Despite the continuing pandemic, investing in Airbnb still appears to be a profitable idea. According to Airbnb data, hosts have made more than $110 billion through short-term rental investments as of October 2020.
While investing in Airbnb rentals can yield significant returns, it also comes with some drawbacks. Check out these tips for Airbnb performance and maximize your rental revenue to make sure you go into this enterprise well prepared.
What Is Airbnb Investing?
When an investor buys a home with the intention of offering it (or individual rooms) on Airbnb rather than utilizing it as a primary residence, this is known as an Airbnb investment. Unlike a standard rental model, this technique enables real estate investors to get Airbnb income from a variety of properties and renters.
How Much Can You Earn as an Airbnb Host?
If you’re considering becoming an Airbnb host, it’s more than likely that you’re looking for a side hustle rather than a full-fledged career. Hosts’ average Airbnb earnings are $924 per month; however, this varies. Some hosts even buy or lease a couple of apartments or houses, rent them out full-time, and get a six-figure income.
Your actual Airbnb earning potential is determined by how much you price for your place and how frequently you can rent it out, which are both determined by how much money and effort you have to spend arranging and maintaining your property.
So, when it comes to Airbnb performance, consider what your aims are for being a host, as well as how much energy and expense you’re ready to put into it. Bear in mind that if you’re renting out a part of your house, your tasks, responsibilities, and costs will be drastically different than if you’re looking to buy, furnish, and maintain a complete property.
So, how do you calculate Airbnb performance in order to locate profitable rental properties?
Airbnb Performance Marketing Strategy
For starters, you must choose a proper location for your Airbnb investment property (profitable one) before attempting to estimate Airbnb performance for a particular rental property. And after you’ve found one, you can estimate the total location’s Airbnb income. Of course, you may achieve all of this by doing real estate market research.
Essentially, this technique aids the real estate investor in determining the following:
- Find out what the real estate appreciation rates are in that area.
- In combination with predictive analytics, use historical Airbnb data and current Airbnb rental property data. To put it another way, you’ll have data that “forecasts” the housing market’s potential. You’ll be able to learn about upcoming real estate market changes and how they’ll affect your Airbnb earnings this way.
- It determines whether the area you’ve chosen is suitable for buying an Airbnb property. Unfortunately, specific regions are sometimes better for traditional rentals, which means you won’t make as much money as you’d like.
- The real estate market analysis will reveal the rental Airbnb demand in that location in great detail. That is something you should be aware of because it will have a direct influence on your Airbnb performance.
In addition, Aim to discover a few (we suggest 3-5) comparable properties that are close to yours in terms of size, age, area, and other attributes for your comparative market research. Mashvisor provides access to recent listings around the United States.
You can estimate Airbnb income for the location once you’ve gathered all of this real estate data from your market analysis.
5 Best Airbnb Performance Cities
Aim for Airbnb best performance city if you want to have great Airbnb profit every month. Here are the top 5 cities with the best Airbnb performance for Airbnb rental units that Mashvisor provides:
1. White Settlement, Texas
- Median Property Price: $279,130
- Average Price per Square Foot: $164
- Average Airbnb Cash on Cash Return: 8.49%
- Average Airbnb Occupancy Rate: 63.3%
- Price to Rent Ratio: 17
- Monthly Airbnb Rent Income: $3,784
2. Raytown, Missouri
- Median Property Price: $224,677
- Average Price per Square Foot: $112
- Average Airbnb Cash on Cash Return: 8.40%
- Average Airbnb Occupancy Rate: 64.6%
- Price to Rent Ratio: 19
- Monthly Airbnb Rent Income: $2,761
3. Crestview, Florida
- Median Property Price: $365,285
- Average Price per Square Foot: $179
- Average Airbnb Cash on Cash Return: 7.81%
- Average Airbnb Occupancy Rate: 78.7%
- Price to Rent Ratio: 21
- Monthly Airbnb Rent Income: $3,901
4. Levittown, Pennsylvania
- Median Property Price: $308,165
- Average Price per Square Foot: $206
- Average Airbnb Cash on Cash Return: 8.33%
- Average Airbnb Occupancy Rate: 73.7%
- Price to Rent Ratio: 15
- Monthly Airbnb Rent Income: $4,017
5. Westlake, Los Angeles
- Median Property Price: $274,393
- Average Price per Square Foot: $150
- Average Airbnb Cash on Cash Return: 8.31%
- Average Airbnb Occupancy Rate: 57.8%
- Price to Rent Ratio: 20
- Monthly Airbnb Rent Income: $3,255
Analyze Potential Investment Properties
You may use the Airbnb performance dashboard to track and compare indicators like market rate and listing overall performance for numerous listings. This makes things simpler than ever to identify successful strategies.
Among the Airbnb performance metrics you can monitor are:
- Occupancy rate: compare your Airbnb listing performance to others and make changes to increase bookings.
- Average nightly rate: To make your pricing more competitive, compare your nightly rate to the market average.
- Visibility: Check out which listings are receiving the most attention to get a sense of what your visitors are looking for.
When accessible, the performance dashboard will also display real-time customized advice immediately within your dashboard. You can transform data into action by making changes to many listings. You can, for instance, make special deals for low-demand dates. During the testing process, hosts who had access to these offers saw a 3% increase in reservations.
Completing an investment property study is the next stage in estimating Airbnb performance. Start exploring Airbnb properties for sale now that you’ve identified a good location. Once you’ve found a few rental houses that appeal to you, calculate the following Airbnb performance metrics:
Airbnb Financial Performance
You may predict Airbnb performance by looking at your cash flow first. Airbnb rental income minus monthly rental costs is the primary source of cash flow. For example, assume you earn $2000 per month from your short-term rental property and spend $1000 on the mortgage, upkeep, and insurance. After deducting $1000 from $2000, you will have a $1000 positive cash flow.
It’s worth mentioning that the cash flow differs from the Net Operating Income (which is a more accurate reflection of the monthly Airbnb performance review). That is because it ignores the vacancy/occupancy rate of the unit.
This makes it a fantastic metric to use when comparing properties if you can keep a high occupancy rate because the cash flow will be near to what you’ll make if the occupancy rate is high enough.
One rental approach may generate more cash flow than another, based on the area of an investment property. Properties airports, coastlines, or amusement parks, for example, generally yield higher real estate revenue flow when rented out on Airbnb than when rented out long-term. Airbnb properties will create higher income and cash flow overall if there is a significant demand for short-term rentals in a specific area.
Airbnb Occupancy Rate
Whatever rental technique you choose, occupancy should always be a consideration. When it comes to short-term rentals, the Airbnb occupancy rate is a crucial number that all investors and hosts should be aware of regarding Airbnb performance.
Real estate investing aims to maximize profit while maintaining a healthy cash flow. One of the criteria that let investors determine if they are succeeding is the occupancy rate. For example, the ratio of time a rental property is occupied to when it is placed available for rent.
The occupancy rate is The Airbnb occupancy rate is determined by dividing the number of booked nights by the total number of nights your Airbnb listing was open for scheduling and registration. Total available nights would include booked and free nights when determining the Airbnb occupancy rate.
As you can see, the occupancy rate is a measurement of how frequently clients rent your investment property.
For your Airbnb city performance data, try using Mashvisor’s Airbnb calculator. On a monthly or yearly basis, our tools calculate the occupancy rate for each rental property. In addition, we can maintain track of Airbnb rental performance in each neighborhood by looking at day-to-day performances, nightly accessibility, and nightly cost.
Airbnb Profit: Capitalization Rate
The next step in determining the Airbnb performance is calculating the capitalization rate using the cash flow analysis. In a nutshell, the cap rate is the rate at which Airbnb returns are calculated concerning the property’s value. As a result, the cap rate formula is as follows:
Cap Rate = Net Operating Income/ Property Price
The annual net operating income (NOI) is used to compute the cap rate, including rental income (and any other income you can generate from the investment property). In addition, expenses incurred due to an investment property analysis are subtracted (excluding mortgage payments). You’ll get the cap rate as a result of this.
While the cap rate calculation is straightforward to understand, manually calculating the cap rate for each potential investment property is inefficient. Instead, why not utilize a cap rate calculator? This real estate investment tool makes calculating cap rates reliable and straightforward.
If you want to get more from your cap rate calculator to compute cap rate, use Mashvisor’s investment property calculator!
Airbnb Performance Forecast: Cash on Cash Return
The cash on cash return is the last return on investment metric for estimating Airbnb performance. The capitalization rate is relatively comparable to this metric. Instead of dividing the net operating income by the property’s price, divide it by the amount you spent out of pocket.
So you would have put down $100,000 as a down payment, with the remaining covered by the mortgage. As a result, we use the following formula to calculate the cash on cash return:
CoC Return = Net Operating Income / Actual Cash Investment
CoC = $14, 560 / $100,000 * 100% = 14.56%
The cash-on-cash return formula is, of course, simplified. Additional fees, like closing charges and maybe restoration costs, will need to be factored into the total cash commitment.
Experts in the field of real estate investing continue to dispute the data. Some experts believe that a good return on investment is between 8 and 12% cash on cash. On the other hand, some might advise against purchasing the investment property if it does not provide a 20% cash on cash return.
Nevertheless, there are a few elements to consider when determining if your cash on cash return is acceptable or not, the first being the investment property financing method. The type of investment property and its area are two other elements that influence the cash on cash return of an income property.
We’ve got you covered if you’re seeking a real estate investing tool to make cash on cash return calculations on an income property a lot easier—Mashvisor’s cash on cash return calculator, which is part of Mashvisor’s rental property calculator. Start evaluating investment properties using Mashvisor’s cash on cash return calculator by clicking here!
Conduct a Comparative Market Analysis (CMA)
Now that you understand how to evaluate Airbnb performance using real estate market analysis and investment property analysis, the next question is, where do you get the Airbnb data analytics? For example, where do you receive the rental income forecasts or the property price? Again, this will need a combination of Airbnb statistics and market comparisons.
To get the key performance indicators for Airbnb, conduct comparative market research and look for similar real estate properties. To put it another way, you’ll need to identify Airbnb investment houses in the same area and with almost identical property attributes.
Examine how much they rent for and the Airbnb occupancy rate in the area, and use that information to make your estimates. Once you’ve put everything together, as we’ve explained, you’ll be able to determine how profitable the rental property is. You’re good to go if it’s high. If that isn’t the case, seek other options and choices.
Try Real Estate Tools
If there’s anything we can be sure about at Mashvisor, it’s that estimating Airbnb performance manually or using a real estate investment research worksheet is impossible. Any real estate investor, especially a novice, requires the appropriate real estate investment software to produce such estimations. As a result, we recommend using the Airbnb profit calculator to estimate Airbnb income more accurately.
The Airbnb profit calculator can run a heatmap analysis of areas, which is a unique function. As previously said, you must conduct a real estate market analysis, but it must also incorporate a neighborhood analysis. The heatmap shows all neighborhoods with Airbnb units for sale in your chosen location.
Not just that, but it also displays the ROI for both standard and short-term renting methods. If you implement this, you can simply determine whether the area is a suitable fit for your rental strategy and predict Airbnb income accurately.
Mashvisor Tools
Mashvisor is the online platform for you if you’re looking for a platform specializing in assisting real estate investors, particularly in the long-term and short-term rental markets. In addition, the platform comes with several tools that might help you in your Airbnb performance quest.
Property Finder uses customizable filters and an easy-to-use interface to help you find investment homes for sale across the United States. In addition, a heat map component enables you to locate markets based on traditional and Airbnb rental revenue, conventional and Airbnb cash on cash return, traditional and Airbnb occupancy rate, typical rates, and more.
Investment Property Calculator and Airbnb Profit Calculator allows you to quickly and easily perform an Airbnb operating and financial performance analysis by modifying fields related to the property’s income, costs, and recurring expenses, as well as a mortgage calculator that is directly linked to the property or Airbnb earnings calculator to provide the most reliable data.
Neighborhood Analytics allows you to analyze any number of properties based on cap rates, cash on cash return, occupancy rates, and other factors to help you locate the top-performing property in every neighborhood.
With all of this mentioned, Mashvisor also gives you a plethora of data on each home listed on the site, including historical Airbnb data and anticipated returns based on the property’s rental income, cost, and recurrent expenses. Mashvisor also uses data from the MLS and Zillow.
Conclusion
If you understand the critical Airbnb investment criteria to consider and calculate them, Airbnb real estate investing can be a rewarding strategy. In addition, having access to Airbnb data in 2022 will be vital for making the best Airbnb performance decisions and profiting from real estate. We hope that our article made things easier for you, and if you follow every step listed here, you’ll have an easy way of getting around and managing your real estate strategy.
To learn more about how we will help you make faster and smarter real estate investment decisions, click here.