Spreading investments among many different commercial properties can carry you through tough economic times. Airbnb investments offer investors another real estate market sector to add to their investment strategy. In addition, as societal norms evolve into a desire for more private and less crowded temporary housing and the ability to spend time at the destination relaxing in a home-like atmosphere with family, the demand for these short-term rental properties has increased, especially in smaller markets across the country.
While long-term rental agreements aren’t out of the question for these properties, they may fall under the guidelines of prevailing tenancy laws for long-term rentals. Airbnb is more typically a short-term rental of property at a significantly higher daily rate than long-term rentals, most often used for traveling, booking a stay of no longer than a month’s duration. However, before you sign on the dotted line, calculating the income for your Airbnb rental allows you to determine which property will offer the highest return on your investment dollar.
Read on as we explore how to estimate Airbnb income before investing in a Conway property.
Because demand drives prices, it’s essential to understand the market research of the location to estimate Airbnb income before investing in a Conway property. The bottom line income is found in your real estate market analysis. One of the variants involved in the study is the location’s appreciation rates. How is the appreciation been for the past 5 years? Another is the past and current rental data which you can plug into a predictive formula to predict the future performance of rentals in the area. You can find a great deal of research data on Airbnb sites as well as valuable tools for investors. You’ll also know if the location is more suitable for long-term rentals as well. You must select a property that is a good fit for this particular Airbnb strategy. Now that you’re able to zero in on your target location, it’s time to find a few properties you’re interested in to perform an investment property analysis and compare and estimate Airbnb income before investing so you can verify you have the right Conway property.
The first step to determining which property will bring in the most cash flow is to estimate Airbnb income before investing in a Conway property by deducting the operating expenses from the potential monthly income. Because tenants are short-term, your turnover costs are typically much lower. Consider, too, the differing rates during peak demand in your calculations, such as holidays or local events, so that you’re comparing realistic figures. You should also realize that there are likely to be days with vacancies as it is not a good rule of thumb to assume you will have 100% filled units. You may not want to operate your AirBnb 365 days of the year either, so reduce the number of days per month in your figures. Possibly using it for yourself or you family to enjoy? Taking advantage of your property if it is a great location is always a plus. While these numbers bundle both full and part-time Airbnb properties, a 65 percent occupancy rate is considered a top performer, with the average occupancy rate hovering around 50 percent.
Dividing the property’s net operating income by the property’s price will help estimate Airbnb income before investing in a Conway property. For example, if your monthly positive cash flow is $1,000 and we multiply this by 12 months, we arrive at an income of $12,000. Therefore, with an investment of $200,000 in the property, your cap rate would be 6 percent. Lower cap rates typically indicate a lower risk in the investment. While this is a widely used formula, don’t make this the only formula you use. There is another to consider as well..
Cash on Cash Return
Cash on cash return can provide you with the amount of money you’re earning for each actual dollars invested, most especially in the case where a mortgage is involved, to estimate Airbnb income before investing. First, you would need to calculate your pre-tax annual cash flow, the yearly rent less the mortgage payments. Then, calculate the total cash invested, including the down payment and other out-of-pocket fees. You can then determine the cash on cash return by dividing the pre-tax cash flow by the amount of cash invested. Some investors prefer this formula on deciding whether to invest as it gives them a specific snapshot of how the property will perform from day 1 and if they are wanting to make the investment for the return.
The pros at Clear Property Management LLC can help you estimate Airbnb income before investing in a Conway property. We walk you through the process step by step. At Clear Property Management LLC, we are your neighbors who live and work here in Conway, dedicated to staying current on market trends and helping you grow your real estate portfolio. Let the experience of the professional investors at Clear Property Management LLC help you pinpoint the best property available to begin earning income from Airbnb properties. At Clear Property Management LLC, we stop everything and take the time to understand your investment goals while helping you over any hurdles that you may believe are standing in your way.
And don’t forget to ask about the current inventory at Clear Property Management LLC, with the best Airbnb properties available in Conway. Why not let our full-service team at Clear Property Management LLC jump into action to help you fulfill the goals of your investment strategy, keeping you on top of current market trends and helping you with any necessary adjustments to your investment plans. And don’t forget to ask about our current inventory of the best duplexes available in Arkansas. Contact Clear Property Management LLC today at 501-733-9373.