How Do I Analyze a property as a potential Air bnb?

Question

Help! There is a house on the MLS that I would like to analyze as an Airbnb. It states that it has already been a profitable Air bnb for the past year and the price seems good, but I am unfamiliar on how to analyze a property for an airbnb. Are airbnb's worth it? Would it be better for me to analyze it as a rental? Any tips on where to start?

Sofia Sharkey · Answer

@Stephanie Cessna

Three month projection analysis:

1. Open the Airbnb app and choose filter by the criteria of your potencial property (I.e 2 bed 2 bath in downtown)

2. Choose a listing, write all the week prices - add them up and divide by the number of days you wrote  (I typically do this for 3 months as prices are likely not optimized after that)

2. So the same thing with weekend prices, write them all out and divide by the number of days

3. How many days of the month is it occupied? 60% or 70% - you can see based on the blocked vs open days.

4. Take your numbers above times that occupancy %.

5. Repeat with 6 other listings

This will give you a spot on gross revenue and average daily rate numbers and for your area for the season. This not accurate for the rest of the year but if the next three months are NOT peak season and the numbers look good, then the deal makes sense in my opinion. Airdna has not been accurate in my experience so I do my own analysis for Airbnb and sometimes VRBO.

6. I also call property management companies in the area and ask how much would a property with x criteria make, companies like evolve (in vacation rental markets) offer pretty accurate data as well. This way you can confirm your numbers

Good luck and if the above doesn’t make sense, I’m happy to show you a screen shot where it’s easier to see!

Luka Milicevic · Answer

@Stephanie Cessna

You analyze it as if it were a long term rental. If it doesn't work as a LTR, then don't buy it. That's my advice.

Anyone in Nashville right now that bought properties at prices that only made sense as STRs are losing their shirts.

Joseph Cacciapaglia · Answer

When I'm assisting clients with STRs, we typically use AirDNA as a starting point for revenue projections. If our management team has similar properties nearby, we'll weigh in with our experience with those properties as well. AirDNA is giving you averages, and it's not hard to be above average in a lot of areas. If the property has already been used as a short term rental, then we request those figures. Keep in mind that the current owner may not run the property the same way you will. Getting their utilities/expenses can be very helpful though.

I tend to disagree with the idea that every STR needs to work as an LTR. Most of our most profitable STRs would be big losers as LTRs. This is kinda like saying that if you're buying a hotel, you should only do it if it would also work as apartments. No hoteliers are doing that. If you want to be in the STR business, then that should be how you analyze deals. I think otherwise you're leaving a ton of money on the table. The man who chases two rabbits...

Jaron Walling · Answer

@Stephanie Cessna Well for starters you make an Airbnb account and look at comparable rentals. What are they renting for? I'm renting one this weekend in Nashville for 60% below normal listing rate (according to the app). The owners of these properties are pulling stunts with "cleaning fees". It's laughable but that's another conversation.

I would also want to know the demand for the area. Location, location, location. A lot of Airbnb investors are hurting right now due to COVID but that's clearly starting to sway back since cities are opening up again. The best thing you could do? CONNECT with local investors (either in BP, local meet up, REIA group) and start asking questions. How many bookings do you need to cash-flow? I'm not an expert with Airbnb, but I wouldn't treat it much different than my LTR.

My takeaway from conversations with a local investor and BP forums is simple. The remote destination investments are booked. The tourist city downtown locations are not. In my opinion those investments will flip once the pandemic ends.

Stephanie Cessna · Answer

Thank you so much for all of the advice!

Kenneth Garrett · Answer

@Stephanie Cessna

Make sure you check the city requirements.  Local regulation can kill STR.  The regulation can change quickly.  One day they are permitted the next day they are prohibited.  Check out licensing requirements.  I like the way @Sofia Sharkey described how to analyze potential income.  I feel vacation rental areas are more secure then in a downtown area as the economy in these areas are driven for the STR market.

How Do I Analyze a property as a potential Air bnb?

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