How to forecast expenses and profitability for an STR

Question

Hi all! This is my first post here. I'm excited to learn more about real estate investing :)

I'm starting the search for my first STR and was hoping for some advice on my ballpark expense estimates to determine a property's break-even point. I used figures from https://www.buildyourbnb.com/blog-post/how-to-properly-forec... for a 4 bedroom home; self-managed. I'm aware that expenses can vary significantly by market, but wanted a starting place to be able to quickly evaluate profitability against AirDNA projections.

Experienced investors, how do you calculate profitability for an STR after expenses? Are my ballpark estimates reasonable? Are there better tools out there?

Followup. If the numbers are right, it seems like lower-priced homes that meaningfully cash-flow are rare. I want a return on time I invest self-managing. Since many expenses are fixed, should I be looking at higher-end properties?

Bryan H. · Answer

Yes, cherry picking of course… but here’s one of mine that I built all-in - land, build, fully furnished at $236k.

It has done over $80k past 2 years, and I have 2 other 1br’s that did $65-75k each.

Besides, where are you going to find a 7br house that meets your sub $500k requirement?

Sarah Kensinger · Answer

Unless you're using Airdna for your projected revenue you don't need cleaning fees. And when you do add them in, I would highly suggest checking out the OTA and see what the comparable fee is in the location you would be possibly purchasing a STR.

To be honest it's next to impossible to find nicely cash-flowing properties right now, you have to do lots of looking and have patience. I have found that the higher the purchase price the harder it can be to cash-flow, but of course that is not across the board, just general. And it all depends on the amount of cash-flow an investor is looking for.

We use an analyzer to underwrite a property using projections from Airdna (subscription model), with all the expenses you already have written out.

I hope that helps, feel free to DM if you have any questions on underwriting a property.

Brian Barch · Answer

I think you are going about it just fine.I would use several tools, airdna, awning, enemy method, local realtors/PMs to arrive at revenue projections.

Think about furnishings, design, etc. 15% of purchase price/year in revenue is a good target for STRs, but all depends on your goals.

as I’m sure you well know, do your due diligence over and over, but at some point you have to do the leap of it meets your threshold….no such thing as a sure thing

John Underwood · Answer

As Michael said these are generic numbers.

Two side by side  houses could perform very differently based in views, size amenities etc.

Collin Hays · Answer

All looks pretty good for a starting place!  I would take out "cleaning", as you are likely going to charge a cleaning fee and then pass through that revenue to whatever cleaner you hire.

For repairs and maintenance, I plan on 15% of revenues per year.  Some years it's only 10%, other years it's 20%.  But 15% is a good number, and if I have excess funds year-end, it goes into the next year's account in case there I need to replace a septic system or HVAC.

Michael Baum · Answer

Ok so numbers are numbers. All of those are somewhat meaningless without a house. It is all going to be dependent on the place and location.

The 500k place could be a better bet if it could gross 100k+ in an area vs the 250k place that might only pull 25 or 30k.

Andrew Steffens · Answer

Good starting place but from there I would find houses for sale on Zillow, etc and start penciling in actual properties.  As mentioned above two same size houses can perform very differently for about 20 different reasons.  You can still on occasion find $100k gross income properties for $500k(ish) in FL!

Jon Martin · Answer

That would be a $300 mean ADR (after fees/taxes) at 75% occupancy to get those numbers. Which for a 1 bed seems only justifiable in A+++ locations, and not something you are likely to buy into for less than mid-to-high 6 figures (minimum), at which point the revenue-to-price ratios no longer make sense.

If I'm wrong, I would love to know where these magic markets are where I can gross $80k on a sub <$500K 1-bedroom property. Bonus points if actually compliant with prevailing local and HOA regs.

Bryan H. · Answer

$80k per year for 7br? Is that a typo? A good 1br STR can gross that much.

How to forecast expenses and profitability for an STR

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