What is the Optimal Price Correlation Between Commercial RE & Airbnb?

One of my most recent popular articles has been  3 Reasons Why You Should Consider Commercial RE vs. Residential.

Seeing the interest this article has garnered, I thought it would be wise to revisit this topic and further discuss the key dynamics and market forces to be aware of when considering high-end listings on Airbnb.

As most probably noted in by commercial real estate investors, once you start looking at real estate above $15M, you start to compete with syndications thereby making it tougher to hit your ROI goals. 

The same can be said when it comes to Short Term Rentals. There is a limit how much people will pay per night for a luxury stay at your mansion. It may be a mastermind event with people paying thousands of dollars to attend or a wedding, there is a limit as to how much you can charge to maintain a high occupancy rate at your required price. 

The simple formula I have found to be true is to be able to get your mortgage payment (including the escrowed insurance) back in the first 10 days. So say, you have a payment of $1300/month, and you should be able to charge $1300 a night while maintaining at least an 80% occupancy rate. 

There are many people that charge inordinate amounts per night. A quick look at their calendar will show you that they are not hitting optimal occupancy. Unless they have reasons for keeping occupancy rates low, in the long run, higher occupancy means more reviews. More review means more bookings since your trust and relevancy factor in search results increases. 

So make sure that when considering putting an offer on a luxury vacation home, you underwrite it with this in mind. Simply charging what others are charging is not an effective way to underwrite your offer. Make sure that they are achieving high occupancy rates.