BP Buy & Hold Calculator for Short-Term/Vacation Rental

21 Replies

Hey All,

I’m new to BP and short-term/vacation rental (specifically Orlando, FL area) is what peaked my interest into real estate and I have been immersed in gathering information. I have been trying to run numbers and analyze properties through the BO Buy and Hold calculator but I have run into a few workarounds and wanted to reach out to see if anyone else experienced this. The biggest work around is the occupancy rate is different than vacancy rate (even got a pop-up starting to put a percentage in haha); therefore, I don’t really want to include it in my expense section.

  1. Multiply occupancy assumption by 365 days
  2. Multiply the days by the average rate
  3. Divide that by 12 to get the average monthly income

Has anyone else done this work around? The other anomaly is that the property type doesn’t allow you to pick townhome, anyone else see this too? Not that big of a deal, but definitely something I noticed. 

Thanks guys!

Hey @Dave Gaines , you can certainly use a buy and hold calculator to get started with STR analysis. But they are very different business models that goes far beyond just the calculations. ADR (Avg Daily Rate) and Occupancy Total (based on occupancy rate and available days) will give you are gross operating income, but as you have probably already noticed, that is the tricky part. Even the automated systems cannot account for things like customer service, what kind of experience you are bringing guests, review status, etc. So, be sure to put very conservative numbers in for these metrics when analyzing. Conversely, on the Operating Expense side, you need to realize that STRs run VERY high Op Ex Ratios so the more you can itemize and get accurate numbers there the better.

Below is a spreadsheet I share often on BP that is a good place to start (especially with operating expenses).  You can use Everbooked and AirDNA to get high level estimates for your ADR and Occupancy rates but in the end, I usually like to supplement (especially if I'm getting serious about a property) with good old fashion legwork with calls to local property management companies and review of nearby listings on Airbnb/VRBO.  

Oh, here are a few articles I wrote on VRs here on BP if you want to check those out as well:   BLOG

spreadsheet:

https://www.dropbox.com/s/xwnw30cmjx32is1/Vacation...

Best of luck on your VR hunting! 

Here's my formula when evaluating a potential rental property:  Take your weekly rate and multiply it by 26.  If that number is more than what you are offering for the house, it's a good deal.  It's basically saying that 6 months of gross rent pays for the house.

But most of the time it takes 7-10 months to get 6 months of rent, and you have expenses.  That can be 25% to 40% of your gross rent. 

@Dave Gaines @Paul Sandhu’s method doesn’t apply to anyone except Paul so don’t pay attention to his numbers unless you’re moving to small town Kansas and becoming his competition. There’s money to be made in Orlando and they’re STR friendly. Vacation rentals are NOT for everyone. You have to answer questions and kiss asses and NEVER tell them they’re wrong even if they’ve been driving around for 2 hours with the wrong address in google maps looking for your place. Other than that just listen to@Jon Crosby

Typically you want to first do a basic back of the napkin approach to determine whether a detailed review is necessary. After comparing short-term rentals to long-term rentals using a basic back of the napkin approach, I determined that a short-term rental would provide a much higher return. 

Estimate Income: Check out the nearby comps on Airdna or Airbnb. Airdna also has a Airdna Rentalizer, which is helpful but your actual results are likely to vary since it's based on the average performance. In Also, keep in mind that the nightly rate and occupancy will typically fluctuate seasonally for Orlando, FL and that weekends typically receive higher nightly rates and occupancy levels. 

Estimate Initial Costs: Down Payment, Closing Costs, Furnishings, Repairs, Cash Buffer

Estimate Ongoing Costs: Mortgage, Taxes, Insurance, Maintenance, Etc. (much higher for short-term rental)

Compare Returns: My favorite way to evaluate basic returns is to compare expected cash flow to zillow estimated values. By comparing the returns from a couple of different types of properties (bedrooms, bathrooms, etc.) and a few locations you can narrow in on exactly what you want to get. I found that in my market there were a lot of 1-2 bedroom short-term rentals but very few 3+ bedrooms available, so the 3+ bedroom places were achieving a much higher return. Also, I found that while the expected income was slightly higher in the "great neighborhood", the best returns were going to homes located just outside the "great neighborhood" in the "good neighborhood". Still a good location but the schools were not great, so comparable homes in the "good neighborhood" were selling at 60% of the price of the "great neighborhood". Vacationers don't care about schools nearly as much as permanent residents with children. 

Here's a spreadsheet that I used to compare short-term returns, and calculate a more detailed return analysis. 

@Dave Gaines I agree with what @Jon Crosby said. I'm in Ft Walton / Destin, FL and use a very similar analysis spread sheet for my vacation rentals as well as the ones I manage for others. I would add a caveat here that, especially in FL, average nightly rate on an annualized basis can sometimes be a meaningless number because nightly rates are extremely seasonal. I charge $500+ per night in the summer for my beach front unit and about $95 per night for the same unit in early December. I charge $175 per night for my studio uni in July and $65 in November. So the way I estimate occupancy and average rate is for each month (a grid-like system). In peak season occupancy is near 100%. I actually don't care if have have 0% in December because I really don't make money on the $95 per night deal vs the wear and tear guests can cause. So if I tell you that my units run 85% occupancy that is actually not a flat line trend. 

I absolutely also agree that vacation rentals/ STRs are greatly affected by who and how manages them. Just like you can't predict what car will win the race without taking into account the driver :-), vacation rentals can vary based on marketing and management approach. 

Are you aware that the CITY of Orlando (a footprint which doesn't cover much area near the attractions) is implementing game-changing regulations starting 10/1/18? Quoting my reply from a separate Orlando-related post reply I made regarding this:

On 10/1/2018 (a week from today) the City of Orlando will end its amnesty period and begin enforcing new home sharing rules.

Major new requirements for short term rentals within city limits as I read it:

  1. Pay the city an annual fee ($275 in the first year, $100 o/o, or $125 non o/o in renewal years).
  2. Have the resident present during short term rentals.
  3. Not rent more than 50% of bedrooms. Therefore a two or three bedroom property cannot rent more than one bedroom at a time.
  4. The rental portion of the residence must be designated as an accessory use space.
  5. Must include the registration number in all advertisements.
@Lucas Carl I’ll definitely be using a property management company, I have talked to a few and be started factoring in their numbers to my analysis.

@Daniel Kauffman great spreadsheet! What is your experience with Airdna so far? I have been discussing with them about Rentalizer. I want to show my home owners how their property compares to the market. 

One of the things I am concerned is the fact that they only use airbnb data, i'd like to be able to compare with all the big players as well. I market the properties on many different channels and I am looking to some data I can really rely on. 

Originally posted by @Dave Gaines :
@Lucas Carl I’ll definitely be using a property management company, I have talked to a few and be started factoring in their numbers to my analysis.

 I self manage 5 vacation rentals from 8 hours round trip with 6 other self managed properties in 2 other markets. And a day job and a family. I’ve run 22 full marathons and read two non fiction books per week. 

Good question @Braner Dantas . In my opinion Airdna has the best tools and data that I have found for accessing Airbnb performance. Airdna's nightly rates generally seem fairly accurate but their occupancy estimates tends to be incorrect. For example: the actual nightly rate in our Baltimore property has been $298 vs Airdna has our property listed at $282 in their MarketMinder and their Rentalizer estimates $224. Their Rentalizer estimates our occupancy rate at 42%, however, we have maintained an occupancy of 70-90%. Their occupancy is likely off because people often rent through multiple platforms. If you have 100% occupancy but list your home on 2 platforms (50% homeaway, and 50% airbnb), then it might just show you at 50% Airbnb occupancy on Airdna. So, if you really want to accurately estimate occupancy, I recommend talking with local property managers or superhosts. Another great way to estimate occupancy is to look at the calendars of your competitors. You can see which days are available vs. booked in the next 30 days and estimate occupancy based on the number of days that are already booked. 

@Daniel Kauffman AirDNA gets their info from scraping Airbnb data (unless this has changed - and this is a key assumption for the following). Airbnb calendar data only returns available/unavailable and price, per day (for the current public API - so I'm assuming they're not using a different deprecated API). If you're listing on multiple platforms, then you're probably sharing calendars between platforms or manually blocking dates for Airbnb to prevent double bookings. This indicates AirDNA has the correct info for your property but are failing to come up with an accurate estimate based on another factor. As an example, perhaps they guess owner occupancy and subtract that from the total apparent occupancy. 

Hi @Dave Gaines  - I've recently refined a version of a calculator I've used in the past. I've used this with my own properties in Minneapolis as well as with my parent's vacation rental in Cape Coral, FL. Totally agree with seasonality that @Villy Ellinger mentions so that's included in my approach too. I hope this is helpful and welcome any feedback anyone has to make it better!  Vacation Rental Calculator

@Dave Gaines , I've been pretty unscientific but it's worked so far.  You can you use the Buy and Hold calculator, but factor 0% vacancy since short-term is just a different animal.  This will help you get a baseline of what you'd need to bring in each month to hit the returns you're going for.

Then, look out about 3-4 weeks on Airbnb in your area.  What's the range of prices for properties that have over, say, 30 reviews. You want to look ahead to avoid listings that discount deeply as the actual date approaches as well as just getting a larger pool of listings to look at. Airdna is also helpful.

Then I'll run a variety of scenarios. 90% booked at $50/night.  50% booked at $100/night. @Villy Ellinger 's matrix would be great to add to this as well.  I don't do a seasonal matrix because I'm in an urban area that sees little fluctuation through the year. But the goal here is running some different scenarios to see if you could still pay the bills in a worst-case scenario.

The other thing the buy and hold calculator does is tell you how the property could do as a long-term rental. We use STR to supercharge our revenue numbers, but our properties could get by as long term rentals if needed. That's probably not the case in many vacation destinations, but it's taken a lot of the stress out of STR for us.