With the rise in popularity of Airbnb, more real estate investors are investing in short-term rental properties than ever. The short-term rental industry has in fact proven to be more profitable than traditional rentals. However, this does not mean that any property will make for a good Airbnb investment. As a real estate investor who wants to succeed in the Airbnb business, one of your jobs is to evaluate the property and its profitability before buying it. One of the best real estate investment tools that can help you do that is the Airbnb property profit calculator. Before we go into the details of how to use this tool, let’s first quickly explain what an Airbnb property profit calculator is.
What Is an Airbnb Property Profit Calculator?
An Airbnb property profit calculator – also known as Airbnb profitability calculator, or simply, Airbnb calculator – is a digital tool used by property investors to analyze Airbnb real estate investment opportunities and their profitability. It is similar to a real estate investment calculator but focused on short-term rentals. It uses traditional and predictive Airbnb analytics to predict future market trends. Investors just need to provide some basic information about a certain rental property, and then the calculator will show them all the numbers they need to assess the profitability of the property.
Essentially, you can think of this tool as an Airbnb property evaluator: it provides you with an overview of your Airbnb return on investment so you can decide if the property is a good investment to buy. Now that you know what this real estate investment tool is about, let’s see how you can use it to determine the profitability of an investment property. We will be using Mashvisor’s Airbnb property profit calculator as an example.
How to Use Mashvisor’s Airbnb Property Profit Calculator
Let’s assume you’ve found an investment property for sale and you want to determine how much profit you’ll be able to make from investing in it.
The first step of using Mashvisor’s Airbnb property profit calculator is to input numbers related to your financing method and property expenses.
1) Financing Method
In the Mortgage Calculator section of Mashvisor’s Airbnb property profit calculator, you first need to select the method with which you wish to finance your Airbnb investment property. The profitability of an Airbnb property is in fact strongly dependent on its financing method. You may choose to buy it either fully with cash or with a mortgage loan. After selecting your financing method, you need to insert the property’s purchase price. Here, you have 3 options to choose from:
- Mashvisor’s estimated property listing price
- Redfin’s estimated selling price
- Or your own custom price.
If you choose to finance your Airbnb property with a mortgage loan, you are required to specify:
- The amount of down payment
- The loan amount
- The loan type (15 years or 30 years fixed)
- And the interest rate on the mortgage.
Once you input all these numbers, the Airbnb property profit calculator will automatically generate the resulting return on investment (ROI) of the property. Any changes you make will affect the ROI calculations. Therefore, you can play around with the numbers to see which down payment, mortgage type, and loan amount will yield a higher ROI.
2) Property Expenses
The profitability of an Airbnb property is also dependent on its rental expenses and costs. In the Expenses section of Mashvisor’s Airbnb property profit calculator, there are two types of expenses that you have to fill in: one-time startup costs and recurring costs.
One-time startup costs are the costs that investors pay only once when buying an Airbnb real estate property. These include:
- Inspections costs
- Repair costs
- Furniture and appliance expenses
- And closing costs.
Recurring costs are the main operating expenses that real estate investors have to pay on a regular basis (monthly and/or annual expenses). These include:
- Property management
- Property maintenance
- HOA dues
- And more.
The good news is that Mashvisor’s Airbnb property profit calculator provides readily estimated values for all the expenses mentioned above, based on the average costs and expenses for the area in which the property is located. But, of course, you can still modify these values to suit your own cost estimates and even add additional expenses that are specific to your subject Airbnb rental property.
After you’ve input all the above numbers, Mashvisor’s Airbnb property profit calculator will display the following outputs, which will help you determine if your subject property will make for a good Airbnb investment:
1) Airbnb Rental Income
The Airbnb rental income is the estimated amount of money that you will potentially earn from renting out an income property on Airbnb. Mashvisor’s Airbnb property profit calculator looks at the predominant Airbnb nightly rate in the neighborhood where your investment property is located to give you an accurate estimate of the Airbnb rental income that you will be able to make from your property.
2) Airbnb Cash Flow
The Airbnb cash flow is the difference between the rental income and the rental expenses of a short-term rental property. The value you are left with is the amount of money that you get to keep for yourself. In other words, Airbnb cash flow indicates how much profit you can expect from your Airbnb investment property. As a real estate investor, you should always aim for rental properties that have a positive Airbnb cash flow, as it means you will have enough money to cover all the rental expenses and more left over.
Related: How to Find Positive Cash Flow Properties in 2020
3) Airbnb Cap Rate
The Airbnb cap rate is a key return on investment metric. It is the ratio of the net operating income (NOI) to the property’s current market value. It basically gives you an idea of what return on investment you will get by comparing the annual income produced to the property’s purchase price. According to real estate experts, if your subject property has an Airbnb cap rate of 10% or higher, this indicates that your investment will be profitable.
4) Airbnb Cash on Cash Return
The Airbnb cash on cash return is another important return on investment metric. It is calculated by dividing the pre-tax cash flow by the initial cash invested. It basically tells you how much returns you can expect based on the amount of cash placed in an Airbnb investment property. As a result, the cash on cash return is particularly useful if you choose to finance your property using a mortgage loan. Real estate experts recommend investing in properties with an Airbnb cash on cash return of at least 8% to ensure a profitable investment.
5) Airbnb Occupancy Rate
The Airbnb occupancy rate is the ratio of time in which an Airbnb rental property is occupied compared to when it is vacant. In other words, it tells you how many days your property is rented out on Airbnb in a given year or month. As an Airbnb investor, your goal is to achieve a high occupancy rate in order to be able to generate high rental income. Mashvisor’s Airbnb property profit calculator provides you with the Airbnb occupancy rate for your subject property based on accurate Airbnb occupancy rate data gathered from the neighborhood in which the property is located.
Related: What Airbnb Occupancy Rate Can You Expect in 2020?
Special Features of Mashvisor’s Airbnb Property Profit Calculator
Mashvisor’s Airbnb property profit calculator offers extra features that aren’t found in any other calculator.
Mashvisor’s Airbnb property profit calculator provides real estate investors with Airbnb rental data at the neighborhood level. This means you can use the calculator to decide on the best locations to invest in Airbnb. With the neighborhood analysis feature, you can simply type in the name of any city you’re interested in and then Mashvisor’s calculator will provide you with important real estate metrics for all the major neighborhoods in that city, in the form of a heatmap. These metrics include the average Airbnb occupancy rate, rental income, listing price, and return on investment (cap rate and cash on cash return).
The Airbnb heatmap analysis tool uses different colors to represent different values, which allows you to see how different neighborhoods are performing according to each real estate metric. Neighborhoods that have the highest values for the selected metric will appear in green, while the neighborhoods with the lowest values will appear in red. That way, you can easily compare the different neighborhoods in your city of choice and identify which one will provide better Airbnb investment opportunities.
Related: Airbnb Rentals: Finding Income Properties in 2020 with a Heatmap
Airbnb Investment Analysis for Multiple Properties
After identifying the right neighborhood, Mashvisor’s calculator will give you more insight on each investment property for sale in that neighborhood. The Airbnb investment analysis will show you all the important real estate metrics associated with each listed property, such as the listing price, square footage, rental income, cash on cash return, cap rate, and occupancy rate. All these metrics are based on reliable Airbnb data and real estate comps to ensure the highest degree of accuracy. Additionally, the Airbnb investment analysis will show you the optimal type of property for you to invest in (single family home, multi family home, condo, etc.). Lastly, Mashvisor’s calculator will also show a comparison of how each property will perform as an Airbnb rental vs. traditional rental. That way, you can determine whether a property is suitable for short term renting or not. Based on all the data provided by the calculator, you can eventually make quick comparisons between the different properties and easily decide which one has the best potential for Airbnb returns.
While you are getting ready to buy an Airbnb investment property, you should also figure out how to become a successful Airbnb host.
An Airbnb property profit calculator is a must-have tool for every Airbnb investor. Whether you’re a beginner investor looking to buy your first Airbnb rental property or a seasoned investor searching for your next Airbnb real estate deal, using an Airbnb property profit calculator will help you project your potential returns efficiently and make smart investment decisions.
Sign up for Mashvisor to get your hands on our investment property calculator and find the best performing Airbnb rental properties in any US housing market.