You’re thinking of buying an investment property to list on Airbnb. You know things like location and costs are important but are not sure what that all really means. Look at these 8 steps to understand how and what to find in real estate investment properties.
1. Get out more
Staying in your area to invest is not always the most advantageous. Sometimes you can find a great property outside your city or state and it’s worth the search. It’s important to consider going beyond the 20 mile radius because it can make a better return on investment.
2. Go where the action is
Market growth is very important. If people are moving in and out of the area, you can expect rental income and then hopefully one day, appreciation. More importantly, see what kind of tourism the market can expect and when. Does the area have lots of activities and offer great outdoor or city life? What makes it a place to visit? What about seasons? If you choose an area great for winter activities, you may find that you’ll have a low to zero occupancy rates during the summer, can you afford that?
3. See what others pay
If you want to buy an Airbnb property, look at nearby home prices to compare. When you’re calculating your initial costs, include home price or down payment, closing costs, inspection costs, rehab costs as well as Airbnb expenses. These include the cleaning fees, property management fees, 3% host service fee, damage fees, adding amenities, occupancy tax, etc.
Finally, what is the rent like in that area? What are hotel prices during high season and low season? Compare to determine if you can 1) create a positive cash flow 2) set your nightly rate higher than what your daily rent would be if your property was leased full-time.
Breakdown of Investment Costs: Home Price (full) or Down Payment (20%) + Closing Costs + Inspection Costs + Rehab Costs
4. Don’t be in Neverland
Your guests want to be close to the best amenities when traveling. This means restaurants, shopping areas, theaters and wherever the most popular activities take place. Of course being close to the city center and public transportation is a given. The type of neighborhood you’re in will be appealing to some and not to others. Some people might want to be in the middle of the traffic and noise while others are looking for a quiet retreat. Know your target tenants and work on optimizing the property for those types of guests.
5. Protect yourself
Before you purchase the property, you should do two things: 1) have an appraiser look at it and give you a report and 2) get an inspection. Doing this will save you time and money in the long run.
6. Get help
Whether you choose to invest far away or close to home, keep in mind you will need to stay on call while having Airbnb guests. If you don’t have the time for that, then definitely consider getting a property management service like Pillow or Guesty.
7. Have a nice crib
If you’re going to offer your property as a vacation property, then try to get the full package. That means a kitchen, sitting and eating area and at least one queen size bed. Depending on the area you’re in, what are some things that would help? If people are coming to your property to be close to the beach, they’d probably appreciate a washer and dryer to wash their swimsuits. If they’re coming to relax, a balcony could do a lot for them. Put yourself in your renter’s shoes and see what it’s like – be your own guest.
8. Count your money
Once you get an idea of your Airbnb occupancy rates and income, you can get an idea of what your property interest rates will look like each month, if you are putting your Airbnb income toward your mortgage. As you pay some of the principal amount each month from your Airbnb income, the interest charge will be less each month. You can prepare for a monthly payment knowing your interest payment.
Breakdown of Monthly Costs: Mortgage Payment (principal and interest) + Property Tax + Insurance + HOA Fees + Property Manage Fee + Maintenance Fee + Vacancy Provision + Airbnb Costs
Your Airbnb income minus your expenses is your revenue.
Planning your costs and educating yourself about investing is the first most important step to take. Finding the right investment property can be stressful but very much worth it if you know how to plan and handle the territory that comes with investing.
Related: Top 5 Alternative Ways to Find an Investment Property
What kind of Airbnb property are you interested for investing? What are some things that helped you find your property? Are you looking for a property right now? Not sure where to start? Let us know and we’ll chat!
