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In this day and age, people are vacationing totally differently now. Instead of the on-demand room service hotels provide, people would much rather do things themselves; Instead of the five-star meals from high-end restaurants, people would rather just prepare their meals themselves; The bottom line is that the luxury attributes that made hotels so appealing, are now experiencing a shift, and vacationers are now looking for more of an at-home vacationing experience instead of a standard hotel stay for their accommodations. This reason alone is why so many people are jumping on the bandwagon for investing in Airbnb vacation rental properties.
True enough, the way people vacation has shifted but it’s not to be confused with a “here today, gone tomorrow” type of trend. Statistics show that there are over 650,000 Airbnb hosts worldwide and the accommodation site has an estimated revenue of $2.6 billion. Stats further state that by the year 2022, the number of adults using Airbnb to plan for accommodations is expected to reach 45.6 million.
Based on those statistics, investing in an Airbnb vacation rental is a very smart investment that can prove to be very lucrative, just as investing in commercial real estate can be. However, there are hosts who aren’t seeing those profitable ROIs as they thought they would when they first got into the Airbnb market.
So what is the problem? How come the market seems to show favoritism to some hosts versus other hosts? Well, it’s not a matter of favoritism but more so a matter of doing your homework before entering the market. The name of the game here is figuring out how much you can actually make with an Airbnb rental before buying a property.
The best way to determine that is with an Airbnb calculator.
- What Exactly is an Airbnb Calculator and What Does It Do?
What Exactly is an Airbnb Calculator and What Does It Do?
The Airbnb calculator is a tool that uses data and analytics from Airbnb to give an accurate prediction of how much money you can make from an Airbnb property before you buy it. This is the main question people want answered before buying a property for an Airbnb. It won’t be worth the effort if it won’t make you any money.
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As many people do, you always have the option of renting out a portion of your home to guests while still living there, but just know you won’t turn as great a profit as you would if you invested entirely in a property dedicated solely to Airbnb bookings.
So, if you are considering or thinking about investing in an Airbnb property, the good news is that you can feel assured in knowing that it’s not an investment you have to enter blindly. With the Airbnb calculator, you can get a real-time, accurate calculation of whether or not a particular property will be a profitable investment or not.
Here’s how to use the Airbnb Calculator.
Choose the Property You’re Considering Investing In
The first step in utilizing the calculator property properly is to have a property for it to analyze.
If you don’t know of or have a particular property in mind, there are property search tools in place to help you find properties in a particular area and tell you the profitability of those homes. If you do know the property you’re wanting to invest in, simply input some key components, like the address and number of guests, and the calculator will display accurate projections of just how much potential you have to earn from the property address you input.
Look at Your Financing Options
After you’ve chosen the property you want to invest in, you now need to determine how you plan to acquire the property. Now, unless you have hundreds of thousands of dollars laying around, you’re more than likely going to need to finance your property. How you finance your property is extremely important because it’s a huge indicator of your profitability based on your mortgage option.
Based on the mortgage option you chose, you’ll then need to input this information into the calculator:
- Overall value of the property
- Amount you paid as a down payment
- Interest rate for your mortgage
- Amount of the loan
- Terms of the loan (is it fixed for 15 or 30 years?)
Based on this information, you’ll be able to better determine your earning potential based on these key factors. This will factor in any profits you make, how that will go to your mortgage and interest, and show you what you have leftover for profit after paying the necessary fees.
Factor In the Costs and Expenses of Owning an Airbnb Rental
Just as you have to factor in the costs and expenses of what it takes to maintain your own home, that same theory and level of upkeep are also required for your Airbnb vacation rental as well. This is actually the area that many people forget about. In most cases, people only see the perk of additional income coming in every month, but forget that in acquiring a vacation rental property, you’re also taking on a second mortgage and paying utilities and yard maintenance.
Again, the use of the Airbnb calculator helps you to not enter the market blindsided by the perks without also shedding light on typical rental costs and expenses you can expect to pay. Some of these recurring costs and expenses you can look forward to paying include:
- HOA fees
- Utilities/Heating and Cooling
- Cleaning Services
- Home Security
- Property Maintenance and Upkeep
- Property Insurance
These fees are indeed something you can expect on a pretty regular basis but the initial costs and expenses you can expect to pay one-time, upfront upon acquiring your property include:
- Closing Costs
- House Inspection
- Complete House Repairs
- High-End Amenities and Features
The calculator will have some values already input based on the area and housing market, but when considering a particular location, it will be in your best interest to do a bit of your own research and modify some of the values to your own expenses for best analyzation results. Once your values have been updated, the Airbnb calculator will recalculate your ROI results.
Determine Your Airbnb Rental’s ROI Through Comparison
In this section, you’ve already entered the values for your expected costs and fees, so now it’s time to compare your Airbnb rental property’s strategy with that of a traditional strategy. This is all about profitability and the ROI metrics. To determine if your Airbnb investment will be a good one, you’re going to need to factor in ROI metrics like your occupancy and cap rate, rental income and cash flow, monthly expenses, and your cash on cash return.
Now, the great news with your comparison strategy against a traditional one is that you can adjust them if you think your property number should be higher or lower, and this is typically for your occupancy rate and rental income. For instance, the calculation given may be lower than you feel your property can do because of a service you provide that you know other properties aren’t offering. In that case, you can definitely adjust the calculator for newer estimates reflective of a higher profitability.
Retrieve Your Airbnb Comparison Data
Because you’re investing in an Airbnb rental property, you want to check the comps of other Airbnb rentals in the area. This is going to help you keep your pricing competitive. With access to this type of data, you’ll not only be able to view Airbnb rental comps but also see how much other properties similar to yours sold for and get additional insights and information about the neighborhood all in a single piece of data.
Think of this report just like any other form of market research business owners conduct to ensure they’re putting out the right products people will want to buy… This applies to your Airbnb rental property in allowing you to check the market to see how properties that are similar to yours are performing. Things like nightly rate (weekdays and weekends), ratings, and occupancy rate are all major considerations to think about when it comes to how your property sizes up to other rental properties similar to yours.
Let the Airbnb Calculator Analyze Your Earning Potential
The information listed above is an overview of what the Airbnb calculator is and how you can use it. This tool is beneficial to anyone interested in or looking to get their start real estate investing. This provides you with data in everything from finding a property (if you didn’t have one in mind) to checking rental comps in the area. This tool is indeed very important in helping you determine whether or not a property is worth the investment before pouring money into a property that won’t bring you a sizable return on your investment.
Also, remember, nothing beats the act of going above and beyond for your guests, too. Your calculator is a great tool for an accurate estimate of your earning potential. But as a challenge to yourself, try to outdo those calculations. Make it a personal goal to meet and exceed the expectations of your guests and find a need to modify those calculations to increase your earning potential.
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