How to Analyze a Short Term Rental/Airbnb Property for Investment
Hi BP Fam,
I know this question has been asked a lot but I haven't been able to get a clear direction. I'm looking to invest in a STR. I'm trying to analyze the deal but this is where I've hit a road block. I see a lot of members mentioning two methods:
1) AIRDNA. I was about to sign up but saw mixed reviews on the forums. Would really like to know if it's even good as a guideline.
2) Checking manually on Airbnb for similar properties nightly rate and occupancy rate. From what I've seen, it's only possible to get data for 2-3 months into the future. How do you determine the properties performance for the rest of the year?
If there are any other methods/videos you recommend, I'd really appreciate all the input I can get.
Thanks in advance!
I'm gonna say something controversial here...but just want to put it out there cause I struggled with the same thing too when running the numbers on my first STR. That is, there is no concrete way to pull that exact data. And even if there was, it will change constantly and lots of the numbers are based on your design, how you manage it, etc.
Focus on a ball park for both nightly rate and average occupancy. Keep in mind the big picture. If it's a beach town, it's gonna be dead in winter, if it's a mountain house you probably will get more visitors in winter. If it's an urban city, when does it get crowded with tourists? You are looking for ballpark numbers here. Don't over think it. But go with the conservative end of your ballpark numbers that you see on comparable airbnb listings in your area.
Over time you will figure out the little hacks to save money. Perhaps swap out the cleaning lady to someone more effective and cost efficient. Perhaps you add smart plugs so you can turn off appliances when people are checking in and out. Maybe you open it up to pets because you will get more travelers this way.
Don't overthink it. Just get a ball park number by looking at others and make some educated guesses based on what you already know about travelers and what times of the year they travel. That will be enough information to tell you if you should move forward or not.
Hope that helps a little bit...
Good luck! You got this!
Here are a number of strategies that I use:
Call local property management companies and say you are considering purchasing a property. Because they think/hope you will have them manage your property, they will be open about average annual income. Find a property on VRBO and AIRBNB with lots of positive reviews. This means they are experienced and know what they can get in a market. You can get a sense of what the average income per month. Properties with plenty of reviews are booked a lot so you are getting higher occupancy rates. I have exceeded the Airdna estimates on both my properties. To get higher occupancy, you will need to see what Superhosts (with high volume) are doing. Good luck! You are on the right track!
Quote from @Isaac Fridmann:
Hi BP Fam,
I know this question has been asked a lot but I haven't been able to get a clear direction. I'm looking to invest in a STR. I'm trying to analyze the deal but this is where I've hit a road block. I see a lot of members mentioning two methods:
1) AIRDNA. I was about to sign up but saw mixed reviews on the forums. Would really like to know if it's even good as a guideline.
2) Checking manually on Airbnb for similar properties nightly rate and occupancy rate. From what I've seen, it's only possible to get data for 2-3 months into the future. How do you determine the properties performance for the rest of the year?
If there are any other methods/videos you recommend, I'd really appreciate all the input I can get.
Thanks in advance!
Pricelabs market dashboards, best $10 you can spend.
Find a mortgage broker who can obtain the AIRDNA statistics for a property you are interested in. Your projections are only so important what numbers will a lender use? Maintaining AIRDNA access is expensive. Good luck.
You don't need to subscribe to AirDNA to use the Rentalizer tool. Again like others have stated there will be lots of variation based on market conditions and the way it is marketed and managed. Don't overthink but get a good baseline.
In general all you need is a baseline for ADR (Average Daily Rate) and OR (Occupancy Rate).
From there you can get AR (Annual Revenue) +/-10% depending on the factors mentioned above.
Use this number to determine if the property pencils for you.
@Ryan Foster Just to make sure I understand correctly, should I use AIRDNA to get a baseline or you don't recommend it?
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#3 Short-Term & Vacation Rental Discussions Contributor
- Rental Property Investor
- Tennessee Florida
Enemy method! It’s googleable
@Luke Carl Thanks for your reply. I've looked into the enemy method but haven't seen how I can use it to help with occupancy rate. Do you have a specific link to share?
Quote from @Isaac Fridmann:
@Ryan Foster Just to make sure I understand correctly, should I use AIRDNA to get a baseline or you don't recommend it?
Yes use it to get a general idea of potential revenue.
I like Airdna but you can also check with a realtor in the area that specializes in investment properties.
I will say that STR underwriting is going to be highly variable depending on a lot of factors. Those factors are going to be how well the property is decorated and furnished, any unique aspects of the property to draw people in, how well the property is managed, who your target guests are, and when you hit the market in terms of a seasonality for that market. For example, if you bought a beach house in the month of December, chances are you need to factor in holding costs upfront because you aren't likely to get many bookings to cover the mortgage.
Now for data, I do use AirDNA, and I realize it has limitations and I do the best I can. Underwriting is literally your best guess at something at the time of the assumption. One thing to keep in mind with AirDNA is that the nightly rate they are sharing including ALL the revenue that the property generated through only Airbnb and VRBO. The reason this is important is that the nightly rate you see in there includes any occupancy taxes paid through the platform, cleaning fees, pet fees, etc. So when using AirDNA the underwriting process is really about reducing the income you see in AirDNA to figure out the Net Income to you as the owner. That's the trick of it. You need to get some estimates for what turnover cleanings will be, look at competition that has similar amenities to your property. Also, realize that the underwriting might look like you will net X a month, but you need to bake in either numerically or just in your mind that the market may have seasonality, so it could be feast or famine. Summer months might be where a large part of your income comes, and then winter is next to nothing. So if you can work out a month by month breakdown that may really help get a better picture. I have an excel spreadsheet that I use where I can drop down each month being peak, middle and off peak occupancy and nightly rate. That gives me a better picture of the actual cash flow on a monthly, and therefore yearly basis.
With a paid subscription, you can pull the ADR and occupancy data month-by-month (don't go by the Rentalizer estimate). You can pull this data at different percentiles as well. With the the monthly breakdown, you'll have both the annual averages and seasonality. This is a high level starting point. You can take the averages and then make adjustments for your subject property's specifics, such as location, amenities, upgrades, etc. You can look at Airbnb listings to see what properties look like that correspond to the ADRs you pulled.
@Isaac Fridmann As an agent, you can then use the MLS to cross reference the estimated revenues (even with all that data, it's still just guidance) with the average sales prices in that specific location and property type. That's going to help provide an estimate of gross returns.
Once you've pulled the AirDNA data, you can cancel the subscription. You'll still have access until the month is up though, if you need to check back.
I agree with using enemy method and Airdna. You can also try reaching out to hosts in FB groups to get their input. It's harder to get concrete numbers for STRs compared to LTRs. Before I started with my STR, I heard someone say you have to be more tolerable of a spreadsheet that isn't perfect, and not every number/measurable is going to run perfectly from month to month. I'm in month 5 of mine and I'm learning I'm not as tolerable as I thought I was lol.
I’d also add that when you’re running your calculations, use bottom end projections (occupancy and nightly rates) to see if you’re comfortable with what the numbers come out to. For example, run it at 30-40% occupancy. It’s okay to lose money in “off season” months if you’re confident you’ll make up for it in other months (you’ll be measuring profitability annually anyways). That seems to be the case for a lot of hosts in Florida. Slower in winter months, but more than make up for it in summer months. You just have to decide what your risk tolerance is, I don’t think there’s a perfect way to analyze a STR. Hope this helps!
Rabbu is also helpful... https://data.rabbu.com/
Unfortunately, they do not always have a lot of comparable properties in close proximity, so pay close attention to them and decide if they are useful or not and exclude ones that are not. It is also worth the time to open each comparable in Airbnb to see how it actually compares to the property you are considering.
Just look for STR Expert Agents on Bigger Pockz since they may have deals with P&L's and data in the area.
@Isaac Fridmann
I will say that I have 3 short term rentals, which I bought before I really knew what air DNA was yeah yeah it was and before I really thought about underwriting them very much.
I'll just say that the airdna numbers have been pretty close to my actual numbers. (On the one I manage I'm right there because I'm a pretty "average " manager and on the one my ex fiance managed I exceeded it because she's an awesome manager)
I am currently buying a new one and my real estate agent agent has put me in touch with a short term rental manager who is very experienced in the area and they have given me numbers for their other properties.
For me right now my plan is buy a short term rental and get a local manager to get it going and up and running for at least the 1st year at thier usual ~20% fee and then I would plan to take it over once the hiccups are worked out.
Strs were the wild west but now not so much so there is no reason you cannot find local property managers to give you data.
If your agent doesn't know of any then they probably aren't a great str agent....
Quote from @Rhonda Cohen:Hi Greg,
Quote from @Greg Harris:
Rabbu is also helpful... https://data.rabbu.com/
Unfortunately, they do not always have a lot of comparable properties in close proximity, so pay close attention to them and decide if they are useful or not and exclude ones that are not. It is also worth the time to open each comparable in Airbnb to see how it actually compares to the property you are considering.
You just saved me a ton of time! I checked on the performance of our vacation rental properties. It was spot on. I will definitely use data rabba in my analyses. Mega thanks for posting! Rhonda
Quote from @William Beck:
Just look for STR Expert Agents on Bigger Pockz since they may have deals with P&L's and data in the area.
Newbie here... I've been lurking and learning for a couple of weeks now. How do I find STR expert agents here? I'm looking in the AVL diamond market.
This is a great response. There's no magic trick and you'll never have a rock solid estimate until you get in there and do it. AirDNA isn't that expensive, just do it! Figure out the numbers you would need to breakeven, if that's $250/night at 65% occupancy and Airdna is showing an avg for the market is $300/night at 75% occupancy, then there's your answer! Rule of thumb is if you can find a unit generating annual revenue of 20% of purchase (all in: rehab/furnishing etc) then it will most likely end up being a good deal.
Quote from @Mackenzie Grate:
I'm gonna say something controversial here...but just want to put it out there cause I struggled with the same thing too when running the numbers on my first STR. That is, there is no concrete way to pull that exact data. And even if there was, it will change constantly and lots of the numbers are based on your design, how you manage it, etc.
Focus on a ball park for both nightly rate and average occupancy. Keep in mind the big picture. If it's a beach town, it's gonna be dead in winter, if it's a mountain house you probably will get more visitors in winter. If it's an urban city, when does it get crowded with tourists? You are looking for ballpark numbers here. Don't over think it. But go with the conservative end of your ballpark numbers that you see on comparable airbnb listings in your area.
Over time you will figure out the little hacks to save money. Perhaps swap out the cleaning lady to someone more effective and cost efficient. Perhaps you add smart plugs so you can turn off appliances when people are checking in and out. Maybe you open it up to pets because you will get more travelers this way.
Don't overthink it. Just get a ball park number by looking at others and make some educated guesses based on what you already know about travelers and what times of the year they travel. That will be enough information to tell you if you should move forward or not.
Hope that helps a little bit...
Good luck! You got this!
Couldn't agree more with @Mackenzie Grate. Do your research, but don't overthink it.
We work with a lot of Airbnb/STR investors in Colorado, and we definitely use AirDNA. But everything is taken with a grain of salt and we're looking for comfortably assured projections, not exact numbers.
I've found that with most short-term rentals in Denver and Colorado Springs (and the surrounding mountains), AirDNA is pretty accurate because there's a lot of data. If you get into some of the smaller mountain communities -- with less data to pull from -- you've got to hedge those estimates.
Either way, my process is basically:
-- Run a property address through AirDNA's rentalizer tool.
-- Check the estimate against the actual comps used by AirDNA to generate the estimate
-- Are the comps nicer than the subject property? Then the estimate might be high. Are the comps actually less nice than the subject property, then the estimate might be pulled down by bad comps.
-- Go to the actual Airbnb or VRBO listings for all of the comps. (You can do this if you have a subscription.) See if their reviews started awhile ago or relatively new. A place with years of reviews indicates a place that AirDNA likely has good data on. If the place has only recent reviews, it's likely newer and the AirDNA estimate might not be as accurate yet.
Don't forget your gut! Does the place look amazing? Does it have potential for differentiating amenities? A hot tub? A game room? A great outdoor space? Or addition of more bedrooms for more guests.
Good luck!
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