Airbnb vacation rental - how do i know if its a good investment?

Question

Hello all,

I have been reading the books and listening to the podcast for a few months and they all say that now is the time to get involved in the forums so here I am.

Okay, so here is my question. I am looking at doing my 1st deal and for this property I want to use it as an Airbnb/booking.com/VRBO vacation rental. Here is the problem I have... now the Airbnb calculator on the site does not appear to work, so I am using the rental income calculator because, to my mind, the principals are very similar. The problem is, I am having a very hard time attempting to guess on vacancy. When I run the numbers at 40% vacancy it looks like a bad investment, at 30% a decent investment and at 20% a great investment.

Does anyone have any advice on determining viability of the investment in the short term rental market? Thank you in advance.

Joe Kim · Answer

short-term and vacation destinations are in general is most profitable but is most vulnerable at times like now.

many places have 30 day minimum restrictions and that trend will continue

So yes corporate rentals are by far the best combo but you may need to do your own marketing/networking to get corporate clients.

since i do this as a side gig, I needed to be more passive so I let Airbnb and VRBO do all the marketing for me.

but trust me this is not a passive gig at all.

Larger homes are definitely more profitable but also risky and more expensive to furnish

For corporate 2 bedroom/2bath is perfect since you can easily rent it to a family of 4 or 5 as well.

Take Al Williamson's course or any online course some are very expensive ($2000).    Join FB groups (most not that helpful but good to network)

Hope that helps.

Joe Kim · Answer

The key question is - how much desire and how much time do you have?

Also, given this crisis, it may be a good time to pick up someone else's airbnb already setup (or not?- are you inheriting a problem home?)

Honestly,  it's a devastating time for airbnb/STR.    so good time to learn  (Al Williamson's course is good) and get started.  Hopefully by the time you do your first home, travel will begin again.

Joe Kim · Answer

It's airdna.co    (not airdna.com)

I would second that recommendation to check airdna.co  to see what your competitors are already making.    If you are doing this as first timer, I would also recommend taking a course.   Al Williamson has a course that is very good.  PM me and I can send you his way.

Lastly, the cheapest and one of the best way is airbnb.com itself.   just act like a guest and try to book different homes and see what their daily rates are like and occupancy by looking at the current month and next month.

Lastly, remember seasonality.   STR (short-term rentals) tend to peak (in terms of daily rates/revenue/occupancy) in the summer.   Winter is a low season unless you are in Lake Tahoe or ski area.

Joe

Matt Williams · Answer

I get asked about Airbnb (short term rentals) all the time. People have looked at me like I’m crazy when I suggest that perhaps they aren’t a great primary strategy from a wealth building standpoint. It can be awesome income, but it is fragile income. Long before COVID-19 hit, I told people that asked me about these that when you go through any economic downturn, what’s one of the first things to go? You guessed it, leisure travel. And if this is your primary income source as an investor, when you go through a recession, your’s is the income that is negatively impacted the most.

I’m not telling you to NOT get into Airbnb short term rentals, but I am suggesting you think twice. They’re awesome. Lots of people have killed it with these. But I just see them as the most fragile form of income, particularly if your goal is to build consistent and stable long term revenue and wealth as an investor.

Jingru Sui · Answer

You probably want to look into property that might work for both short term and long term. Run the number on both scenario. One thing I learn from CoVId 19 is you just have to think of the worst case scenario. What if you loss the reservation due to unseeable events. You need to make sure your long term rent can get you covered as well. You’ll get better short term data from Airdna rather than Airbnb website.

Avery Carl · Answer

@Benjamin Zwiebel the market where you choose to invest is the biggest factor in whether an short term rental is a smart investment. In my opinion, buying a house in any random city and deciding to short term

It because you can “probably” make more money is not a smart move.

My first several properties were vacation rentals, and I used the cash flow from those to scale into 22 LTRs and counting. The markets I have invested in are drivable tourism driven markets (think beach and mountain towns), and while of course we got hit hard with Covid cancellations, these types of markets are so dependent on tourism that they have been some of the first to get things opening back up (I’m in one TN market and the FL panhandle), and bookings are steadily rolling back in. We were able to cover our expenses on all of our vacation rentals with a few bookings from folks who wanted to social distance in our properties, so we didn’t have to dip into our cash reserves.

All of the guys above are correct, Airdna is a great resource, but your property isn’t just going to automatically make the numbers that it says, you have to manage it properly. Airdna, rented.com, vacasa, evolve, and other major companies in the vacation rental space all have lists with supporting data about the best places to invest in vacation rentals. I would take a look at that. But if you’re just looking to buy a place down the street from your house, you’re probably better off long-terming it.

Jason Saenz · Answer

@Joe Kim Plenty of desire so I will make the time!Do you focus on short term or corporate rentals?

Nick Rutkowski · Answer

@Benjamin Zwiebel

Take a range of vacancies and use that as your base. For instance, I run AirBNBs in Upstate NY. My season is Apr-Sept. I expect 75-90% bookings for those months. The off season Oct-Mar I expect between 40-75%. I don’t know how Wyoming is but you get the idea.

Vacation homes are a different beast than long term rentals, you have to operate more like a hotel than an apartment. Don’t expect to have the same month crush it year after year. It will save you some stress. Good luck man!

Jason Saenz · Answer

@Joe Kim Hey Joe, what are your thoughts on getting started with str's during this current situation? Been doing research and want to get started but am hesitant with everything that is going on.

Also, is a course necessary before getting started? I saw you recommend Al Williamson's.

Benjamin Zwiebel · Answer

Thanks Joe.

I have looked at the metrics for airdna and looking on airbnb its self but i am still running into a few variables i cannot account for.  The first is that the city it is heavily divided between touristy areas none touristy areas but I cannot find away to break it down by neighborhood on airbnb or airdna. The second is that the area has many airbnb rentals but most are of very low quality but screw the metrics.

Airbnb vacation rental - how do i know if its a good investment?

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