How to figure income and other questions.

Question

I'm looking at a vacation rental cabin.  The seller has owned it for 2 years and has given the following numbers.  Year 1, gross of about $12,000.  Year 2, gross of about $24,000.  This was over 2019/2020.  He says that in year 1 he had lower rates in an attempt to get more bookings and set himself up for Superhost status on AirBnB.  Year 2 he was able to raise the rates due to the Superhost status and I would assume more bookings along with the increased visibility. I wonder how much of the increase is due to Covid (it's 1.5 hours from the DC area) and what I can expect going forward.

I've never done short term rentals before; does this sound legitimate?  The difference between year 1 and year 2 is significant and would obviously be the difference between losing money and turning a decent profit.  How hard is it to become a Superhost, is that the end-all be-all of this business, and how long could one expect to take to get to that point?

Thanks for any help.

Luke Carl · Answer

@Justin Knighten

Rental history is completely irrelevant in short term rental. I cannot stress that enough.

Although I will say If it can only gross 24k with good management I can’t pay much for this thing. @Paul Sandhu would only pay like 10 grand.

Superhost is whatever. It’s easy to get when you’re new and it’s super exciting. When you’re jaded like me you realize it’s just more Airbnb propaganda to hold the host down. Damn the man.

Sofia Sharkey · Answer

@Justin Knighten disregard how much they made. Your returns depend on:

a) Purchase price

b) Your setup investment (7k on furnishings or 20k)

c) Your management and how desirable the area / your place is.

To figure that out, go to the Airbnb site and choose similar listing in the same area (same # of beds and baths). Then check the availability and check out the prices (week days vs weekend). Write it out and calculate the average daily date, the occupancy, and the average monthly gross. Do that for at least 5 listings and then do the same choosing from other platforms. That will give you pretty accurate comps for the area.

At that point, based on the daily rate and the gross revenue you can see if the purchase price makes sense. 24K is super low if this is going to be a full time vacation rental.

John Underwood · Answer

This doesn't sound like much income even in year 2.

Most of my bookings come from Vrbo where I am a premier partner. so I'm never worried about Super host. I've gotten more bookings than usual on Airbnb this year.

Michael Baum · Answer

Hey @Justin Knighten, you have to give more information in order to give you any kind of idea.

Like @Luke Carl said, past performance doesn't guarantee future revenue.

Is the place $40,000? Then it could do pretty well. Is it $400k, well then it is not going to earn a dime.

You will essentially have to start from scratch with your ratings etc, so the SuperHost status means zero.

Marc Rice · Answer

@Justin Knighten

Find out how much of the gross income was profit

Boris Mordkovich · Answer

It’s certainly possible that the numbers have a big difference between each year.

However, even forgetting the difference itself, I’d be cautious.

$24K/year is pretty low for a short term rental as your costs tend to be quite a bit higher than for long term rental.

It’d be difficult to make a decision regarding this property without seeing the expense side of things, but — of this limited information - it’s hard to see how it’d be profitable.

It’s also worth looking at tools like Airdna or AllTheRooms to see how the competition performs in this market!

Justin Knighten · Answer

I looked at several other places in the area for future bookings.  They are very sparse everywhere for next year, maybe a weekend or two booked here or there.  These places seem to be more of a few day getaway than places that people book for a week for their yearly family vacations.  We could "afford" to keep it with low bookings, but I don't really want to have to come out of pocked with a significant amount of money every month.  We would use it ourselves some.  It's by a river, about a half mile or so walk, about a 1/4 mile from an outfitter that does boat/tube rentals.  I think that's a big draw for people.  My biggest concern would be whether the higher numbers this year are purely Covid related and whether I can expect those same numbers year over year...

Michael Baum · Answer

Hey @Justin Knighten, as far as figuring out occupancy, what you just said is a bit telling. Popular places are booking out now for the 2021 season.

For example, my lakehouse in north Idaho has all of August 2021 booked and 1/2 of July. I am getting 2-3 bookings per week right now. I expect them to slow down the closer we get to Christmas then pick back up in Jan/Feb.

Can you afford to keep that place with low bookings? Will you be using it yourself as well? Is it by a river or riverfront?

What do other places have their nightly rate set at? Check VRBO as well as AirBNB.

Paul Sandhu · Answer

@Justin Knighten I would pay $10k for it.

Justin Knighten · Answer

Thanks for all the replies.  The place is listed at 189, fully furnished. It's by a river, so the bulk of listings come in the spring, summer, and fall, with not much at all during the winter.

Is there a way to look back and see what kind of rates/occupancy similar places had over the summer?  Looking forward on AirBnB there aren't a lot of bookings in this area for the next few months making that somewhat hard to gauge.

How to figure income and other questions.

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