Get ahead of the Airbnb rental market even if you are a first-time real estate investor by doing a comprehensive analysis to help you with your home purchase.
Buying a property is usually the biggest investment one can make, especially if you want to use it to earn money on Airbnb. Because of this, it is important to do in-depth research and conduct a comprehensive real estate market analysis, so you can find the property that can generate the most profit.
In this article, we will tell you how to accomplish an Airbnb rental market analysis in seven steps. You can do this using two methods: manually or using a real estate investment tool like Mashvisor.
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 rental market analysis is to find a good city for Airbnb investment. You can start by analyzing the city you are currently living in. If you are planning to host 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 Airbnbs, then feel free to look elsewhere.
Here are some factors you should look into when deciding on which city to invest in:
Seasonality
When doing an Airbnb analysis, you need to understand when the peak and low seasons are for that particular city. 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.
Important Local Events
Keeping tabs on holidays and town events is part of the Airbnb analytics. 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 their tourism or government website. There are also platforms that list major events happening in different cities.
The Best Restaurants, Bars, and Other Attractions
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. They might also be in the city for business or family, and they 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.
Target Market
Considering the types of people who visit the city will help you in gathering Airbnb data. You can look at the city’s tourism website and active Airbnb listings 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, couples, 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 bookings.
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. Type in the city you are looking into, then set the real estate heatmap data set 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.
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.
Step 2: Learn the Airbnb Regulations in the City
As Airbnb demand grew, 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.
Before you move on with your Airbnb rental market analysis, 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. Some towns, for example, restrict self-managed vacation rentals in certain areas. Others only allow room rentals in homes that the owner is also occupying. Most of them require Airbnb hosts to apply for a business license.
There are a couple of ways to look up regulations and requirements. Either:
- Visit Airbnb’s page for Responsible Hosting in the United States; or,
- Type “Short-term rental regulations in [city]” in your preferred search engine.
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. You also have to conduct a neighborhood analysis to find a short-term rental property that is in a desirable location for your guests.
There are specific things that attract guests to a certain neighborhood and will also help your property appreciate in value:
- Access to public transportation
- High walkability score
- Nearby amenities and attractions
- Easy access to dining and shopping
- Proximity to offices (if you are catering to business travelers)
Guests would also want to stay in a neighborhood that is safe and clean. So make sure to look up recent crime reports in the area of your interest and drive around if you can. If you are too far from the neighborhood, you could try using Google Street View.
Avoid buying rental property in an area that has the following qualities:
- Multiple properties in the same street look distressed or abandoned
- More than a few businesses nearby are permanently closed
- There is litter everywhere and the trees or landscaping look neglected
- A noisy building or busy road is adjacent to the property’s street
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 find out if the area is lucrative for Airbnb.
After searching for a city on our platform (you can also type in the neighborhood’s name), 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 home 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 information that you see on this page will help you estimate your income and ROI if you buy a property in that neighborhood.
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.
Make sure that the 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 pricing themselves 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. 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.
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, and 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.
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.
Get the Daily Rate per Bed or per Bedroom
Because you plan to rent 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 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: Pet-friendly properties, gyms, swimming pools, etc. can increase your rate. If your property will have more amenities than your comps do, then you can make your daily rate higher than theirs.
- Occupancy rates: If the occupancy rate in your area is lower than 90%, however, do not raise your rate too much until you are consistently booking 90% of your monthly calendar.
Take care not to overprice your property especially in the beginning, or else you may struggle to get any bookings. This is because, with all prices equal, guests may opt for other Airbnbs instead just because 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.
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
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
- Repairs
- Furnishing
- Closing costs
- Insurance
- Utilities
- Property management and maintenance
- 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 national average, 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.
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 1 to year 10.
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 Rental Market Analysis More Accurate With Mashvisor
To summarize, here are the steps to conducting an accurate rental market analysis:
- Identify a good city to invest in;
- Learn the Airbnb regulations in your selected city;
- Choose three neighborhoods and evaluate the Airbnb rental market in these areas;
- Find real estate comps;
- Calculate and adjust your Airbnb daily rate;
- Determine the costs of running a rental property; and,
- Estimate your investment payback and decide on which property you want to invest in.
Conducting an Airbnb rental market analysis 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. To learn more about how we will help you make faster and smarter real estate investment decisions, click here.