How to Buy Your First Airbnb Property

Is Owning an Airbnb Profitable?

Owning a vacation rental property and getting it listed on Airbnb is one of the best ways you can generate income as a real estate investor. Depending on your location, it can give you a potentially larger income of at least twice as much as a traditional rental property. 

However, to get the most out of your investment, you must consider other factors, such as seasonality, rental market conditions, and the Airbnb property itself. 

Location

The profitability of your Airbnb business depends on numerous factors. The main drivers are location and seasonality. 

Airbnb rental income varies by location. According to Mashvisor’s latest data, the state with the highest monthly Airbnb rental income average is Hawaii at $5,288 on 3.68% cash on cash return. 

At first glance, it may seem very attractive, but you also need to consider how much a property costs in Hawaii. Currently, the median property value in the Aloha State is $1,184,295, with an average rate of $1,008 per square foot. 

Although a 3.68% cash on cash return isn’t bad, most experts agree that the ideal cash on cash return should be between 8% and 12%. However, locations that fall within the said range are few and far between. At the very least, you should only consider properties with at least a cash on cash return of 2% for it to be considered profitable. 

Looking at Mashvisor’s numbers, the state with the highest cash on cash return today is West Virginia at 6.25%. 

Seasonality

Each location follows a calendar of activities based on the seasons. For instance, states with pleasant sunny weather all year long, like Florida, Hawaii, and California, tend to attract more visitors than other states located inland and up north.

If you’re located in other states, your Airbnb property will most likely generate the most traffic during the third quarter of the year. Most people find summertime the best time to travel, which is why Airbnb occupancy rates shoot up during this season. 

While it’s not always the case, the weather will affect how much traffic your Airbnb rental will generate in a given season. It is why Airbnb hosts and owners adjust their rates for peak and off-peak seasons. 

Related: Tips to Maximize Airbnb Occupancy Rate During Peak Season

Rental Market Condition

Now let’s say you are located in Florida; it is not guaranteed that you will get the optimum rental income in any Florida location. Locations like Orlando and Miami only provide cash on cash returns of 2.46% and 1.29%, respectively. A Fort Lauderdale short-term rental property brings in a -0.32% cash on cash return, which is not ideal. 

Before you buy your first Airbnb property, you should at least consider the conditions of your chosen real estate market. Each market offers different things to investors in terms of rental income, cash on cash return, and occupancy rate. 

To obtain a better insight into the market, we recommend using rental comps to see the actual numbers. It will allow you to estimate how much rental income you can make on your Airbnb property based on what other similar properties are making. 

Knowing the above factors will help you determine whether a particular neighborhood is worth investing in or not. It is one of the most important steps of learning how to spot the right location for your rental property. Before you buy an investment property, be sure never to skip this step.

Related: How Much Can I Rent My House for? Use This Calculator

How to Buy Your First Airbnb Property in 7 Steps

As we’ve already discussed, getting off to a good start increases your chances of success with your Airbnb rental property. And one of the first steps to get you started is buying the right income property that will fit your needs and criteria. 

It is why you must learn how to buy your first Airbnb property the right way. We’ve provided a list of easy-to-follow steps for buying your very first vacation rental property. 

Step 1: Secure Your Financing

The very first thing you need to do is make sure your finances are in order. It’s no joke to buy a real estate property. Qualifying for a loan will depend on your credit score. Bankers and lenders are stricter now regarding loans, so what happened during the housing market crash in the late 2000s doesn’t happen again today. 

Even if you have enough cash to buy a property, you still need to ensure that an all-cash transaction won’t compromise your other financial obligations. If you opt to go with financing, consider your options first before making any final decisions. 

Conventional financing will require you to make at least a 15% down payment on a property, which is still a lot by most people’s standards. Additionally, rates for those who wish to buy their first Airbnb property are higher as they are considered to be more high risk. 

We recommend creating a limited liability company (LLC) if you plan to do this as a career. In such a way, you can keep your personal and business finances separate.

Step 2: Identify a Suitable Location

Once you’ve figured out how to go about your financial situation, you need to look for a suitable location that will give you a good return on investment. Knowing how to determine which town or city is right for your Airbnb venture will give you a better chance of success. 

You can use Mashvisor’s property search tool to see if a location is good. It will allow you to find areas where starting a rental property business is profitable. All you need to do is visit Mashvisor’s website and enter the address, city, or zip code. It will then lead you to a map of the area with a sidebar made up of three tabs: Investment, Airbnb, and Traditional. 

The map also functions as a real estate heatmap which gives you an overview of how the market is performing under the following categories: 

• Traditional Rental Income
• Airbnb Rental Income
• Airbnb Cash on Cash Return
• Traditional Cash on Cash Return
• Listing Price
• Airbnb Occupancy Rate

Depending on which filter you choose, the map will show you which areas are doing well, which ones aren’t, and which ones are just so-so. It is especially helpful for analyzing several neighborhoods in the shortest time possible.

Top 5 Locations for Your Airbnb Rental Business

According to Mashvisor’s latest data, here are the top five locations to buy your Airbnb rental property, arranged from those with the highest to lowest cash on cash return: 

1. Delhi Township, OH

• Median Property Price: $235,156
• Average Price per Square Foot: $148
• Days on Market: 27
• Monthly Airbnb Rental Income: $3,142
• Airbnb Cash on Cash Return: 8.09%
• Airbnb Cap Rate: 8.37%
• Airbnb Daily Rate: $115
• Airbnb Occupancy Rate: 55%
• Walk Score: 57

2. Rio Grande, NJ

• Median Property Price: $318,900
• Average Price per Square Foot: $245
• Days on Market: 52
• Monthly Airbnb Rental Income: $3,965
• Airbnb Cash on Cash Return: 8%
• Airbnb Cap Rate: 8.21%
• Airbnb Daily Rate: $301
• Airbnb Occupancy Rate: 52%
• Walk Score: 52

3. Reading, OH

• Median Property Price: $214,940
• Average Price per Square Foot: $148
• Days on Market: 33
• Monthly Airbnb Rental Income: $2,761
• Airbnb Cash on Cash Return: 7.66%
• Airbnb Cap Rate: 7.95%
• Airbnb Daily Rate: $101
• Airbnb Occupancy Rate: 59
• Walk Score: 80

4. Nashville, IN

• Median Property Price: $495,964
• Average Price per Square Foot: $202
• Days on Market: 35
• Monthly Airbnb Rental Income: $4,965
• Airbnb Cash on Cash Return: 7.58%
• Airbnb Cap Rate: 7.73%
• Airbnb Daily Rate: $260
• Airbnb Occupancy Rate: 55%
• Walk Score: 56

5. West Allis, WI

• Median Property Price: $219,161
• Average Price per Square Foot: $154
• Days on Market: 36
• Monthly Airbnb Rental Income: $2,861
• Airbnb Cash on Cash Return: 7.51%
• Airbnb Cap Rate: 7.79%
• Airbnb Daily Rate: $116
• Airbnb Occupancy Rate: 69%
• Walk Score: 56

To start looking for your first Airbnb rental property, click here.

Step 3: Find Out the Local Airbnb Rules and Regulations

One other thing you need to do as a first-time Airbnb investor before you proceed is to find out what the local Airbnb laws are. Airbnb regulations vary per state and county. Some are friendlier to Airbnb owners than others. 

Make sure to conduct extensive research on your limitations as a first-time vacation rental owner. You don’t want your Airbnb property to be on the wrong side of the law just because you failed to do your research. 

We recommend talking to a real estate professional in the area you’re considering before you buy a vacation property. It will eliminate any unnecessary legal issues in the future.

Related: Is Airbnb a Good Investment Considering All of the Regulations? 

Step 4: Research the Neighborhood

Remember the real estate heatmap we were talking about a while ago? It will come in very handy here. 

If you’ve already decided which city to buy an income property in, the next step is to look for an ideal neighborhood where your vacation rental business will flourish. 

Go back to Mashvisor’s heatmap and adjust its settings. Click on the drop-down menu in the upper left corner of the map. Since we’re looking for an Airbnb property to buy, you can look at the three Airbnb filters: Airbnb rental income, Airbnb cash on cash return, and Airbnb occupancy rate. 

Just select a filter to see which areas are showcased in green. The green areas represent the neighborhoods that are performing exceptionally well relative to the chosen filter.

Pro Tip: When using Listing Price as your heatmap filter, note that the green areas represent the most expensive properties while the red areas show neighborhoods with the cheapest properties. 

You can use Mashvisor’s Real Estate Heatmap tool to determine the performance of your preferred neighborhood based on Airbnb rental income, cash on cash return, occupancy rate, among others.

Step 5: Analyze the Prospective Airbnb Property

The next step on how to buy your first Airbnb property involves taking a closer look at a specific property. 

On the heatmap, hover over any pin to get a summary box of what that specific property can make you. You can click on the pin to get a more detailed view of each property. You can save each property for a closer comparison later on. It will give you a more realistic idea of what the neighborhood can offer. 

Ideally, you should find at least five comparable properties. You can compare them side-by-side with your subject properties to see how they fare against each other. It is also a good way of determining whether you should move on to buy a subject property or not. 

Mashvisor gathers all the numbers for the comparable properties from highly reliable sources, so you get a higher accuracy on your calculations. You can then use the site’s Airbnb calculator to help you figure out the math on your chosen property. 

If the math checks out, you can proceed to the next step. If it doesn’t, that means that the hunt is still on. 

Step 6: Make an Offer and Close the Deal

Once you’re happy with the numbers and you feel good about the property, you can proceed to make an offer on the property. It might take a few back-and-forths, depending on the negotiations. 

You can close the deal when you’ve all agreed on the price and conditions.

Step 7: Get the Property Listed on Airbnb

The last step to owning your first Airbnb property is to legitimize it by getting it listed on Airbnb’s platform. Coming up with an effective listing to increase your booking is a discussion for another day, but you can start here.

Congratulations, you are now a proud first-time owner of an Airbnb property!

Wrapping It Up

The key to running a successful Airbnb business is getting started right. And the key to a good start is knowing how to buy your first Airbnb property the right way, with careful step-by-step planning and thoughtful strategizing. 

As an Airbnb owner, you can potentially earn up to three times what a landlord would make in a month. All it takes is due diligence and the right real estate investment tools. Using Mashvisor in looking for the right Airbnb property will make your journey as a first-time Airbnb owner much easier and quicker. 

Let Mashvisor help you find your ideal investment property. Sign up for a 7-day free trial, followed by 15% off for life.