Airbnb Occupancy Rate?
Ottawa, IL · Member since 2016 · 242 posts · 107 votes
I'm trying to work some numbers on a potential purchase. Now I realize this will be very specific to the location/property/price/marketing/etc but what would be an occupancy number you'd put on an Airbnb type rental?
The numbers I have would work very well at 50% occupancy rate (15 days charging less than I would probably charge and pushing my expenses higher than I would imagine they would be and having cushion). So if that works, does that mean the numbers work? Is there something I may be missing?
Location and seasonality is everything. All depends on where your unit is. Which city/state are you looking in?
My Homeaway occupancy rate blows my Airbnb occupancy rate away. I am in upper 200s on homeaway/ VRBO. Less than 10 days for Airbnb. My point is look at different listing platforms. Using multiple ones will drive your numbers up.
@John Underwood - Yes, but I haven't looked into them yet. I guess I was using that as a general term like Kleenex or Qtips. But also, that's good to know!
@Jon Latorre - It would be near me in IL, I look at the general rentals around here, there's nothing quite like it (I don't want to say too much yet since I haven't bought it!) and nothing quite in this area (not sure if that's a good thing or bad) and it has something very unique and I'd imagine desirable! And, worse case, I love it and could have my business and retreat there and maybe sell my primary home and live there for much cheaper!! =)
So still anyone have feedback on what range would be best to use for occupancy? Would 50% be conservative or not in everyone's opinion and in their location? Looking for an idea of some averages. Thanks!
@Melissa Kirchhoff I don't know the area you're talking about but if you're looking at something in a ski community then 50% is probably aggressive. Their peak seasons tend to be really short, you can great huge margins during the time, but the rest of the year it's tougher. If you're looking at something in San Diego (good weather year round) then 50% is probably conservative. And in other markets you'll probably find that it's about right. This is anecdotal from my end looking at vacation properties in a couple of ski/snow markets and a couple of (non-San Diego) beach markets.
Side note, some of this depends on the type of property that you're looking to buy. The typical "snow bird" doesn't want a 5 bedroom/5 bathroom home when they visit off-season. However, during the beach summers you get disproportionately higher rent in those larger homes because it's able to be spread across so many more people than a 1 bedroom/1 bathroom condo.
I don't know the Illinois market at all so I can't really speak to which of those scenarios your property may be in. I hope that helps, at least a little...
@Melissa Kirchhoff - I believe when you say "AirBnB type of rental" you mean "Short term rental". When you say AirBnB you are limiting your marketing options like @John Underwood said.
All homes are going to have different occupancy rates throughout the year based on numerous factors. Location being the main one but also size of home, maximum occupancy, and amenities as well. It's very hard to give you an accurate estimate without knowing more about the specific unit you are considering. - I will say a standard 50% occupancy rate means that you'll rent out your home at least 183 nights per year which can be pretty high for some larger units. Again, it all depends on the specifics of the property. Sorry I'm not of more help!
"Nothing quite in this area" is probably a bad sign - I know it may seem like a lack of other short-term rentals means a lack of competition, but it may also mean a lack of demand. I don't know your area *super* well but my impression is that there aren't major tourist destinations that will attract a huge stream of visitors. In a smaller city without major tourist destinations, I think 50% is probably too high.
AirDNA and Everbooked have pretty good occupancy data (you're limited in what you can get for free though). If your town is too small to be covered by them, I'd just check occupancy rates for other AirBnB's (see what dates are blocked out, obviously this is imperfect and you'll only really be able to see July/Aug).
@Melissa Kirchhoff VR/STR is a business like any other business. Not having a full market study, specific to this property is like starting a business without the prior market study and assuming arbitrarily that you'll get a market share of x%. Well, based on that x% the business may fail or succeed, so it's crucial. And there is no way other than checking into multiple platforms (airbnb AND vrbo at least), finding the top 10 "working" properties with similar conditions/size/amenities/location and then decide. I have noticed in my area that some properties can perform (in terms of cap rate) 3 or 4 times better than others. (Note I said properties, not locations... each property has a different return for VR).
@Andrew Johnson - Thank you -- definitely not ski or San Diego! =) Also not a 5/5! It's right in the middle, an area that has a big special interest season for summer. So there's many people moving in for 3-6+ months that I could see wanting it longer term than say, a day or two. But being a waterfront 2/1.5 in this area, makes it still viable for families that visit our area - our boom for that is really fall, the place does a lot to market it that time a year. So I figure late spring, summer and early fall will be very conservative at 50% but wintertime will average out that because it will likely be less than 50%.
@Jon Latorre - Yes, I was using that term incorrect, but also, I didn't mean always short term (as explained above) I think there might be (is mid-term an option? lol) renters living here for the season that come in from other places for their season here. But vacation rental works, so yes, that. My apologies for my ignorance everyone!
@Tiffany Shan - Okay, I was wrong saying that, what I mean is it's a waterfront property that is mid size and private. The other waterfront properties around here are clustered into developer specials and either small cabins (think hotel room - no kitchen - but smaller) or massive (they are 5/5 and luxurious "high-end" houses). There's no real in-between in this area for waterfront and since this is a 2/1.5 I see it as a good in between. It's also a huge private lot with private access (which the one is just a man-made lake and not private and the other is a public access for the whole community in that area). So I think it's not that I'm going far outside the norm here, I'm just tapping into a less tapped part of the market. And shockingly, for being in the middle of IL, we have a lot of tourists (especially from Asia for whatever reason! Like who decides that one?! I'd find many other places to go before I'd go to IL!)
I'll look into the AirDNA and Everbooked, I don't mind paying if they have more, well worth it to know before purchasing something - and I like the second idea, I've been stalking the sites for a year plus now to see what gets booked but I really want to see if they have something on either of those sites. Thanks!
@William Crean - I like the idea of checking into reviews (I didn't think of that!) especially to find out other information (reason for traveling and size of group) to see if it's viable and there's demand. Great suggestion, thanks!
@Val Peare - I am definitely checking out the AirDNA, thanks! And yes, I guess I want to put more work into the numbers because my only exit strategy would probably be to live in it (not terrible if I can sell my primary home and get my equity out for other investments) or re-sell (I'd make sure I don't over pay or put too much in) and then I'd probably pretty much break even. So I'm not sure if either of those are great and I'd rather this just works out.
@Kevin Lefeuvre - Yes, I agree, which is why I started this forum! =) And yes, I will be looking into this.
Thank you everyone for the feedback, I have a direction to go and research and a better idea how to get there. Anyone with their stories about this, how they got their numbers before the purchase and then how close/far it turned out? Thank you again!
What's worked out well for me and my clients is to find properties where the break-even is at an annual occupancy rate of no more than 60% occupancy. That means all costs are covered, with the exception of Income tax, and all pass through fees are not included (i.e cleaning fees, transient taxes, etc. which are collected from the guest and then paid out to appropriate entity.)
Use both vrbo and Airbnb to maximize exposure.
Always have money set aside for unexpected expenses, or if you find yourself needing to cover expenses because income was lower than expected.
When evaluating large purchases for a payback, I love running scenarios. What if expenses are double or occupancy rates 2/3 of what AirDNA believes? Do the numbers still work for you? If you can make some negative assumptions and it is still cash flowing, you can be more confident that it will work.
Also come at it from the other direction and find your break even days. Fixed costs / (Rental rate - variable expenses).
So your mortgage + insurance + HOA + other costs you have to pay if never rented divided by (Average nightly rental rate minus cleaning costs per day and utilities and supplies for each stay). Use different average rental rates and see how the break even number of days change. With all your info if you need 250 days a year to break even or 150 or 90 you can get any idea on how risky.
When I started my Airbnb, I filtered out all the like item places I would be competing with. then I looked at their prices and calendars to get an idea of what kind of business they are doing. This will help you understand what yours may look like as well.
Then run your expenses against what you are seeing on these sites and if the math works, and makes sense to you go for it.
Mine came up with 17days occupancy per month to make money. Any additional days were bonus cash flow.
I get 70% occupancy easy in Hawaii, using AirBnb alone and starting from scratch.
Have you tried looking at AirBnb or VRBO in your area, contacting some of the owners and asking them what occupancy they get? This is the best way to know what to expect.
So I guess I realize now my question was pretty crappy in how it was explained, let me try to fix this:
I took expenses (mortgage, insurance, taxes (no HOA for this property so not a factor)) and added in estimated expenses (cleaning, utilities, supplies, repairs, etc) and rounded all those up. Then a threw some extra money (about 40% of total cost from earlier figures) since I figured there was something in there I wouldn't be planning for and didn't want to be SOL.
Based off that, I decided by 15 days a month to be rented (50% rate from the original) figuring it would average out in a year around that or greater.
I ended with a number that is around 1/3 of the much smaller and less amenity heavy area comps.
So I guess what I want to know is 1) Am I missing something glaringly obvious? 2) Would you say that's a safe investment? I feel like if I'm renting at a more comparable rate I'd be able to have lower occupancy/higher unexpected expenses and still be okay, but again, I'm just scared I'm missing something major that I haven't considered!
@Jeff Graves - Yes, I imagine where you are sees great rates too! I planned on having money set aside and taking the beginning months after expenses and just stashing it aside for future improvements or other expenses that might come up. Thanks!
@Ken Dillard - That's pretty much what my question was, so yes, this helps let me know we generally have a similar factors and equation. Thanks!
@Aaron T. - Thank you, that makes me feel more comfortable knowing your magic number was 17 days. So I take it you're having a fine time covering that and I assume Tampa is a pretty good location for that as well!
@Loren Clive - Yes, same thing, Hawaii seems like an excellent location for that. I haven't called only because I don't think I would have much success if they knew why I was asking but again, I do stalk the sites and have a general idea for occupancy through that but they still have slightly different markets that they would be tapping into versus mine. If you have any tips on that though I'd love to hear (and I've been out there multiple times, people out there are much more friendly and neighborly than Chicago-land people!) =)
You can try mashvisor, they give airbnb vs conventional rental profitability comparisons. Some vacation cities are better for airbnb, but others have so much vacancy it is preferrable to go conventional.
@Melissa Kirchhoff Not to complicate your analysis further but in order to understand your budget around cleaning, supplies, etc. you need to know your strategy. During peak times you can probably mandate (and will want to) a one-week rental period. You don't want to get caught vacant during the middle of the week as most people prefer long weekends as opposed to staying Tuesday, Wednesday, and Thursday night. And you probably won't want to rent it out for 2-3 months at a time. The do the 2-3 month rentals during non-peak times if people are up for it because you're trading a lower-per-night-rate for increased occupancy. Most of the people that I've talked to about snowbirds renting almost take it as a necessary evil. If people are staying for longer than a week they bring more clothes, things get messier, they eat-in a lot more, etc. Conversely, those staying for a week will use the BBQ, order takeout, go to restaurants, etc. They only have a weeks worth of clothes to show into the washer and dryer and they aren't as picky about closet space. But now I'm rambling. The bottom line is that to effectively budget expenses you need to know the cadence of the property. As others have suggested you can try to talk to someone locally about how it working out for them. You can also look on the Airbnbs of the world to see when there is a "7-day minimum" and when there isn't. If other homeowners allow people to book for 3 months. It's more advantageous (in my opinion) if you can look at that on professional property manager's website. Odds are if they are asking for minimums, restricting long-term occupancy, etc. it's for a reason.
@Melissa Kirchhoff good post, thanks for getting it going! As I read over your numbers it seems you are approaching this as a rental instead of a Bed n Breakfast. The difference? As the owner you need to be providing cable TV, wifi, not to mention a house full of furniture and household goods. Plates, napkins sheets, spare sheets, etc. Your competition will have these too, as they are often owner-occupied homes.
I have done research on this possibility as well; it sounds like you are farther than me if you have identified a property. My thought process was that there are a lack of houses around O-Hare airport. However as I dig and dig into it I see the properties that have the highest occupancy are the small apartments that are not much different than a hotel room. And there are very few similar properties to what I was picturing. Either I'm the smartest person in Chicago, or there just isn't a market demand.
@Aaron T. - Thank you, that makes me feel more comfortable knowing your magic number was 17 days. So I take it you're having a fine time covering that and I assume Tampa is a pretty good location for that as well!
@Loren Clive - Yes, same thing, Hawaii seems like an excellent location for that. I haven't called only because I don't think I would have much success if they knew why I was asking but again, I do stalk the sites and have a general idea for occupancy through that but they still have slightly different markets that they would be tapping into versus mine. If you have any tips on that though I'd love to hear (and I've been out there multiple times, people out there are much more friendly and neighborly than Chicago-land people!) =)
Melissa,
My doors have been open 10 weeks and I have only had 3 days vacancy so far. and these were just a random day between other guests stays.
I based my numbers off what my annual tenant was giving, plus any additional expense like electric and cable I would have to pay for now. then ran my numbers.
Don't forget to include things like CAPEX, maintenance, Property Management. these will all still apply.
@Andrew Johnson - Not rambling at all, this is what I'm looking for. One thing (that is really honestly one of the things holding me back from really pushing forward) is there's not laundry room and no oven. So that might limit long terms in many ways. However, the special interest in the area that would be potentially for the season would be frankly just having it to sleep in because they are out all day. Also though, they might be partying. So there's still some things I have to work through in my own terms for sure. I don't want to cut out money, but I want to be smart. I mean, waterfront and drinking is typical but pretty scary for me personally to enter into! But yes, very good points and really something I would need to research more (and probably have another different post about!). Thank you!
@Eddie Egelston - Hey fellow chicago-ian person! And yes, I would want to be slightly in between the two. And yes, that's what I've factored in. Personally, I've never paid for cable in my life nor have my parents, so I'm struggling with that *A LOT* but for other stuff, I've been in a hospitality-type industry for a long time, and I know I can knock that one out of the park (I'm actually quite excited about that aspect of it because I love my area and get excited about it, so I'm excited to share that with others and make them feel at home when they are away). Netflix, Amazon, Wi-Fi, heck yeah I'm in, but cable might be beyond my capabilities!
That's not a horrible idea, from what I gather from other people, this is picking up traction and I can see someone who might not want to stay at a hotel but may want an Airbnb type rental instead for a layover or something. Now, I think you might have to have things like smart locks or something for people getting in late flights more so than other locations, but that isn't huge. Personally, I can get behind it, me and my partner prefer staying at homes since we like to cook our own food and eat healthy and frankly, we tried the hotel with kitchens and most are super sketchy. Staying at other people's homes or rentals are usually cleaner, better stocked, and not terribly different in price. It's worth it to us and now, after doing it more, I really love the experience behind it, you really do feel less like a tourist and get a different (more unique) experience than staying at hotels! I'd say keep looking into it, I don't think you have a bad idea at all!
@Aaron T. - seems like an awesome start to me! Keep me posted on how it goes and if you learn anything else along the way. And for now, it will be just me (and my mom when I work or go out of town (though she doesn't know this yet lol!)) managing and doing it all (cleaning, maintenance, etc) until I'm free and clear. I'm all about that hustle until I'm in a position financially to know I can commit to paying someone good money to do a fantastic job doing it the way I want (subtext: I'm a super frugal control freak!)
Thanks again everyone!
As an Airbnb host, the glaring factor I haven't seen you mention is your time. Or whoever is going to be answering emails, texts and phone calls. check in, directions, repairs, etc. For Dallas, we're making 1-2k above long term tenants, but I keep my time below 4-6 hours a month. That makes it worth the extra hassle.
@Ronald Rohde - That's a good point but as a private practice owner and real estate agent, I'm already receiving those midnight calls and texts and around the clock questions, emails, etc. That's familiar territory to me and something I expect completely (and I've read the posts about things like how to use the cable box/tv/etc at midnight horror stories) and am prepared to handle those. I may not love it, but eventually I hope to scale and have someone doing all that for me!