People from across the world have jumped into the Vacation Rental “bandwagon”.
It’s becoming very popular wherever there’s a tourist market.
And the influx of people traveling more since COVID has given it even more rage especially with people who never intended on being investors. And with AirBnb making it so simple to list your property, people are deciding to just “AirBnb” it while they go out on vacation, or travel, or use their home as a “second home” and “AirBnb out” to support the mortgage a bit.
It’s a good idea.
And AirBnb has revolutionized that market.
But with that influx of STR (Short-term rentals) inventory in just about every tourist market…
… Is it still popular?!?
The short answer: Yes… but it depends.
And that’s what we’ll dive into in this article today!
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Depending on where you’re at right now (whether you’re looking to become a STR (short term rental) investor as a career/investment… or you’re just wondering whether or not you should AirBnb your home for some extra income…
This will be the best breakdown on how to find out if it’s profitable AND how to properly run an AirBnb.
Is AirBnb for you? Running a hotel….
Before we get into whether or not it’s profitable, you need to figure out if this is for you.
It’s not as easy listing on AirBnb and then floods of tourists come flocking to you.
There will be down-months (depending on your location). So if you’re relying on this to PAY your mortgage (which can be a good idea) you have to be ready for down months.
You’re essentially running a hotel. And you have to be O.K. with that. Meaning, you have to coordinate the “check in”, talk to tenants, manage “check out”, rehab, and the cleaning (everytime).
This is running a business.
Some think it’s as easy as “hiring a property manager”, but managers that run STR’s for you will charge an arm-and-a-leg because of the intensity of work. That cuts into your profit big time.
So be prepared for this type of business.
Here’s a video on reasons why lots of people are QUITTING the AirBnb business:
Some things that you’ll be doing as an AirBnb host, include:
- Hiring a great real estate photographer (or doing it yourself)
- Listing the property
- Writing the copy (description)
- Having maintenance (or a property manager) in your “rolodex” ready to fix any maintenance problems while people are staying there
- Constantly checking and answering emails
- Having a cleaning crew ready
- Coordinating check in
- Coordinating check out
- Dealing with “problem” tenants
- Updating furniture and amenities
As you can see… It resembles running a hotel!
But the good news is, depending on the location, it can be VERY profitable (even with influx of inventory).
Factors that make AirBnb profitable
There’s really only 3 things that determine how profitable Airbnb can be:
- The rate of booking
- Your price point
- Listing fees
- Capital expenditures
How quickly is AirBnb being booked in your area?
The number 1 tool for finding data about your area that you’re considering AirBnb, is AirDNA.
They can give you all the stats on your area for STR’s.
Here’s a quick video on using AirDNA:
The question you need to ask yourself is how many bookings will I have per year (Or per month on an annual average)?
You can get a rough estimate that can determine your profitability no matter the competition.
But that’s the “macro market”
There’s also “Mico Markets”…
…. Meaning, how desirable is the neighborhood that your property is in?
Because even with AirDNA giving you an estimate of profitability, you still have the neighborhood that determines how often people will book.
You have to remember, when tourists are “shopping” for AirBnb, there also looking at:
- Proximity to highways
- Proximity to restaurants
- Neighborhood appeal… Is it nice?
- Proximity to activities
If you’re in a less than desirable location, then you’ll have to lower your estimated annual profit.
Put it all together
After you have an idea of what your estimated profit will be based (based on the data from AirDna, and from evaluating the desirability of your neighborhood (there’s no “science” to this, it’s literally getting a “feel” for the neighborhood and comparing with the “top of market” AirBnb’s)…
You can then figure out your profit by subscripting it from your perceived expenses (Mortgage, maintenance, fees, taxes)
If don’t know the expenses in AirBnb?
Simple answer: Ask.
You can ask several agents (they don’t mind helping you as they see you as a potential client)
Or you can find an owner of an Airbnb to give you some truth in to his/her business.
(However, understand that everyone runs their business differently and some will conceal the truth of it)
Now let’s move on to competition…
Competition in AirBnb
The biggest concern when people ask, “Is AirBnb still profitable?”, is competition.
Competition is a concern in every product and service out there (you ARE selling a product/service BTW: a vacation rental).
But in reality… competition is what you WANT.
Because, in a town with lots of AirBnb rentals, it tells you that town is a popular location to rent out AirBnb.
If there was NO competition, it MIGHT be a sign that the tourist market is dead there.
At the end of the day, to determine whether or not YOUR potential AirBnb property will be profitable you have to look at the potential of bookings you might get (take into consideration the micro market) then subtract all your estimated expenses from that potential GROSS profit.
And if all your numbers check out…
It’s to pull the trigger!
But that’s a RISK!!
However, the “simple” (simple, not easy), method for determining whether or not your market is profitable is an exact “reassuring” formula of comparing overall profit in the area to your costs; it doesn’t give you the “green light”, more like a yellow light.
But you have to understand… that by deciding to operate an AirBnb, you’re jumping into business.
Not a hobby.
And with any launch of a product or new business there is SOME risk.
So, analyze to give you some idea whether or not you’re heading towards the right path, then pull the trigger and see.
That’s the journey of an entrepreneur!
But I get it…
Competition is scary.
You look at all those beautiful listings and then you tell yourself: “I can’t compete with that!”.
So let tell you how to compete in the AirBnb market…
Beating AirBnb Competition
If your listing is competing with several others, you have to compete with them in SOME way.
I mentioned earlier that tourists are “shopping” by looking at:
- Proximity to highways
- Proximity to restaurants
- Neighborhood appeal… Is it nice?
- Proximity to activities
If you have none of the above going for you, then you have to compete with:
- House Amenities (what else do you offer? Is the furniture nice? The “feeling” of the home?)
You’re not operating in a commodity business (oil, gold, wheat, etc). You’re operating in the tourist market. Which means that people DON’T make choices based on price alone.
So ask yourself, am I priced right according to what I have to offer?
Can I offer MORE to compete (better/unique service, better “environment”, better “feel”, better furniture?)
Yes, Location is KING when it comes to STR’s…
But if you don’t have that going for you, you still have a chance.
So, you’ll need to compete with PRICE AND other “extra bonuses/services”.
If you’re not in the greatest of locations…
Don’t fret and give up.
Because if you’re in a town that has LOTs of tourists… there’s definitely room for you in the market. There’s all kinds of tourists in the market that need different things: some have a budget, some are looking for quieter neighbors, etc.
So what about how to buy an AirBnb?
The best way to buy profitable AirBnbs…
The biggest expense you’ll have when it comes to AirBnb’s is your mortgage.
So, the price you pay for an AirBnb, is a HUGE factor in profitability.
The good news, there are all sorts of ways to BUY AirBnbs for a good deal.
We’ll cover some of these so that you can buy it right!
- Creative finance
Since the number one factor of making your Airbnb profitable is your mortgage payment… why not control that part?
Few people know that buying with a traditional loan isn’t the only way to purchase. If the house is owned free-and-clear you can offer payments. And you can offer whatever payments you’re comfortable with. This is essentially “creative finance”, where you find creative ways to finance the property.
Here’s a list of methods to creatively buy 👍
– Take over the existing loan
– Partner up with a cash buyer
– Use private money
– Owner Finance (mentioned above) with terms that work for both parties.
- Buy off-market
This is our favorite and only method of purchase. At Ballpoint Marketing, we specialize in marketing material to help investors like you go directly to sellers to buy their house.
This creates a few things for you:
– Allows you to make discounted offers
– Saves on agent fees (commission is EXPENSIVE; If you go directly to a seller and cut out the middleman you can save tens of thousands of dollars.This obviously takes some risk as you have to go out and try marketing tactics for finding sellers.
(Our favorite is direct mail marketing. Especially our handwritten mail for real estate investors).Then you have to know a bit about negotiating (typically people use “the 70% rule” when it comes to buying the property which is: Your max offer is 70% (minus Repairs) of the After Repair value. In some more expensive markets, the 75% rule is more appropriate.Here’s a video from one of our founders showing you how he buyer properties off market:
- Use the Brrrr methodThe Brrrr method stands for: Buy, Rehab, Rent, Refinance, Repeat.It’s a popular method of buying real estate that can help you “recycle” your cash and buy good deals with little money left in the deal after you get tenants in place — however, be sure that you can refinance your property BEFORE you attempt, talk to lenders about refinancing you AirBnb.
- D4DStand for “Driving for dollars“.
This is another “off-marketing” strategy to find good deals at discounts. If you’re driving around your desired neighborhoods (or “farming” for real estate) to buy your profitable AirBnb, take note of all the distressed looking properties. Then figure out a way to get a hold of the owner, either by:- Cold Calling
– Sending real estate mailer
– Knocking on the door
– or all three.
- Buy from Wholesalers
There are people called “wholesalers” that out there marketing and negotiating directly with sellers, and putting deals into escrow. But they much rather sell those deals before closing on it. That is where you come in if you have the cash to buy. You can buy it at a discount from retail.This is a quick and easy way, if you’re a cash buyer, to find your next wholesale deal.
- Add on — Tiny Homes
If you see a house with the potential of adding on a unit, or finishing the basement to make a second living quarters, or adding a tiny home in the back… you can “build” your AirBnb income stream. This does take time and money but if you already have a house with the space to add, you don’t have to go out looking for another property; utilize what you have. Just be weary of municipality and county laws when it comes to building and tiny homes.
Yes, AirBnb is still profitable.
The tourist market is HUGE and there’s definitely room for you to make money in it too.
Just pay attention to:
- Price points
- County/Municipality laws for AirBnb
These things affect your profitability.
And if your location isn’t all great compared to competitors, you can still make it work with better service, and better price points.