I’m looking to Airbnb my primary house but I’m also looking to possibly buy the house across the street to Airbnb as well. I know how to valuate long term rentals that have the same rent each month, but how do you valuate short term rentals?

Any book suggestions on how to valuate and position Airbnb’s for max return with the least amount of work?

Thanks!

Hi @Brad Penley , below is a BP article that broaches the topic of your question.  Basically you need to know ADR and Occupancy rate which you can get from companies like Airdna or just good old fashion manual research on VRBO/Airbnb/Homeaway.  I usually suggest a combination of the 2 to get a good answer.  Be sure to check out the spreadsheet in my blog article as it has some good line items to think about when calculating the rest of the expenses.   Hit me up if you have any other specific questions. 

Cheers!

https://www.biggerpockets.com/member-blogs/10042/64779-8-ways-to-effectively-hunt-for-your-vacation-house-4-free

Look at comparable properties on AirBNB/VRBO and see how occupied they are/what their rates are.  Reach out to the hosts and see if they're willing to talk to you about it.  There's several things that are trying to create data like you're looking for, but the above way is definitely the most reliable.

My market is not your typical market.  My renters are not your typical Airbnb types of people.  

But this is how I evaluate a property on financial terms, 6 continuous months of gross rent should pay for the purchase price of a house.  It takes 7-10 months to get 6 months of rent.

I buy bank foreclosures for 25 cents on the dollar of appraised value.  My renters are refinery contractors with a per diem.  My competition is the local cheap motels.  

But if I were to change the formula to apply it to your situation, it would be something like this:  If 24 months or less of gross rent would pay for the house, buy it.  If 48 or more months of gross rent would buy the house, pass.   If somewhere between 24 and 48 months would buy the house, that's a gray zone.

I would check similar properties in your area on VRBO and Airbnb to see what their rates and occupancy looks like.

Originally posted by @Brad Penley :

I’m looking to Airbnb my primary house but I’m also looking to possibly buy the house across the street to Airbnb as well. I know how to valuate long term rentals that have the same rent each month, but how do you valuate short term rentals?

Any book suggestions on how to valuate and position Airbnb’s for max return with the least amount of work?

Thanks!

 Lots of great advice here. So here's the ultimate conundrum:

- sometimes I pick a few benchmark properties in my target area and track them to see how they're performing, BUT... you never know which dates are true revenue dates and which are simply the owner blocking the unit for their use! So picking a few benchmark properties can result in small sample size bias

- so then I look at aggregate numbers across the area using tools like AirDNA BUT...  you never know if the averages you're viewing are skewed bc maybe a lot of the rentals in your area are lakefront but your property isn't... OR maybe your property IS lakefront and the others aren't... OR maybe a lot of the rentals in your area were recently renovated, or have a pool, or have amazing views, or a million other things that the property you're targeting doesn't have in which case you have to skew your estimates up or down...

There's a million ifs in the data, whether you inspect individual properties or aggregate views of your area. Do your homework but also recognize that, sadly, data isn't perfect. It's much easier to do this kind of homework when buying an LTR where you know that pretty much every 3-BR home in a certain neighborhood will rent for around $1100/mon. STR has WAY more variables than LTR as rental rates and occupancy rates change from week to week.

@Paul Sandhu what is your method in getting property at .25 cents on the dollar ? Most banks today don't let properties go for less or much less than true appraised values. Ive been to a few auctions in person and online and the banks usually just but the property for themselves instead of selling it off as a loss . Of course a few get through the crack but in Western Florida and NJ  I cant see banks giving anything away recently .  Is there another means you get them ? or are banks in your your area less sophisticated ?

@Keith C.   The population in this town has been decreasing since the 1980's.  The average high school graduating class was around 175 when I graduated in '85.  The last few years the class size is around 80 students.

Why am I getting them for 25 cents on the dollar? 

1. Nobody else has made an offer.

2. There is a constant glut of houses for sale.

3. We pay cash, no loan.

4. I'm in the worst town to live in Kansas, according to google.  Property values is one of the variables in their formula.

I should mention that for every house we bought for .25 cents on the dollar, there was another house that we made an offer on but someone else made a higher offer.

@Keith C. - Yes Keith - it's that way in small town KS and some of the other flyover states - but you'd have to visit to get a feel for the area - if you are from/live in NYC you'd possibly die from culture shock -- I think small town KS is cool and appreciate it - but these areas are in different solar system compared to large metropolises.  I'm taking a wild guess but I'm guessing @Paul Sandhu    can buy stuff for or has $5k up to $50k without having been to Coffeyville in forever.  

Unfortunately our rural towns have been dying since the 50s/60s - which is sad as there are lots of cool and fascinating places - but it all happens slowly - first a large employer leaves, or maybe there's a farming crisis, tax revenue decreases, then folks with younger kids move away or the younger kids grow up then they immediately leave then never come back, then the schools start to die, then the schools close, then no one wants to live there, then the local hospitals or clinics lose fed or state funds then they close, their workers leave etc.  It's like a blackhole - once it's starts it's nearly impossible for these places to reverse the trends - a few places in KS have gotten better - Dodge City, Garden City, Hays - they hang on and are relatively "progressive" (I use that term loosely) compared to their other rural neighboring cities) and have found a way to survive and somewhat thrive in today's society.  

I think Coffeyville can hang on.  Some of the houses built by the titans of these local towns back in their heyday are AMAZING - some places in KS these houses are just rotting and it's SAD -- I can think of a few I've seen in Kinsley KS on some of my hunting trips -- in the right place in Wichita or KC or a larger metroplex you'd have people lining up to buy and rehab them.    My hope is we may someday soon have a reverse trend of folks wanting to live in large cities and wanting to go rural again with the progression of technology (however it will likely take just as long for the re-population of rural America to happen again as it did for it to die - but we need more companies to embrace remote workers as we have the technology in a lot of positions within companies for many things to be done remotely, 2ndly we need driverless cars legal and working, 3rdly we'd need to rebuild some of the infrastructure or figure out a way (likely tax incentives) to get people to move back to these places so things like schools/banks/hospitals etc can reopen or be revived.  

@Shane H. pretty much hit the nail on the head.  The population decline started when local college graduates moved to larger cities for higher paying jobs.  We also lost an Amazon.com distribution center about 5 years ago.  That's when the bank foreclosure glut started.

Shane, we hunt around Jetmore the 2nd week of pheasant season.  8 guys and 3 dogs in a bunk house.

@Paul Sandhu   Awesome - I lived in Holcomb for a couple years mid 00's for my first "Adult Job" and took to bird hunting in HS - upland hunting followed by Mule deer is my passion - if I could I'd be out bird hunting 2-3 days a week from Nov to Jan and then hunt out of state in Feb for a couple weeks in the southern states that stay open.

@Brad Penley I agree with the others on the ways they suggest researching the property. Panama City Beach could have a lot of difference in the rental rate depending on distance to the beach and other attractions. Some of the tools like AirDNA may have the data skewed a bit. As mentioned above, take a look at other properties that are similar and determine what they charge in high season vs low season, weekends vs weekdays, holidays, etc to give you a broad idea of the going rate for nightly rent. Then, check the calendars to see how frequently they are booked. Take it with a grain of salt since the owner could have the property blocked for themselves part of the time. Also be sure to factor in the added costs of having an STR vs a long term rental. You'll be paying higher insurance for short term rental property, cable/internet, lawn care, utilities, permits and furnishings. These are items (save for the insurance and permits) typically paid for by tenants of long term rentals.