14 Jun HOW TO ESTIMATE AIRBNB INCOME ON INVESTMENT PROPERTY?
How to Estimate Airbnb Income on Investment Property before purchasing a rental property is a question that every new real estate owner must ask
Even before you acquire a rental property to utilize with the Airbnb method, you must do extensive research. The Airbnb income estimation technique is a component of this work. This is the procedure by which you attempt to calculate a rate or figure that indicates the investment property’s potential for profit. The higher the number, the greater the revenue property’s potential. So, how can you evaluate Airbnb income in order to discover profitable income properties?
Conduct a Real Estate Market Analysis for Estimate Airbnb Income on Investment Property
First and foremost, before attempting to estimate the Airbnb revenue of a specific rental property, you must locate a successful location for your Airbnb investment property. When you discover one, you can estimate the entire Airbnb income for the locality. Of course, you do all of this by completing a real estate market study. In essence, this technique assists the real estate investor in determining the following:
- Research the real estate appreciation rates in that area.
- Combines historical Airbnb data and current rental data with predictive analytics. To put it another way, you’ll have data that “predicts” the future of that particular property market. This manner, you may learn about potential future real estate market changes and how they will affect your Airbnb revenue.
- It determines if the place you’ve picked is suitable for Airbnb investment homes. Specific neighborhoods are sometimes better for traditional rentals, which means you won’t make as much money as you would want.
- The real estate market study will disclose a lot about the area’s rental demand. You should be aware of this since it will have a direct influence on your Airbnb rental income.
You’ll have a preliminary Airbnb income estimate for the area if you’ve successfully gathered all of this information from your market study.
Analyze Investment Properties
The following stage in calculating Airbnb rental revenue is to do an investment property study. Start exploring for Airbnb properties for sale now that you’ve identified a good area. Once you’ve identified a few rental homes that pique your interest, calculate the following Airbnb ROI metrics:
Flow of Cash – Airbnb Rental Income
To assess Airbnb income, first examine cash flow. The cash flow is mostly comprised of Airbnb rental income less monthly rental expenditures. Assume you earn $1000 per month from your short-term
rental property and spend $600 on mortgage, upkeep, and insurance. If you subtract $600 from $1000, you will have a $400 positive cash flow.
The Capitalization Rate
The capitalization rate will then be calculated using the cash flow analysis. In essence, the cap rate is the rate at which Airbnb returns are calculated in relation to the property price. So the cap rate formula is as follows:
Net Operating Income / Property Price = Cap Rate
In this calculation, net operational income equals yearly cash flow. So, in the earlier example of an Airbnb investment property, $400 multiplied by 12 is $4800 in net operating income. Now, if we assume the owner is selling it for $160,000, we have a cap rate of 3%.
Also read, What Do Higher Interest Rates Mean For Us
Cash on Cash Return – Airbnb Income on Investment Property
The cash on cash return is the ultimate return on investment measure used to quantify Airbnb income. This metric is quite close to the capitalization rate. However, instead ofdividing the net operating revenue by the property price, we merely divide it by the money you spent out of pocket. In this scenario, investment property finance is involved. So you would have put down 20%, or $32,000, and the mortgage would have paid the remainder. As a result, we apply the cash on cash return formula as follows:
CoC Return = Net Operating Income / Actual Cash Investment
CoC = $4800 / $32,000 * 100% = 15%
This cash on cash return computation is, of course, simplified. Other considerations to consider for the real financial investment include closing charges and, if applicable, refurbishment expenditures. Find out how to calculate cash on cash return.
Conduct a Comparative Market Analysis.
So, now that you know how to estimate Airbnb revenue using real estate market research and investment property analysis, the next question is where you can obtain the Airbnb data to compute it all. For example, where do you receive the rental income forecasts or the property price? This necessitates the use of both Airbnb analytics and
comparative market analysis.
To get the Airbnb income estimate, conduct a comparative market research and look for real estate comparables. In other words, you must identify Airbnb investment houses in the same area with similar property attributes. Check out how much they rent for, as well as the Airbnb occupancy rate in the area, and use it as the foundation for your
estimate. Put everything together in the manner shown above, and you will see how profitable the rental property is. You’re fine to go if it’s high. If not, use the opposite route!
Schedule a free consultation with Kenady Fundings to get funded for your new Airbnb Investment Property & how to Estimate Airbnb Income on Investment Property!