Calcualating Rental Income from STR’s

[Evan O'Brien]

When you're calculating the potential rental income for a STR property is there a specific approach to take? Recently I've tried estimating daily rates to charge for STR's using the enemy method (estimating the daily rate for a potential property based on listings on air bnb for a property of the same size) and the multiplying the daily rate by the occupancy rate for that real estate market. If anyone has any other approaches or suggestions regarding how to calculate potential rental income for a STR that would be greatly appreciated!!

[Greg R.]

I'm pretty sure that sites like Airdna will help you do this. 

I personally take a more manual approach. Start with estimated earnings based on comps in the area (cost & occupancy), then reduce the projections by about 10-15%. 

From there you should have your EBITDA/ gross. Now start to deduct your expenses:

- Mortgage (PITI)
- HOA
- Water, Trash, Gas/ Electric
- Cable TV/ Internet
- Supplies (toilet paper, coffee/ filters, paper towels, etc.)
- Maintenance/ repairs
- Landscaping
- Cleaning fees
- Management fees
- etc. 

Be sure to add some padding, because there are likely some expenses that you won't predict. 

From there, deduct your expenses from your gross revenue. That should give you a somewhat reasonable expectation of what you can expect. 

Also, don't forget capital expenditures such as painting the home, appliances, initial repairs, etc. Lastly, a big one that I grossly miscalculated on my last STR was cost to furnish/ decorate. Cost for furniture, TVs, beds, decor, etc., has increased substantially. Make sure you budget plenty for those items. I estimated about 10k to furnish/ decorate my place and I was well over 20k when complete.

I personally want to see at least 20% COC on STR, but preferably upwards of 30%.