Make 3x the Income using AirBnB vs LTR!!!

Starting out in 2018 I rented out rooms in my house on AirBnB. I got continuous traffic, albeit small potatoes, but besides the joy of meeting interesting people and hosting, the greatest benefit was 5 months of data and good reviews (thanks to my Tito’s Margarita recipe!). In 2019 I decided to only rent my house while I was out of town, sometimes working around my guests stay (i.e. sleeping in my truck or taking leave to get out of town and go camping) I even considered getting a trailer and living on base part time, but I instead opted to buy another house to do a live and flip. I will be doing full time AirBnB on my current house, purchased with the VA Loan in 2017, starting this month (June 2019) and expect to gross $2000/mo – as long asI average between 15-20 days/month booked. I will continue to clean the house when I am able, but I will try to hand over the cleaning responsibility to a company I trust and can rely on to get in and out on an atypical schedule. If you decide to read any further, you’ll see that my calculations are pretty simple, but they will lead you to a product that can give you a quick synopsis of your STR situation, and whether the best route to go is STR or the traditional LTR route.

First rule of any spreadsheet calculation is: ‘garbage in = garbage out.’ Identifying your independent variables and making sure that they are not garbage is step numero uno. For my AirBnB Income Calculation spreadsheet, I take the average of the area (no filter) through a quick AirBnB search without dates, then I take a filtered average of the area (specific to my rental: i.e. number of rooms, bathrooms, beds, pets allowed, etc.) and use the average of both minus 10% of the Max of the averages (because I want to be competitive in the market and to provide conservative estimates). This will give you the expected average value of one night in your house, the AirBnB Avg Nightly Price.

Table 1. Calculated AirBnB Avg Nightly Price.

Now I have my nightly income. The second step in my spreadsheet is to calculate the total costs of my house: Mortgage, Insurance, Taxes, Utilities, Cleaning Services, Lawn Care Services, and add them up for a Monthly Property Cost.

Table 2. Calculated Monthly Property Costs.

Here’s where the magic happens. I create a Day Count from 1 to 30 in a Row, or Array, corresponding with each numbered cell I calculate the Monthly ROI (Return on Investment) showing you that under, or next to, cell 15 that for 15 nights I have an ROI of $293.93 and cell 12 that for 12 nights I have an ROI of -$84.67.

Table 3. Array of days occupied to see AirBnB ROI.

This is extremely valuable for estimating STR income in any area and determining if the juice is worth the squeeze. It can be used to find a breakeven point and even compare that to the LTR averages in the area with a quick google search. Using the same formulas and procedures above create another array from 1 to 30 of for a LTR Monthly ROI broken down by night. Assuming the property will not need the utilities and cleaning services, your Monthly Property Costs will be lower for Long-term Rentals. This is huge! If you cannot beat the Long-term Rental Monthly ROI after 15 days, it is probably not worth putting on AirBnB in an average market. (My $0.02)

However, you can see your potential STR earnings can reach 2x or 3x your earnings for a LTR with a total of just 20 days booked. To visualize this, take the AirBnB Monthly ROI Data (and Annual ROI Data) and the LTR Monthly ROI (and Annual ROI Data) and plot them versus your day count array on a line graph.

Graph 1. ROI for Days Occupied. Line Graph of STR and LTR Annual and Monthly Income.

You can see points of interest, where the Annual data lines overlap and Monthly data lines overlap, this is the break-even point for STR and LTR. If you’re in a “hot market” you can conservatively assume you will hit an average of 20 nights a month booked on AirBnB. However, in a standard market, the AirBnB calculator on their website will spit out a “What you could make” estimate based on 15 nights rented out. This might be a good estimate off the bat, but leaves something to be desired. It doesn’t tell you that you might need to pay HOA fees, or that your mortgage is too high, or that your neighborhood is sketchy and no one wants to rent out your house because you’re in the sticks. As you test the waters, modify the calculations, or better yet, compare your actuals to the predicted data. If you find you’re not making what you thought you would, change up your STR tactics (i.e. find a cheaper cleaning service, get professional photos taken, have a minimal of 2-nights per stay, put property on multiple STR booking sites, make your cancellation policy more stringent/less stringent, minimize pricing, spruce up your house, etc.) or cut-rope and rent out via LTR.

I'm a huge spreadsheet geek. I graduated from the University of Texas (Hook’em!) with an Aerospace Engineering degree and I cannot imagine getting through college without Excel! I may not have the same elegance as others in my spreadsheets, but they are simple and I have confidence in them to show me a decent quick-look of my investments. Below is my actual data from AirBnB that shows my gross income for 2018 and 2019, as you can see I made more money in 2019 even though my nights booked were nearly a third the amount the previous year. My average nightly price crept up as I got better reviews, but it wasn’t until I made this spreadsheet that I realized I was charging way less than what I should. My last month of 2019 I grossed $1600 for 13 nights booked ($123/night) – a number which I got to with my handy-dandy AirBnB Income Calculator. In April I took a break from AirBnB and rented out my rooms to a couple roommates, $1200/mo total, and was able to justify the price based on the AirBnB income. This break has allowed me to spruce up my place with a DIY patio and a planter/screen in the backyard to provide more privacy and outdoor seating area. It also gave me time to recharge and revector so that I can optimize my life. But now I’m ready and raring to hit the market again! More data to come, hopefully verifying my predictions!

Table 4. Actual AirBnB data for 2018 and 2019.

None of this is Rocket Science, I’m sure plenty of you out there use similar tools, probably prettier and fancier, please make suggestions and critiques if you have them! This is my first blog post, please let me know if you have questions, comments, or suggestions for the future!

UPDATE (September 17, 2019):

Table 5. Actual Data for full time STR June-September 2019 and projected earnings with current reservations.

So my predictions were conservative, which is great! I am happy that I made the decision to AirBnB full time. Some struggles I’m facing include out sourcing Cleaning at a price point that doesn’t eat all my profits. As you can see the more bookings I get, the more cleaning’s I need to have. I have been cleaning mostly myself, but I did try to work with a local small cleaning business. Long story short, they were unable to provide the right type of cleaning service (they messed up bed sheets, couldn’t do laundry efficiently, and were too expensive). The current set up is great for me, since I can stop by the house after work and clean it a bit at a time and do laundry at two different houses. So I will continue to do that until December, but following my transition from Active Duty to the Civilian world, I will move the house into a LTR situation since it will be more easily managed by a local property management company.

Other lessons learned with the STR though: get the property on VRBO, HomeAway, and AirBnB to catch more travelers; have a 2-night minimum but set up a “Seasonal Requirement” to allow for a one night minimum to fill in the gaps; systematize responses/reviews to take more work off your plate (you can get requests to book at anytime and it helps to have these at the ready so you can keep getting 5 stars for your communication rankings!). Also, I had to cancel on a group back in April so that my roommates could move in. At the time it made sense to have them paying me $1200/mo while I was living there for 2 months, rather than a single weekend with $200 attached to it. Unfortunately this took away my ability to be a “Super Host” for a whole YEAR! I’m devastated because you don’t show up on searches that filter out non-superhosts, takes away a lot of decent travelers. Luckily, in my area I get enough traffic to cover it.

Will re-update in December when I call it quits! Let me know if you have any questions or suggestions!

UPDATE (October 22, 2019):

Ok probably the last update! I have all but locked in my final two months of STR for my house, been a great learning experience the last 6 months! I feel very confident that I can make this system work at my next location. Five key take-a-ways:

1. 1. Find what I call the “Golden Zone” for your area/house. Aim to get into that golden zone every month, and if you do, you’re golden! For me that was between 15-20 nights booked, but the most I got in one month was 18 nights. My average cleaning costs were $167/mo, but most of the time I cleaned it myself and it took 3-4hrs to do – this is the biggest expense for STR owners to overcome to make it work. If you’re looking for a side hustle then cleaning your own place, isn’t a bad option at all ($40/hr labor) and you’re making around 3x on a STR set up than you would a LTR set up.

Table 6. “Golden Zone” of days occupied, objective for monthly targets.

Table 6. Actual Data for full time STR June-December 2019 and projected earnings with current reservations.

1. 2. To increase your nights booked, set M-Wed as single night minimums and drop the prices to bring down your average nightly rate. This will help you get into the Golden Zone if you typically only have weekend bookings. HOWEVER, make sure you turn this setting off for holidays! I’ve got a guy blocking my Thanksgiving holiday because he booked when I forgot to set the holiday week to two-night minimums.
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3. 3. Put your STR on VRBO/HomeAway and AirBnB to get those people who use other forms of booking.
5. 4. Avoid cancelling on someone at all costs! I lost my Super Host status even though I requested that the guests cancel if they were able to get another place and I would reimburse them in full. There really should be a better way to avoid this, but right now just leave your guests be and don’t make the same mistakes I made!
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7. 5. Read other AirBnB tips! There were a lot of good ideas I got off of Pinterest and Vacation rental owner blogs that helped me set my place up to be an optimal STR. There are too many tips to put in this post and they do a better job of explaining their situation than I could, so I’ll leave them to it. Just google for AirBnB owner tips or look on Pinterest for articles and you’ll spend many a happy hour learning how to make the best STR experience for your guests!

I wish you all good luck in your STR adventures! I’m happy to have done it for the last 6 months and gotten over a year of LTR revenue out of it!