Using an Airbnb profit calculator to estimate the earning potential of a rental property is probably the best idea for prospective investors.
As a real estate investor, you need to utilize everything that will make you a better investor and rental property owner. An Airbnb calculator is one tool that makes owning and operating a short term rental property easier and more efficient.
Going into the business of real estate investing with no previous knowledge about the actual location, current financial situation, or potential revenue could cost you a lot. It includes both professional and financial losses.
An Airbnb profit calculator reduces the risk of professional and financial losses. It helps investors go well beyond the minimum research output. The tool does most — if not all — of the work for you. It includes accurately predicting potential profit and revenue on a vacation rental property.
But first, you need to know your way around different real estate investment tools to use them properly, of course. We will also show you how to use Mashvisor’s Airbnb calculator, one of the top investment property calculators available online today.
We will simplify the process of using an Airbnb income calculator to project your annual profit and revenue. Doing so means you don’t need to stick to the “old-fashioned way” of calculating the return on a short term rental property.
Is It Worth Buying an Airbnb Investment Property in 2023?
A successful short term rental property investment relies heavily on several factors, including market conditions, local economic growth, the tourism industry, and mortgage rates. But the most important determinant of whether a vacation rental will be profitable is its location.
In real estate investing, location matters. A lot. A short term rental in Hawaii may yield a higher monthly rental income. However, as far as return on investment (or ROI) is concerned, it will take longer to recover your initial investment compared to other more affordable locations.
On the other hand, buying an investment property in Illinois might not get you as big a rental income as an Airbnb property in Hawaii, but you can get a better cash on cash return rate on it.
Another thing to consider is vacation rental regulations. While Airbnb and other similar short term rental platforms are quite popular nowadays, not all locations are happy with them. It is because of their negative impact on the local housing market. For this reason, several locations across the country impose stringent short term rental regulations compared to other areas.
As a rental property owner, the ROI and legal issues can affect your investment in a very significant way. Headaches associated with these two major concerns can be avoided if you perform thorough research and investment property analysis beforehand.
Due Diligence Is an Absolute Must
Whenever money is involved, you should never underestimate the power of due diligence. It is one of the main reasons why investments fail. The investors failed to do their homework and crunch the numbers. They are highly important in determining the potential ROI and revenue of the subject property.
Doing market research will allow you to become familiar with a market you’re interested in. It includes knowing the rental market conditions, the local economy, and the tourism industry. You must be aware of the expenses and fees associated with owning and operating a rental property, too.
As an owner and host, you need to ensure that you are quite knowledgeable about the latest market trends and forecasts, too. It’s always a good thing to keep your eyes and ears open so you can make the necessary adjustments just in case things go sideways.
The ability to foresee potential problems and come up with contingency plans will serve you well as an Airbnb owner and host.
For instance, if the prices of goods and services continue to rise, you need a backup plan to generate enough revenue to keep your business afloat. You can improve your marketing and promotion to increase your occupancy rate, or you can adjust your prices accordingly. This is where an Airbnb calculator comes in quite handy.
The point is if you dedicate enough time to do proper research, you give yourself a better chance of investment success.
The Importance of Airbnb Calculators for Investors
Before we break down the steps of using an Airbnb calculator, let’s take a few moments and mention what it means to investors like you.
First off, you get to formulate a short term rental strategy without any significant complications. By this, we mean unverified data sources and unexpected losses (primarily financial). The critical issue seems to be calculating and evaluating the income property and the strategy you’re going with here.
At the mere mention of money, investors who just “entered the market” tend to become very nervous and may even question their decision-making skills. Understandably, they’re unsure about how to deal with investment money — even more so when they’re investing in long-term projects that will become rental vacation properties. The goal is to generate a revenue stream.
Enter Mashvisor’s rental property calculator and its extensive list of features. With the tool, you’re given a unique opportunity to determine the best possible rental strategy in your market of choice. It increases the likelihood of investing your money in a way that ensures good profit for you and a faster ROI.
Should you use your own cash or opt for a mortgage? Which investment strategy works best in a particular market? How fast will you get a return on investment? Mashvisor gives you the answer to these questions and more like them.
Sign up for a 7-day free trial with Mashvisor today and start using its Airbnb investment calculator.
Before You Use an Airbnb Calculator
Before you decide to invest in any rental property, primarily in a city somewhere in the US real estate housing market, you should do an external analysis.
What is external analysis?
In addition to the financial aspect of investing, you also need to take note of other concerns like legal issues. It simply means finding out the different short term rental regulations in the location you’re interested in.
We’re placing great emphasis on this because there have been lots of disgruntled and disappointed investors who have overlooked this aspect. They are those who entered the business without knowing more about the target market. Consequently, they found themselves with legal issues. For example, listing Airbnb properties for rent is illegal in certain locations.
So, in order to avoid any legal issues, take the time to research the short term rental regulations in the city you’re planning on investing in at the moment.
Better safe than sorry, right?
Let’s assume that you’ve found a favorable investment location. There’s still so much work to do. It would be best if you were a bit more thorough. With the help of our Airbnb estimator, you can find a neighborhood that will give you a good profit. Using filters like listing price can help you narrow down your property search, too.
Even if the variables change from market to market, you should make sure that your vacation rental investment is in a profitable location.
Estimating Airbnb Rental Income in 3 Steps
Here are the steps that’ll help you with your Airbnb estimate.
1. Calculate Cash Flow
The first — and most crucial — step is determining your cash flow. In essence, it is the money that you will receive every month as an investor in the property. To get it, you’ll be taking into account all types of expenses that you’ll need to cover first. For this step, an Airbnb fee calculator will be helpful.
Several expenses and fees come with owning a short term rental property. Aside from the one-time costs, you also need to consider the recurring expenses to keep your business running. Below are some of the typical expenses and fees associated with vacation rentals:
- Airbnb and other platform service fees
- Maintenance and repairs
- Supplies and essentials
- Taxes and Insurance
- Cleaning fees
- Property management fees
Once you’ve entered all the expenses, you will be able to estimate your gross profit. Based on the result, you can decide whether it is worth pursuing.
Here are the formulas that will help you in calculating your cash flow:
Number of Days Airbnb Is Booked = Days in the Month x Airbnb Occupancy Rate
Gross Rental Income = Airbnb Daily Rate x Number of Days Airbnb Is Booked
2. Use the Cap Rate Formula
The next thing you need to do is use the capitalization rate formula. The cap rate formula is especially important in determining if you will get the anticipated profit in the long run.
You may be focused on developing a solid short term rental strategy here — but you shouldn’t neglect the long-term gains that will actually keep you in the Airbnb business.
Here’s the formula you’re going to use:
Cap Rate = (Net Operating Income / Property Value) x 100
3. Conduct a Comparative Market Analysis
Also known as CMA, a comparative market analysis gives investors 99% of the data necessary for accurate profit projections. It essentially involves using an Airbnb calculator, estimating your rental income, and running rental comps.
Rental comps play a significant role here because they’re based on the three most important factors within the Airbnb rental calculator:
- Property value
- Occupancy rate
- Average daily rate
Don’t worry! We will analyze all the above parameters and explain the actual process of using our investment tool for better understanding.
What Data Do Investors Work With?
It’s time to focus on the most important part of the guide and answer the following question:
What does an Airbnb analysis provide investors with?
Airbnb Income Calculator: The Estimates
Mashvisor’s Airbnb income calculator — also known as a rental property calculator — is a tool that uses available Airbnb data to analyze the potential profitability of a property.
As for the accuracy of the data, don’t fret. It comes straight from the Airbnb website, and it’s highly accurate, which should give investors greater confidence.
Here are the estimates you’ll get by using the said calculator:
Airbnb Occupancy Rate
The occupancy rate represents the number of days your property is occupied compared to the total number of days it is listed on the platform.
If you’re considering investing in short term rental properties, you should know that their occupancy rates vary by season. It simply means that there are months in a year when your property gets booked a lot and other periods when bookings are low.
You should be able to calculate the rental income by taking into account the Airbnb occupancy rate. The higher the occupancy rate, the better the revenue your rental property will generate in a season.
Airbnb Rental Income
Estimating rental income is one of the first things investors should know. It is important since it will help determine how fast you can get your return on investment.
What investors often overlook are off-market investment opportunities. Mashvisor helps overcome this issue by analyzing any on- or off-market property. You just need to enter the exact address of your desired property. Then, our calculator will provide an accurate estimate of potential rental income or return from the property.
Airbnb Rental Expenses
You need to spend some money to make some money. That’s real estate investing 101. So, you can’t avoid spending money on your property to some extent.
Our Airbnb estimator will help you prepare for the inevitable costs, mainly:
One-Time Startup Costs
- Closing costs
- Total repair costs
- Furniture and appliances
- Property tax
- Rental income tax
- Property management
- HOA dues
- Property maintenance
- Cleaning fees
Airbnb Cash Flow
For rental properties, Airbnb cash flow is the difference between what you receive and spend in a month. It’s also one of the fundamental indicators of the profitability of your investment property. Of course, every investor wants to have a positive cash flow.
A positive cash flow will help you generate a good income and help maintain a residential vacation property.
Airbnb Cap Rate
The Airbnb cap rate is a metric that investors use to calculate profitability for a short term rental property without considering financing options. You should know that calculating the cap rate on multiple properties can be time-consuming. However, you can get the estimates faster using our Airbnb calculator.
Airbnb Cash on Cash Return
Unlike the cap rate, the cash on cash return method takes into account the financing method that will be used to purchase a property,
Suppose you’re considering investing in a real estate property by taking out a loan. In that case, our Airbnb calculator will give you the most accurate estimate of your cash on cash return.
By calculating the metric, you’ll know whether your investment venture will generate a positive return. Knowing what kind of cash on cash return a market offers will help you make wiser investment decisions.
Running Airbnb comps means that you must conduct extensive market research on similar rental properties in the area.
The easiest way to locate rental comps near you is by using Mashvisor. You’ll be able to see a list of similar active Airbnb rentals and how they perform in terms of nightly rates, occupancy rates, and the like.
Real estate investing means putting real money into the project. You undoubtedly understand that this is not easy — especially when you have limited resources and work on a tight budget.
Mashvisor’s Airbnb estimator includes a built-in mortgage calculator that gives investors better insight into their actual financial situation. Knowing where you stand financially will allow you to factor in the available mortgage options accordingly. You wouldn’t want to invest both time and money in a strategy that will not generate a positive cash flow.
How Much Can I Make on Airbnb?
The answer to this question mostly depends on the location you are investing in, as we already mentioned earlier. Of course, in order to ensure a good return on investment, you will need to conduct due diligence. Part of it is taking advantage of all the features of your Airbnb income calculator.
Suppose you succeed in establishing a strong short term rental strategy. Here is an example of a successful investment venture:
- You charge $150 per night.
- You achieve a 70% occupancy rate.
- Your cash on cash return rate is at least 10%.
If you get the above three in your location, your gross income can be as much as $3,150 per month or $37,800 a year.
However, the reality is a bit different. While it is very possible to set nightly rates of $150 and above, not all locations offer 70% Airbnb occupancy rates and 10% cash on cash return. Industry experts and analysts agree that a good cash on cash return rate is anywhere between 8% and 12%. Properties with the said numbers are few and far between.
When looking at potential investment properties, a good set of criteria to use would be the following:
- Each location must have a median property price of less than $1,000,000
- Each location must have at least 100 active listings on the short term rental market
- Each location must have an average monthly rental income of at least $2,000
- Each location must have a minimum of 2% cash on cash return
- Each location must have an Airbnb occupancy rate of 50% and above
If a property you’re considering manages to tick off each and every one of the above criteria, you have a potentially profitable investment property.
The Benefits of Using an Airbnb Calculator
We’ve already clarified how to use an Airbnb income calculator and how to make the most out of your investment venture. Now, it’s time to give you a few key reasons why you should use Mashvisor’s Airbnb calculator.
For one, it’s a great opportunity for beginner investors to check if Airbnb hosting is a good idea in their desired area.
Although its primary focus is on investors, the tool helps owners decide whether to convert their homes into long term or short term rental properties.
The Airbnb profit calculator, being a professional-grade investment tool, allows property investors and managers to evaluate the property’s value. It also lets them calculate the ROI accurately and realistically.
Lastly, rental arbitrage investors can make use of the Airbnb profit calculator, as well. Using the tool can help them evaluate the difference in revenue generated between short- and long-term rentals.
The essential thing you should take from this guide is that using an Airbnb calculator is a time-saving strategy that provides more accurate results. This makes it a lot better than the “old-fashioned” ways of researching available rental properties. What’s more, using an Airbnb profit calculator to estimate profitability and revenue is as easy as ABC.
Mashvisor’s Airbnb calculator is specifically tailored for the US housing market, which is perhaps its biggest advantage.
All you need to do is sign up for our services and all of its features are at your disposal. You can filter the ones you’re most interested in, too. Within minutes, you’ll be able to calculate the occupancy rate, rental expenses, and potential rental income — all the numbers that matter.
Mashvisor is here to answer your questions regarding real estate investing and help you make a well-calculated decision.
Learn more about how Mashvisor can help you find the best deals in the most profitable markets by scheduling a demo now.