sightseeing activities.
Choosing a strategic location for your short term rental investment can help you attract more guests and get a high occupancy rate. A good strategy is to find a place that’s home to various attractions itself, at the same time provides convenient access to other destinations outside the area.
Important Local Events
Aside from checking out the attractions in the area, keeping tabs on holidays and town events is also part of a comprehensive Airbnb analysis. You would not want to miss out on the opportunity to charge more for accommodations because you were not aware that a certain event was bringing in more travelers.
You can find a city’s events calendar on its tourism or government website. There are also platforms that list major events happening in different cities at different times of the year. When finding a good location for your vacation rental investment, it’s vital to do your research and gather important data thoroughly so you are always informed.
The Best Restaurants, Bars, and Shopping Centers
Even if the city has no events that draw people from out of town, it might still attract travelers who are not necessarily there for leisure. Other top guests of Airbnb homes are visiting a place for business, family, or personal events. These guests would appreciate getting a recommendation from their host on what they can do while they are there.
Sharing your knowledge about the locality is free and easy to research, and is one of the most important services you can give to your guests. It is also one of the ways for your Airbnb business to get five-star reviews. Plus, making sure that you invest in a location that’s near good restaurants and shopping centers is another great strategy to attract renters.
Considering the types of people who visit the city will help you in gathering Airbnb market data. By learning this information, you’ll find out how to position your property so it will stand out among your competitors. To do this, you can look at the city’s tourism website and active Airbnb listings, and perform an analysis to get a sense of the demographics.
- Does the city attract more leisure tourists than business travelers or vice versa?
- What types of tourists go there: families with kids, couples, solo travelers, or groups of friends?
- Are they looking for Airbnbs that have essential amenities, or are they willing to pay for more premium features?
- If you already have a target market in mind, does the city attract enough of them to keep your occupancy rate above 50% year-round?
By identifying your target market, you will be able to narrow down the type of Airbnb investment property you should buy. For example, a single-family home or an apartment with two or more bedrooms can cater to families or groups of friends or colleagues. Meanwhile, a studio apartment would be great for couples or solo travelers.
Also, think about allowing pets while charging a higher cleaning fee. It might help increase your booking rates because more and more guests are now traveling with their pets.
Related: Where Can You Find Airbnb Properties for Sale?
Finding a City With a High Airbnb Occupancy Rate Using Mashvisor
If you want a quick and efficient way to determine a city’s potential for Airbnb income, you can use an online tool like the Mashvisor Property Finder. Just type in the city you are looking into, then set the real estate heatmap data to “Airbnb Occupancy Rate”. This will give you a quick overview of the demand for short-term rentals in the city and its different neighborhoods.
Using Mashvisor saves you a lot of time and effort because you won’t need to leave the comfort of your home while you find the important real estate market data that you need. Knowing the occupancy rate of a city gives you a general idea of how much return you can possibly earn in a year. It will also help you strategize a game plan to cover possible vacant days.
Are you ready to find your next Airbnb investment? Use Mashvisor’s investment property search tool to get started!
Step 2: Learn the Airbnb Regulations in the City
With the growing demand for Airbnb rental homes nationwide, states and cities have decided to regulate alternative lodging in their respective areas. Unfortunately, many property investors overlook this, hoping they will not get caught. But getting in trouble with your HOA or city government is not worth the risk.
If you launch your Airbnb business and discover later on that it is illegal, you will suffer significant losses. As an investor, you would want to stay in compliance with the law to avoid getting into unnecessary trouble later on. Before buying an investment property in your preferred location, make sure to check the Airbnb laws that regulate the city first.
What Are the Common Airbnb Restrictions?
Knowing the common Airbnb restrictions is an essential part of conducting a comprehensive Airbnb investment analysis. This data is needed to ensure that you won’t encounter any legal problems. Make sure to consult with the municipality and HOA to know if the property that you wish to buy is properly zoned for tourist accommodations.
In most Airbnb markets, hosts are required to apply for a business license before they can operate an Airbnb rental home. Be sure to follow the process to register your short-term rental business accordingly. Airbnb hosts may also be required to pay occupancy taxes—the rate of which varies depending on the location.
Here are a few examples of Airbnb restrictions:
Airbnb Is Allowed for Owner-Occupied Properties Only
In some cities like New York and San Francisco, Airbnb rentals are only allowed if the property is also occupied by the owner while the guests are staying in it. This means that the hosts must be present while there are guests staying on the property for the short term.
In the New York real estate market, anyone who wants to legally book the entire unit without the property owner should have to stay for more than 30 days. In San Francisco, hosts need to spend at least 275 nights per year in the property to be considered full-time residents. San Francisco Airbnb owners are allowed to rent up to 90 unhosted nights per calendar year.
Maximum Occupancy Limits Must Be Strictly Followed
Most Airbnb markets impose maximum occupancy limits that must be strictly followed by hosts and guests. For example, in Miami-Dade County, the maximum number of persons allowed is only two per bedroom, plus an additional two guests per property. So if your property has three bedrooms, you are only allowed to accept up to a maximum of eight guests per stay.
Certain Events and Sales Are Not Allowed
In some cities like Phoenix, short term rentals are not allowed to hold special events or non-residential uses. In addition, Airbnb hosts in Phoenix are also prohibited from selling liquor at the property.
A Minimum Number of Booking Nights Are Required
While most Airbnb rental markets allow guests to stay for at least one night in the vacation rental home, there are cities that require a minimum number of nights. For instance, in the Anaheim Airbnb market, bookings from the same guests must be for at least three consecutive nights.
Zoning Restrictions Must Be Complied With
As an investor, you must research the possible zoning restrictions in the area where you plan to invest. Most cities have zoning restrictions that you must comply with. In Biloxi MS, for example, several zoning restrictions apply. Before investing in this city, you should make sure that the area is allowed for short term rentals, so you must check the ordinance before buying a property.
How to Find the Airbnb Laws and Regulations in Your Area of Interest
There are three different effective ways to look up regulations and requirements. You can:
- Visit Airbnb’s page for Responsible Hosting in the United States;
- Type “Short-term rental regulations in [city]” in your preferred search engine; or,
- Use Mashvisor’s Airbnb Regulations Database to check the rules and regulations in over 320 U.S. cities and 100-plus top U.S. vacation rental markets.
Step 3: Evaluate the Airbnb Rental Market in the Neighborhood
Just because a city allows short-term rentals and enjoys a large influx of tourists does not mean you can put up an Airbnb anywhere in that town. To be a successful Airbnb owner, you also have to conduct a neighborhood analysis to find a short-term rental property that is in a desirable location for your guests.
To find the right neighborhood that is optimal for Airbnb investing, it’s necessary to know the qualities of a good Airbnb neighborhood. Likewise, you also need to know the qualities of a neighborhood that you need to avoid.
Qualities of a Good Neighborhood for Airbnb
There are specific things that attract guests to a certain neighborhood and will also help your property appreciate in value. When searching for potential Airbnb rental properties to buy, it’s critical to consider these factors as they can greatly impact your ability to earn maximum profits.
Here are a few things that you should check:
Access to Public Transportation
A good neighborhood that is ideal for short term rentals must offer access to public transportation. After all, a lot of Airbnb guests won’t bring vehicles with them. Easy access to public transport is an attractive feature that will draw guests to your vacation rental home.
High Walkability Score
A neighborhood’s walk score is also a big factor that can affect the occupancy rate of a vacation rental unit. A walk score indicates how walkable an area is. Typically, a neighborhood with a high walk score is ideal for visitors who prefer to walk from one place to another. It means the area is easily accessible by foot.
Nearby Amenities and Attractions
As mentioned earlier, most tourists (and even business travelers) prefer to stay in a place near various attractions and amenities, like restaurants and shopping centers. If your Airbnb property is located in a neighborhood that’s close to these amenities, it’s definitely a plus factor and is considered desirable for guests.
Proximity to Offices
Business travelers are one of the major sources of business for most Airbnb owners. It’s best to cater to both business and leisure travelers. This will give you a fallback especially during non-peak seasons. To attract business travelers, investing in a neighborhood that is in close proximity to business districts is ideal.
Overall Safety of the Neighborhood
No one would want to stay in a location that’s dangerous or creepy—this kind of place will easily scare off potential renters. Before you buy an investment property in any neighborhood, make sure that the area is clean. Also, check the safety index and the crime rate in that specific area. You’ll want to make sure that the place is safe enough to attract guests.
What to Look Out For to Identify a Bad Neighborhood
Now that you know the qualities that make a good neighborhood, it’s time to learn the things that you should avoid when choosing a neighborhood for your next Airbnb investment.
When choosing a neighborhood, make sure to avoid buying a rental property in an area that has the following qualities:
Multiple Properties in the Same Street Look Distressed or Abandoned
If you find several distressed or abandoned properties on the same street, it is a clear red flag that the place is not ideal for residence. You should wonder why homeowners abandoned their homes. Perhaps the area is not safe, or maybe there are other reasons that made the residents leave. Whatever the reason is, that place is most likely not good for Airbnb investing either.
More Than a Few Businesses Nearby Are Permanently Closed
If there are multiple businesses nearby that closed down permanently, there must be something wrong with the location. If businesses do not thrive there, how can you be so sure that your vacation rental will not suffer the same fate? Plus, guests may see this as a warning sign that the area might be dangerous because if they stay there, they may be too isolated.
Dirty surroundings can drive potential guests away. Guests may feel unsafe if the location doesn’t look clean. It’s also best to look out for neglected plants, trees, and landscaping because they make the area look unappealing to renters. Avoid any unclean neighborhood at all costs, because it can be detrimental to your profitability.
A Noisy Building or Busy Road Is Adjacent to the Property’s Street
If you invest in an area that is close to a noisy building or busy road, guests may not be able to rest well in your rental home. You’ll end up getting bad reviews from your renters, which will ultimately have a negative impact on your business. When choosing a neighborhood, make sure to watch out for any possible noise or anything that could affect your guests’ sense of privacy.
Evaluating a Neighborhood Using Mashvisor
After finding a neighborhood that has your desired qualities, you can use Mashvisor to get the numbers that will help you decide if the area is optimal for your Airbnb investing strategy.
You can do this by searching for a city on Mashvisor’s platform (you can also type in the neighborhood’s name). Then click on a neighborhood of your interest under the listing’s address to open that neighborhood’s page.
Here, you can view important metrics such as:
- Median property price
- Average price per square foot
- Airbnb cash on cash return
- Airbnb rental income
- Number of active Airbnb properties in the area
- Airbnb occupancy rate
- Optimal rental strategy (either traditional or Airbnb)
- Walkability score
- Transit score
You will also find useful charts such as a breakdown of property types for sale, Airbnb occupancy rate per home size (studio, 1BR, 2BR, etc.), and more. All of the data that you see on this page will help you estimate your income and ROI if you buy a property in that neighborhood.
Related: How to Find Reliable Airbnb Data in 2022
And why is this essential, you ask?
Knowing the estimates of your potential income from investing in a specific neighborhood is crucial because it gives you an overview of how much returns you will receive. This allows you to decide whether or not investing in that neighborhood will make you a profitable Airbnb owner. This decision will be based on accurate figures—taking the guessing game out of the equation.
Got a few neighborhoods in mind? Start evaluating them using Mashvisor’s Airbnb neighborhood analysis tool.
Step 4: Find Rental Comps
When conducting an Airbnb rental market analysis, you need to find similar properties to set up a benchmark. There is no point in analyzing a mansion with unique amenities for big groups if you are planning to buy a one-bedroom cabin for couples hoping to rekindle the romance.
When performing your Airbnb analysis, make sure that the rental comps you look into are:
- Located in the same or adjacent neighborhood
- Properties with the same features (same number of bedrooms, beds, and bathrooms)
- Homes that have similar finishings and amenities
You would want to find at least three direct competitors. If you are struggling to find this many comps, try finding out why. It may turn out that there is actually zero demand for the type of property in that area. Or you may have struck gold and be the first to offer this type of home on Airbnb and other platforms.
Over the next few weeks, take note of how these Airbnbs are priced and how many days in their calendars are still open. Look at the number of reviews they have, their overall ratings, and what guests have been saying. By studying your competitors, you might find useful tips on how you can provide more value to your guests.
Also, check their photos and compare their amenities and furnishing. Even if they do not have anything unique to offer, seeing the quality of their photos will give you an idea of what to aim for when taking pictures of your own rental property.
Analyzing rental comps can help you:
- Determine the potential demands for similar properties in the same area
- Set the right Airbnb daily rate based on the demands and seasonality
- Determine how your competitors are performing so you’ll know how to make your property more appealing
Finding Rental Comps Using Mashvisor
Under Mashvisor’s Neighborhood page, you can find a table of active Airbnb properties and their historical rental income in the last 12 months. You can click the link to view each listing on Airbnb to learn more about them. Also, you can use the historical rental income to figure out how much you could charge on a given month.
With the help of Mashvisor, you do not have to check your comps’ pages every day for several weeks to get real-time data. Using Mashvisor is also a great way to avoid errors and inaccuracies in your figures because Mashvisor’s real estate data and analysis are verified.
You can also skip this step and move on to calculating your average daily rate unless you want to understand your competitors and what makes them get bookings. This is because Mashvisor usually has calculated the Airbnb daily rate for each listed property based on comps active on Airbnb.
Step 5: Calculate and Adjust Your Airbnb Daily Rate
Using the data you gathered from comparable properties, you need to calculate your base daily rate as part of your Airbnb rental market analysis. Note that this will be what you charge at the minimum or during the off-season. You can decide later on how much to charge during peak seasons.
Here are the following tips for setting the right Airbnb daily rate for your property:
Get the Daily Rate per Bed or per Bedroom
Since you are renting out your property to people who are only staying for several days, the number of beds or bedrooms dictates the base value of your rental home. To do this, get the average daily rate of the three (or more) comps that you looked at in the previous step and assume that the result is your property’s daily rate before adjustment.
Adjust the Rate As Needed
If you have chosen the correct comps, the resulting average daily rate should be close to what you can charge on Airbnb. Adjusting the minimum daily rate should be based on two factors:
- Amenities: Being pet-friendly, or having gyms and swimming pools allow you to increase your rate. If your property will have more amenities than your comps do, then you can adjust your daily rate to make it higher than theirs.
- Occupancy rates: If the occupancy rate in your area is lower than 90%, however, it’s best not to raise your rate too much. Wait until you are consistently booking 90% of the monthly calendar before you increase your daily rate. A higher booking rate means there is a high demand for your property. When the demand gets high, so does the price.
Related: What Airbnb Occupancy Rate Can You Expect in the US Market?
It’s important to remember that you should not overprice your property, especially when you are relatively new to the market. Else, you may struggle to get any bookings. This is because, with all prices equal, guests may opt to stay at other Airbnb homes that have been in business for quite a while, since your property has not received any reviews yet.
A good rule of thumb would be to not exceed your comps’ rates by $20. Once you are getting more bookings and you are maintaining five-star reviews, then you can increase your daily rate.
Calculating Your Airbnb Daily Rate Using Mashvisor
As mentioned in the previous step, you do not have to search for comparable properties by yourself if you are using Mashvisor. You will have an easier time calculating your daily rate if you use our platform to search for a property that you wish to purchase. This is because Mashvisor provides all the necessary data that you need to find the right daily rate.
While the neighborhood page displays the average Airbnb rental income for that area, this may not be enough to base your calculations on. Instead, find a property that interests you and go to its listing page. There, you will find the following metrics:
- Average Airbnb rental income (based on comparable properties in the area)
- Airbnb daily rate
- Monthly expenses
- Airbnb cash flow
- Airbnb cash on cash return
- Airbnb cap rate
- 10-year payback balance
This automatic computation also makes it easier for every investor to identify a property’s profitability based on the income and expenses that are detailed on this page. In general, using Mashvisor’s investment property calculator allows you to make an informed decision based on thorough analysis and accurate figures.
Step 6: Determine the Costs of Running a Rental Property
Calculating your potential rental income is only half of your Airbnb rental market analysis. You also have to figure out how much you will be spending, not just in the beginning but also every month as part of your operations.
Aside from finding a property with a low purchase price, you must also make sure that your rental income is enough to cover your expenses and profits.
Here are the following costs to consider:
- Inspection fee
- Closing costs
- Property management and maintenance fees
- Property tax
- HOA dues, if applicable
- Rental income taxes
- Cleaning fees
- Hosting fee
Calculating the Costs of Running an Airbnb Using Mashvisor
Mashvisor has an Airbnb profit calculator to help you calculate your expenses. Most of the data are filled out by default based on the average in the area, but you may edit the numbers so you can get a more accurate calculation. After inputting your projected Airbnb rental income and costs, you should be able to determine your cash flow and cash on cash return.
What’s best about Mashvisor’s Airbnb investment property calculator is that you can also add customized expenses if you think you’ll spend on anything that is not already listed. For example, if you plan to add more new furniture or appliances, you may add the expenses to the calculation. This allows you to get a more precise and personalized result.
Step 7: Project Your Investment Payback and Decide on Which to Purchase
Calculating your profit after deducting your expenses from your rental income does not tell the whole story in your Airbnb rental market analysis. After all, there is a chance that you will not get a positive cash flow until after a few years especially if you bought the house using a mortgage.
To calculate when you can expect to earn profits, you can either create a spreadsheet filled with your projected income and expenses. Or you could check the 10-year investment payback table found on every listing page on Mashvisor. This displays your accumulated earnings from year one to year 10.
What’s more, you can use this table to know what to expect if you decide to purchase a property and put it up as a short-term rental. It is also best if you select three properties and compare their investment payback with each other. You can then decide to buy the one that can earn the highest profit.
Make Your Airbnb Investment Analysis More Accurate With Mashvisor
For new investors looking to take advantage of the possible demand for short term rentals, doing an Airbnb analysis can help you decide which property to invest in. In fact, even if you’re already a seasoned vacation rental owner planning to buy another investment, performing an Airbnb investment analysis is still necessary.
Conducting an Airbnb analysis usually takes a lot of time and effort, especially if you do everything manually. But with the help of a real estate investment platform like Mashvisor’s Property Analysis Report, you can get this done in less than a day so you can start making an offer tomorrow.
This is because Mashvisor offers the complete real estate data that you need to make a thorough analysis. With Mashvisor, you can search for a property through its database, and at the same time view the accurate rental property data that can help you make an informed decision. This is the best option if you want to ensure your profitability.
Start out your 7-day free trial with Mashvisor now.