Originally published on Rustic Country Chic, August 2021.
Airbnb can be a great source of additional income, and if you get the strategy right, you can make a great business from it. In this 5 part blog series, we’ll walk through our top tips from choosing the right team to making your property stand out to generate a healthy Airbnb revenue. First up is doing your research.
Part One: Do Your Research
The first and most important tip is DO YOUR RESEARCH. You want to find the areas where the property prices are low, but the price per night is high, and demand is good. This is an ideal scenario of course; these places are difficult to find, and getting more difficult as Airbnb gets more popular. However, they do exist, you may just have to travel further from your home, or even set them up remotely to find the best Airbnb revenue.
Wide Search
A great place to start is by Google-ing best vacation rental locations, and reading all you can to get a feel for the market. AirDNA also has some great free reports to get your started as you cast your net wide in these initial stages.
Also think about the purchase side of the equation, i.e. how much will your vacation rental cost to buy and run. In a lot of well established vacation rental markets, the properties will be expensive for good reason. My tip is that you want to find a market that is up and coming where you won’t pay a premium for a property yet, but demand obviously won’t be as hot as in a more established market either. It just needs to be the right balance. If you’re in the U.S. try sites like Zillow or Realtor to research sold prices in the markets you’re looking at.
Local Market Research
Once you’ve found a few places that look interesting, dig in a bit deeper. I recommend buying AirDNA MarketMinder reports to get a full look at the market you’re interested in. With these reports you can start to get a feel for the demand and supply in the area, competition, typical revenues, typical occupancy rates, what types of properties make up the majority, and which perform the best etc. I’d also recommend just searching Airbnb and VRBO themselves to get a feel for how the competition looks. What features do they call out? How are they decorated? And don’t forget that hotels are also your competition.
Once you’ve honed in on the ideal market for you, read all you can about the area and make sure it’s going to generate Airbnb revenue for the longer term. What I mean is, where might demand go in the future? Is the city expanding its transportation network to attract more people in? Is a new stadium being built? Are they expanding the ski resort? Etc… You want to be sure that your investment will hold up for the long term.
When you’re in the weeds of finding potential properties, something we learned was be open-minded about HOA fees. They can be incredibly steep, but even with steep HOA fees, you can still make good money with the right strategy. I actually ruled out our second vacation rental location for a year because the HOA fees on a one bed condo were almost $800 per month! However, even with these crazy high HOA fees, this property is actually making more money than our first property. It’s therefore important to research the price per night to understand the potential ROI.
Airbnb ROI Calculations
Once armed with all this information, you should have a good idea about what you can realistically charge per night, typical occupancy rates, and what the property will cost to buy and run. Now you can work out a simple ROI calculation armed with the predicted Airbnb revenue and expenditure, like in the example below. I’d always recommend erring on the side of caution, and doing a worst case scenario as well as a best case scenario, and know that it will probably land somewhere in between. If the property breaks even at the worst case scenario then you’re good to go.
Don’t forget though that these ROI calculations are just a prediction. Try and validate the values in your calculations by asking other investors in the area, you’ll be surprised at how much other hosts want to help each other out. Also ask Real Estate Agents about typical costs to run the properties you’re looking for, and also ask for the current owner’s P&L for the past few years (if it’s currently being run as a vacation rental). Tip: Don’t let the current P&L put you off if they’re not making money. Assess and compare how you’ll present the property, how you’ll run it and how you’ll make it stand out when it’s yours. Use the P&L to validate the costs only.
| BEST CASE: $350 pn 86% occupancy |
WORST CASE: $220 pn 68% occupancy |
|
| INCOME | ||
| Annual gross rental income | $ 109,865 | $ 54,604 |
| EXPENDITURE | ||
| Mortgage | $ 4,272 | $ 4,272 |
| Insurance | $ 324 | $ 324 |
| Tax | $ 554 | $ 554 |
| HOA | $ 9,336 | $ 9,336 |
| Cleaning fees | $ 9,720 | $ 6,480 |
| Maintenance (5%) | $ 3,924 | $ 2,730 |
| Utilities | $ 1,080 | $ 1,080 |
| Total costs | $ 29,210 | $ 24,777 |
| RETURN | ||
| Annual net profit (before tax) | $80,655 | $29,827 |
| Monthly net profit (before tax) | $ 6,721 | $ 2,486 |
| PAYBACK PERIOD | ||
| Mortgage downpayment | $15,000 | $15,000 |
| Closing costs | $5,000 | $5,000 |
| Renovation & furniture | $35,000 | $35,000 |
| Total cash needed | $55,000 | $55,000 |
| Cash payback (years) | 1.1 | 1.8 |
This is the first in a 5 part series on How To Make $10k Per Month in Airbnb Revenue. The next lesson will be about how to find a gap in the market. Don’t miss it, subscribe to the blog!
If you’ve already found your Airbnb, you may be interested in my other blog for the Ultimate Airbnb Set-Up List. Or if you’d rather we handle all that, then contact us for an informal chat.
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