Before you consider purchasing an Airbnb, it’s critical to analyze the Airbnb income potential. The more monthly income potential from an Airbnb, the more passive cash flow you can enjoy.
How much you make with your Airbnb varies by location, size, and other factors. But it’s good to get a handle on how much money you can generate with these properties generally.
Average Airbnb hosts make about $925 per month from their Airbnb. North American Airbnbs typically make the most – average host earnings in the US were $22,894 in 2020.
The Asian-Pacific was the 2nd-highest earning area, with about $8,600 in earrings in 2020. European hosts made an average of $7,250 that year. Meanwhile, African hosts earned $4,930, and Latin America made $5,145.
But what about determining Airbnb income potential for a specific property? This post covers the steps to figure that out, so let’s dive in.
Analyze The Real Estate Market
The first step to figuring out the Airbnb income potential is analyzing the market and finding a potentially lucrative Airbnb property. And that means the property needs to be profitable.
This is done by analyzing the local real estate market. Here’s how to do it:
- Research how much real estate appreciates in the location.
- Review long-term Airbnb data, as well as real-time rental data. Also, review predictive analytics. Now you have data that can predict what that housing market will do in future years. In addition, learning about potential real estate trends in that location provides information that influences your possible Airbnb profits.
- You learn if the location has the Airbnb income potential you want for your investment properties. Remember, some cities are preferable for long-term rentals than Airbnbs.
- Your real estate market analysis will tell you the rental demand for the location. This is one of the most critical factors determining your Airbnb income potential.
Start Investment Property Analysis
The next step to determine Airbnb income potential is your investment property analysis. You found a fantastic location for your Airbnb in the step above. So now you find possible Air rental properties for your next purchase.
When you find a few properties that catch your eye, you need to perform an Airbnb return on investment analysis:
You determine your Airbnb income potential by analyzing cash flow. This number is your property’s rental income minus expenses.
For example, let’s say you are looking at a Dallas Airbnb home that rents for $2,000 per month. The owner spends $1,300 on the mortgage, insurance, and property maintenance. You subtract $1,300 from $2,000, so your cash flow is $700 per month.
Now, use the cash flow analysis above to determine the capitalization rate, also called the cap rate.
The cap rate is Airbnb’s return-on-investment compared to the property price:
Cap Rate = Net Operating Income/Airbnb Property Price
Net operating income means the yearly cash flow. So, if the monthly cash flow for the Dallas Airbnb is $700, that’s $8,400 per year. If you buy the property for $200,000, you have a cap rate of 4.2%.
Mashvisor has plenty of information about average cap rates for major cities worldwide. For example, the average Airbnb cap rate for Los Angeles is 1.36%.
Cash on Cash Return
The last piece of your Airbnb income potential analysis is determining the cash on cash return (CoC). This number is similar to the cap rate. But, in this case, you divide the net operating income by the money you paid out of pocket for the property.
Cash on cash return involves the financing you use to acquire the property. Let’s assume you put down 20% to buy the Airbnb, $40,000. The mortgage covers $160,000. Now we determine cash on cash return as follows:
CoC Return = Net Operating Income/Total Cash Investment
Coc = $8400 / $40,000 x 100% = 21%
This is a simplified CoC return; you will need to consider other factors to arrive at the exact cash on cash return. Some include repair expenses and closing costs.
Start A Comparative Market Analysis
Ok, so you understand how to figure the Airbnb income potential for a property. But where do you locate all the data you need to complete your analysis?
For instance, where should you dig up rental income data and property prices? You need both Airbnb analytics and comparative marketing analysis.
There are several ways to do a comparative marketing analysis by finding real estate comparables. First, you need to locate potential Airbnb rental properties with similar square footage and features in the same area.
Review what the properties rent for and the occupancy rate to arrive at a fair estimate.
Now, assemble all the information you accumulated in the steps above to find the Airbnb income potential for the property. If you find a high-income potential, it’s time to put in an offer on the property. If not, keep looking.
How To Increase Airbnb Profits
Most of this post details the critical factors in determining Airbnb income potential. Now, let’s explore how to boost your profits after acquiring the property. You should consider these factors to increase your Airbnb income potential:
Detail The Local Experience
Most Airbnb users aren’t just looking for a place to sleep and put their stuff. Most want a place to stay that lets them explore everything the area offers. Your Airbnb income potential will increase if you sell the benefits of the area in which the property is located.
To do that, it’s vital to create a unique experience for Airbnb guests. For example, show in the property description that you know a lot of sites that tourists will want to visit.
If your Airbnb income property is located in Las Vegas, you might share details in the description about the best casinos and hotels on the Strip.
Implement A Logical Pricing Strategy
It can turn off potential Airbnb guests if you try to charge them extra for every little thing. Sure, you want to maximize your Airbnb income potential. But you’ll attract and retain more guests if you have a clear pricing strategy.
Also, don’t charge extra for things that most Airbnb hosts include. And don’t overcharge for cleaning because nothing will repel guests faster.
An effective pricing strategy affects not just your Airbnb income potential. It also impacts the quality of guests you have.
List An Airbnb Experience
Did you know you can make money with Airbnb besides renting property? You also can list activities for the location as well as properties. Using the Airbnb Experience feature has plenty of benefits and can enhance your profits.
Understanding the guests you may have can help you make more money. For example, someone traveling to Las Vegas for business has different needs than a family with two toddlers.
Review the kind of guests who book the Airbnb and add amenities that would appeal to them. For instance, having a rec room full of games and activities for small children will appeal to families.
The more you add to the listing that caters to your audience, the more attractive the property.
Purchase Properties In The Right Place And Right Time
Want to grow your Airbnb income? Then you should be skilled in acquiring properties in the right place and time.
We know the more Airbnb rentals you have, the more your Airbnb income potential. But one big thing separates the best and average hosts: Buying an Airbnb investment property at the right place and right time.
That’s the reason you need to research housing markets. That way, you are constantly purchasing new properties that have the best return on investment for your portfolio.
Properties that make the most money are usually located in major metropolitan areas. Also, think about buying properties with many tourists, such as Orlando. Purchasing properties in cities with a lot of demand ensures more cash flow and bookings.
Market Your Property
Who doesn’t want to maximize their Airbnb bookings? It’s essential to market your properties with advertising effectively. Airbnb’s website is fantastic, but you’re missing marketing opportunities if you don’t use other channels.
Market your properties on social media, travel forums, and websites to bring other guests to your Airbnb homes and apartments. Remember, many people who need a place to stay don’t look on the Airbnb website.
Fact is, the best Airbnb hosts don’t depend on the Airbnb site to obtain guests. Instead, they work hard to ensure their listings are posted all over the Internet. Therefore, it’s essential to attract possible guests who have never used Airbnb.
Trying to manage your Airbnb listings by hand is tedious and wastes time. Leveraging automation tools allows you to handle many administrative tasks automatically.
For example, there are Airbnb automation tools you can take advantage of in these areas:
Sure, you might need to invest more upfront in using automation. But you’ll generate more cash flow over time. Then you can focus your energy on growing your portfolio when you aren’t bothered by day-to-day administrative tasks.
Think Down The Road
Do you want to take $10 now but lose $100 in a year? Most would say no. But many new Airbnb hosts shoot for long-term gains that cost them in the long run.
For example, some hosts don’t want to spend money on having extra toiletries in bathrooms. It’s true that having more incidentals on hand for a property will indeed mean higher costs for you. But putting a small investment into the house today prevents guest complaints. And complaints lead to lost bookings over time.
Also, if you buy properties in a hot climate, you might consider installing solar panels to cut electricity costs to almost zero. And you have added substantially to the property value.
Knowing your Airbnb income potential and how to increase Airbnb profits is critical information to become a successful Airbnb host. It also helps to subscribe to Mashvisor
Mashvisor offers many real estate investment tools to help you decide where and how profitable potential investment properties are.
Investment Property Calculator
Mashvisor offers a rental property calculator on its real estate investing app. This tool uses rental comparables data from local housing markets so you can gauge the profitability of any US rental property.
It doesn’t matter if the property is on the MLS, foreclosure, or short sale. The information you receive on the app includes:
- Monthly expenses and startup costs
- Long-term rental and Airbnb rental income
- Long-term and Airbnb occupancy rate
- Monthly cash flow
- Long-term and Airbnb CoC return
- Best rental strategy
The days are gone when you found investment properties for sale in the newspaper. And even relying on a real estate agent alone can put you behind the game. Investors who are the most tech-savvy typically grab the most profitable properties in hours or days.
One way to leverage this technology is by using the Mashvisor Property Finder. This tool helps new investors find investment properties that align with their investing goals.
To use the tool, you just need to select:
- Up to five markets you want to invest in
- Your budget
- Long-term rentals or Airbnb rentals
- Single-family, multi-family, or condo
- How many bedrooms and bathrooms
The Mashvisor Property Finder will locate ideal investment properties based on your criteria. It also makes recommendations using machine-learning algorithms and predictive analytics. In seconds, you obtain CoC and cap rate information on MLS listings, off-market properties, and foreclosures.
The Mashvisor Property Marketplace is a one-stop shop for buying profitable Airbnb properties. You also can use the Property Marketplace to find traditional rentals and even sell your home.
With the Property Marketplace, you can:
- Locate off-market deals under market value
- Find property owners who want to sell
- Analyze rental properties for sale
- List a property for sale
The Bottom Line
These real estate investment tools will help you find the best potential Airbnb properties and determine Airbnb income potential. You get it all with your Mashvisor subscription! To get access to our real estate investment tools, click here to sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.