Assumptions of occupancy and expenses for Airbnb

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Assumptions of occupancy and expenses for Airbnb

Patrick Britton
Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes

Hey Folks,

I am curious to know what typical assumptions are made with respect to the occupancy rate for an Airbnb.  I've heard and seen some at 50%, others at 70%.  

As well, what other expenses should be assumed with these sorts of rentals?  

thanks

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Michael Greenberg
Investor · Denver, CO · Member since 2016 · 533 posts · 433 votes
7y

@Patrick Britton - as @Brandon Sturgill indicated it does vary by location.  I average 78% in my market, but it's also a HIGHLY seasonal in AZ, rates vary dramatically.  While occupancy is an important stat, I think you're 2nd questions is more important.  Airdna is a decent investment tool and I've used it before, but I prefer to do my own analysis.  I want to know my "net" per night, per stay and per property.  It takes first hand experience to get to these numbers as it can vary, again by location, amenities, etc...  

Here's the categories I track by property:

Supplies

Utilities

Maintenance

Cleaning HOA

Insurance 

Mortgage (not applicable anymore)

Cable-Internet

Pool Expenses

Here's what else I track for combined properties:

Advertising

Travel

Promotions

Other

I also track assets for depreciation.  Some are section 179, others can be expensed immediately so check with your CPA.

Hope that helps,

Mike

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  • Brandon SturgillBusiness Member
    Real Estate Broker · Columbus, OH · Member since 2013 · 3k+ posts · 1k+ votes
    7y

    @Patrick Britton I think you will find this varies everywhere...all my assumptions on our Inn were at 30% occupancy...if it performs at 70%, we'll be golden...

    There is a site called Air DNA that has this data for your area...paid of course, but good user interface for sure.

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    4Reply
  • Richard Sherman
    Rental Property Investor · Salem, OR · Member since 2017 · 696 posts · 660 votes
    7y

    @Patrick Britton it can be all over the place and also depends on the kind of property...i.e. is it seasonal, business travelers, big city etc.  We use 35% assumption (based off 1st year) but when you break it down, we only rent it about 5 months of the year (high season in the wine area) and it is probably 65%+booked during that time at much higher rates than we would get in the winter.   You can sort of figure this out by looking at available dates for competing rentals to get a rough idea how far out they book up and how often they are booked etc.  We are also restrictive and require 2 night minimums and 3 night minimums on weekends during the high season as we will 100% book weekends and want the longer stays.

    2Reply
  • Michael Greenberg
    Investor · Denver, CO · Member since 2016 · 533 posts · 433 votes
    7y

    @Patrick Britton - as @Brandon Sturgill indicated it does vary by location.  I average 78% in my market, but it's also a HIGHLY seasonal in AZ, rates vary dramatically.  While occupancy is an important stat, I think you're 2nd questions is more important.  Airdna is a decent investment tool and I've used it before, but I prefer to do my own analysis.  I want to know my "net" per night, per stay and per property.  It takes first hand experience to get to these numbers as it can vary, again by location, amenities, etc...  

    Here's the categories I track by property:

    Supplies

    Utilities

    Maintenance

    Cleaning HOA

    Insurance 

    Mortgage (not applicable anymore)

    Cable-Internet

    Pool Expenses

    Here's what else I track for combined properties:

    Advertising

    Travel

    Promotions

    Other

    I also track assets for depreciation.  Some are section 179, others can be expensed immediately so check with your CPA.

    Hope that helps,

    Mike

    6Reply
  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 356 posts · 191 votes
    7y

    Even with AirDNA and other forms of analysis, isn't the big risk that new units will come available in the near future and depress prices? Isn't all analysis of past performance? I've read that in Portland and Seattle, the market became so saturated with STRs that the prices fell significantly. 

    3Reply
  • Mike V.
    Rental Property Investor · Campbell, CA · Member since 2017 · 419 posts · 499 votes
    7y
    My first year occupancy assumptions in my market... 85%. My actual occupancy rates most of the time for my first year property... 92-93%. This is with slightly undercutting the competition to establish a history of positive reviews. Year 2 should raise the rates and hit 95%+ Other areas I’ve seen as low as 50%.
    2Reply
  • Paul Sandhu
    Investor · The worst town to live in, KS · Member since 2016 · 4k+ posts · 4k+ votes
    7y

    My market is pretty simple.  I look at the cheap motel near the refinery every evening and count the number of trucks.  My occupancy is normally 3x-5x the number of trucks.  Total expenses run about 33% of gross rent in the long run on average.  There is no debt on any of my properties.

    2Reply
  • Patrick Britton
    OP
    Ann Arbor, MI · Member since 2014 · 1k+ posts · 997 votes
    7y

    @Sarah Lorenz well yes, all analysis is based on past performance.  It's all a best guess but hopefully some guesses are educated while others aren't.  I would always caution against forming a judgement based on a single report, source, or opinion.  And i would be most interested in knowing the source of the article.  Are they the sugar industry telling everyone that fats are the enemy?  Is the source pulling a Goldman Sachs, whereby they tell their investors one thing but tell the public the exact opposite?  

    I don't know enough about Portland, but yes Seattle is adding a lot of supply and is something to be aware of. And their sales prices have seen a decline recently, but not sure about STR pricing...

    0Reply
  • Brendan H.
    Real Estate Agent · Denver, CO · Member since 2015 · 125 posts · 43 votes
    7y

    @Michael Greenberg Agreed! So your own analysis of similar properties in the area referencing their calendars and rates. Think about whether you can make your property more competitive.

    Where in general are you looking?

    Utilities can vary tremendously. Ours are in FL and the Air Cond bills in the summer are big. Some areas, people want all the TV channels. Near the beach they don’t care so much so you can save there.

    Factor in $’s for replacing linens often. Get washable slip covers if you can. Get a good handyman, you’ll use them frequently.

    Most guests want things repaired ASAP because you are competing with hotels where maintenance is typically on-site. So your repair fees are typically higher since you will be needing to talk them into heading to your property immediately vs scheduling a couple days out.

    Good luck!

    2Reply
  • Jon Crosby
    Investor · Roseville, CA · Member since 2016 · 893 posts · 1k+ votes
    7y

    Hi @Patrick Britton, looks like you already received a ton of great feedback from some of the best on these forums.  Below is a link to my expense/cash flow worksheet I use for my properties in Lake Tahoe area for some further context.   

    ADR and Occupancy rates are more of an art than a science, but using sites like AirDNA are great places to start and then verify thru local property management or just good old fashioned research on Airbnb and VRBO for active rentals in the area.  

    In the end, those numbers don't mean anything unless you are providing your guests a quality experience and are keeping reviews as high as possible.  

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

    Cheers!

    4Reply
  • Avery CarlBusiness Member
    Real Estate Agent · USA · Member since 2016 · 909 posts · 1k+ votes
    7y

    All depends on your market. In mine we regularly hit 85% and above. As far as expenses, all of the obvious things like your utilities, cleaning, stocking of paper products, etc.  But make very sure to pay attention to your state and local occupancy taxes if any. 

    Podcast Guest on Show How to Get More Airbnb Bookings This Spring and Summer Break
    0Reply
  • Michael Greenberg
    Investor · Denver, CO · Member since 2016 · 533 posts · 433 votes
    7y
    Originally posted by @Sarah Lorenz:

    Even with AirDNA and other forms of analysis, isn't the big risk that new units will come available in the near future and depress prices? Isn't all analysis of past performance? I've read that in Portland and Seattle, the market became so saturated with STRs that the prices fell significantly. 

    This is an excellent point Sarah, thanks for pointing this out. I took a 1.2% decline in revenue from 2017-2018 as the market exploded from 3,000 - 7,000 STR's in the Phoenix/Scottsdale area. Honestly, I thought it was going to be a lot worse. This is a good overarching number to track, but I think there are a number of variables to consider beyond future prices and I have started to swim upstream into higher end property investments which have a lot less competition and the prices are much higher.

    0Reply
  • Cheryl Vargas
    Rental Property Investor · Rohnert Park, CA · Member since 2014 · 307 posts · 160 votes
    7y

    @Johanna Fransson - what area are your STRs in?  I haven't heard of the "beesnest" booking site, but it looks like they offer a great deal for investors.  

    How many of your bookings do you get through them?  Do they give you more bookings than the other booking sites that you use?

    @Mike V. -- those are great occupancy rates!  Congrats!  What else do you do to get 92% occupancy besides offering slightly lower prices?

     Are your STRs in Campbell?  I have relatives in SJ, but I could never buy there.  What are your thoughts about doing rental arbitrages in SJ/ Campbell areas?

    0Reply
  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 356 posts · 191 votes
    7y

    @Michael Greenberg I meant to reply to your response earlier--can you elaborate on your strategy for the higher end STR investments? I'd like to hear more. That is where I am with a 4 bedroom house and a high nightly rate, I think. But this is my personal residence I'm using right now. I'd like to hear more about how others are doing this strictly with investment in mind.

    0Reply
  • Michael Greenberg
    Investor · Denver, CO · Member since 2016 · 533 posts · 433 votes
    7y
    Originally posted by @Sarah Lorenz:

    @Michael Greenberg I meant to reply to your response earlier--can you elaborate on your strategy for the higher end STR investments? I'd like to hear more. That is where I am with a 4 bedroom house and a high nightly rate, I think. But this is my personal residence I'm using right now. I'd like to hear more about how others are doing this strictly with investment in mind.

    Hi Sarah,

    Instead of boring the audience, why don't you send me a request connect and we can take this discussion off-line.

    Kind Regards,

    Mike

    0Reply
  • Sarah Lorenz
    Specialist · Ann Arbor, MI · Member since 2016 · 356 posts · 191 votes
    7y

    Will do, thanks.

    0Reply
  • Tyann Marcink
    Rental Property Investor · St. Louis, MO · Member since 2019 · 63 posts · 52 votes
    7y

    Definitely varies by market. Where my properties are, I'm at 55% and very happy with my profit. I have friends that run 95% and make the same profit. I also go for higher price and less occupancy versus lower price with more occupancy (and more wear and tear). In the end, it's the bottom number that you need to be happy with.

    0Reply
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