Short term rentals have always been an effective way to make money in real estate. More specifically, Airbnb real estate investing can be extremely profitable if done the right way.
Thanks to the impressive growth of this platform, buying an Airbnb investment property can now yield higher rental income than just about any other type of real estate investment.
But what kind of Airbnb return on investment can a real estate investor expect? This article will answer this question and provide you with a simple method to estimate your Airbnb profit margin.
The Main Factors That Can Affect Your Airbnb Profit Margin
Estimating how much money a real estate investor can make from Airbnb is predicated on identifying the various factors that affect the Airbnb profit margin. While there is a wide range of variables that determine profitability, the main factors can be narrowed down to three:
- The Airbnb rental income that the investment property generates
- The rental property expenses that come with operating the property
- The Airbnb laws in the area
Now that we have identified these factors, let’s unpack each one and try to figure out the Airbnb profit marginthat you can expect.
1. Estimating the Income That Your Investment Property Generates
Making an Airbnb income estimate should be the first step of your Airbnb investment analysis. While this process is quite simple, you still have to make a distinction between different concepts. For example, you need to differentiate between gross rental income and net rental income.
The former refers to the Airbnb revenue before deducting expenses whereas the later is the income you are left with after operating expenses are deducted. Making money with Airbnb is only feasible if your rental property is able to generate decent income on a consistent basis.
2. Determining Your Airbnb Expenses
An Airbnb investment comes with the same operating expenses that you can expect with other types of rental property. This includes everything from maintenance and repairs to taxes and utilities. Having said that, there is one significant expense that is especially consequential when it comes to short term rentals – vacancy rate.
Rental properties that remain unoccupied for long periods of time can turn into a money pit fairly quickly. This is why it is important to strive for a high Airbnb occupancy rate throughout the year.
As an Airbnb investor, you should always focus on areas that receive a large influx of visitors. Investing in such locations is the only way to reduce the risk of vacancy.
Related: 9 Rental Property Expenses Real Estate Investors Shouldn’t Forget
3. Assessing the Impact of Airbnb Regulations on Your Airbnb Profit Margin
Income, expenses, and market dynamics are not the only factors that can affect your Airbnb profit margin. Airbnb laws play a major role as well. An investment property that is located in an area with lax short term rental laws will invariably yield higher returns.
On the opposite side of the spectrum, areas with tight regulations can be difficult to navigate. In fact, some states have several restrictive laws that limit what real estate investors can do with their property.
Examples of this include zoning laws and limits on how long you can rent out your income property. There are even areas like the Los Angeles real estate market which don’t allow you to rent out a non-owner occupied property on Airbnb at all.
Related: 13 US Cities with the Least Airbnb Legal Issues
A Simple Way to Calculate Your Airbnb Profit Margin
So after exploring the factors that affect profitability, how much money can you make with Airbnb? The answer to this question will vary depending on a wide range of parameters. Real estate market trends such as seasonal variance and going rental rate will have the lion share of the impact on your bottom line.
So, being able to identify a market with a huge upside will always be the most effective way to ensure a good Airbnb profit margin.
But what about an Airbnb profit margin estimation that is specific to your own rental property? What is the best way to go about finding that out? The answer is Mashvisor’s Airbnb rental calculator. This effective tool employs highly advanced AI as well as the most accurate Airbnb analytics to help you determine your Airbnb profit margin. Here are the metrics that this tool can help you calculate:
Sign Up for Mashvisor
1. The Investment Property’s Rental Income
One of the perks of using the Mashvisor Airbnb rental calculator is the fact that the AI will do all the heavy lifting for you. As a matter of fact, the tool provides you with comparable rental income estimates based on the location of the Airbnb rental. Consequently, a manual comparative analysis is not needed.
2. Airbnb Cash Flow
Thanks to the calculator, identifying properties that can generate positive cash flow is an almost instantaneous process. The readily available cash flow calculations will allow you to zero-in on properties that boast high income relative to expenses.
3. Airbnb Occupancy Rate
As we mentioned above, the occupancy rate is one of the most consequential metrics for short term rentals. Being able to identify rental properties that have low vacancy periods throughout the year is simply invaluable for a real estate investor.
The Airbnb data that the calculator puts at your disposal, coupled with your own marketing efforts should be enough to steer you toward a high occupancy rate.
4. Cap Rate
One of the most important metrics that the Airbnb profit calculator helps you determine is the capitalization rate. The cap rate helps you estimate the return on investment that a rental property can generate. This metric is especially effective when comparing similar properties to each other.
To calculate the cap rate, the operating income of the property is divided by its market value. But with the calculator, you can view readily-calculated cap rates.
Related: Is a Higher Cap Rate Better for Investing in Rental Properties?
The Bottom Line
Airbnb rentals have never been more profitable. And with the continuing expansion of the platform and the relaxing of the regulatory environment, the trend is set to continue. Still, doing proper investment analysis and having a clear idea of what kind of Airbnb profit margin you should expect from a property are necessary steps for any real estate investor.
To learn more about how Mashvisor can support your Airbnb investing journey,sign upfor a 7-day free trial now, followed by 15% off for life.
Start Your Investment Property Search!
