Know Your Returns w/ an Airbnb ROI Calculator

An Airbnb ROI calculator is the best tool for investors looking to estimate the value of short term rental properties before buying them.

But how exactly do you estimate the ROI of these lucrative investment properties, and can an ROI calculator really help you increase your profit?

Table of Contents

1. How to Calculate the ROI of an Airbnb Rental
2. What Is an Airbnb ROI Calculator?
3. What Is a Good ROI for an Airbnb Rental?
4. What’s the Best Airbnb ROI Calculator to Use?

Before making an investment, every investor first needs to find out what value their investment is going to bring them.

When it comes to real estate rental properties, this value comes in the form of the rental income they can generate, in addition to the intrinsic value that comes with all real estate properties.

While the value of a property is typically determined by the market, the value offered by its rental potential can vary greatly depending on the decisions you make as an investor.

Short term or Airbnb rental properties, in particular, can be some of the most profitable real estate assets when managed by an investor who knows their potential.

And the best way for investors to know the potential value of an Airbnb rental is to estimate their ROI using an Airbnb ROI calculator.

So, in this article, we will talk about how the Airbnb ROI is calculated, what is a good ROI for a short term rental, and what is the best Airbnb ROI calculator that you should start using now.

Related: Airbnb Market 2023 Trends, Data, and Analysis

How to Calculate the ROI of an Airbnb Rental

Estimating the ROI for a real estate rental property is very similar to any other type of investment that generates a passive income.

However, a lot more goes into the calculation of a short term rental property’s ROI because of the high number of factors that can affect the income that it generates.

Firstly, since we’re talking about investing in a real estate property, then the value of the property and its potential to appreciate in the future should be taken into account.

Secondly, since short term rentals generate their income on a daily or weekly basis, the amount they generate can vary greatly from one month to another. This makes it harder to estimate their long term returns.

This is why when you want to calculate the ROI of an Airbnb rental, it will be challenging to come up with accurate assumptions about market dynamics that can affect the rental income.

To come up with the most accurate and reliable ROI estimates, real estate investors have to rely on historical data about short term rental markets and properties.

This data can then be used in the process of calculating the ROI of an Airbnb rental through a combination of the rental comps method as well as some real estate ROI metrics.

Related: Airbnb Property Analysis—Find Out if You’ll Turn a Profit in 10 Easy Steps

Nowadays, the best Airbnb ROI calculators all use historical data from real estate data sources to provide these estimates. But what is this historical data, and how is it used?

How Historical Data Solves the Problem

Short term rental properties are lucrative and popular among investors due to one primary reason: they give a lot of freedom to their owners when it comes to setting and changing rental rates.

This means that, unlike long term rentals, short term rentals on the same street can have different rental rates.

But when you look at the historical data for each property separately, you can learn a number of very useful pieces of information.

More specifically, you want to look at each property’s historical data regarding—

• How the daily rate has changed over the past two or more years
• How its occupancy rate has changed over the past two or more years

Luckily, platforms like Airbnb provide this data about properties listed on its website in order to help property owners track the performance of their rentals.

Investors, on the other hand, can use this data to compare properties that are similar in terms of type, size, and location.

Through this process, investors can come up with estimates about rental properties that they want to buy and answer questions like—

• How much daily rate can I ask for?
• What times of the year have the highest/lowest demand?
• What can I offer that would make my property stand out in the market?

Related: Estimating Airbnb Earnings Before Buying an Airbnb Property

However, this is only one part of calculating the ROI of an Airbnb property.

This lets you estimate the rental rate that you can charge for your property, which you can then use to calculate ROI metrics such as the cap rate and the cash on cash return.

When you’re using an Airbnb ROI calculator, these two metrics will come up very often. So, what are they, and how do you use them?

Using Cap Rate or CoC to Calculate the ROI of an Airbnb

The cap rate (short for capitalization rate) and the cash on cash return are the two most common metrics used to calculate the ROI of real estate rental properties.

Both of these metrics are very similar and can be used as reliable indicators, but they have small differences that make each ideal to use in certain situations.

The main difference between the two is that while the cap rate estimates the ROI based on the property’s market value, the CoC estimates it based on the amount of actual cash invested.

This means that if you’re going to borrow money from the bank or a private lender to buy the property, the cap rate won’t care, but the CoC will.

In that case, the cap rate would only look at the market value of the property regardless of how much you end up paying for it or how much of that money was borrowed.

On the other hand, the CoC would use the amount of money you’re paying out of your own pocket in the form of the down payment and other expenses. But it would disregard the total amount you’re paying for the house.

Typically, it is best for investors to look at both of these numbers when they want to calculate the ROI of an Airbnb rental before they buy it.

It is important to note, however, that both metrics require information about all of the costs and expenses related to owning an Airbnb rental before you can use them to calculate the ROI.

What You Need to Know About Costs and Expenses

The calculation of ROI for any sort of investment usually involves two parts:

• The money being invested
• The profit being made

For rental properties, the profit being made comes in two forms:

• Profit from rental income (and other secondary sources like renting out a parking lot separately)
• Profit from future appreciation and re-selling opportunity

Similarly, the cost of investing in real estate rental properties doesn’t only consist of the down payment or the price of the property itself.

Instead, since you’re going to own the property for a long time, a major part of the cost comes in the form of recurring expenses such as—

• Property maintenance
• Repairs
• Water and electricity bills
• Property taxes
• HOA fees
• Insurance costs
• Property inspections
• Garden maintenance

All of these costs and many others may incur when you own a real estate property, and they should all be accounted for when calculating the ROI of an Airbnb rental.

Using all of this data and information about any property allows an investor to calculate the cap rate or the CoC to estimate their ROI.

Of course, as an investor, it is important to learn all about the cap rate and CoC in real estate, how to calculate them manually, and how to use them when investing.

But luckily for today’s tech-savvy investors, they don’t have to do the calculations manually.

Instead, they can use an Airbnb ROI calculator to do it all for them.

What Is an Airbnb ROI Calculator?

An Airbnb ROI calculator is a tool that gathers performance data of Airbnb rentals in a market and uses that data to estimate the potential ROI of short term rental properties.

Since Airbnb provides this data, platforms like Mashvisor or AirDNA developed Airbnb ROI calculators to help real estate investors know evaluate properties before buying them.

But the best Airbnb ROI calculators, like Mashvisor, will also use other data sources like the MLS to provide additional insights and improve the accuracy of their estimates.

As mentioned in the previous section, an ROI calculator will mainly need data that allows it to run rental comps and use the estimates from these comps to calculate the cap rate or CoC.

So, a good calculator will also need to gather data about the costs and expenses that the average property would require in each specific market.

By looking at data from the MLS and other online and public sources, the best ROI calculators can estimate what the costs and expenses will be for each property you want to invest in.

Gathering all of this data and doing all of these calculations manually can take several months. So it comes as no surprise that Airbnb ROI calculators are becoming so popular among real estate investors.

What Is a Good ROI for an Airbnb Rental?

Measuring cap rate or CoC is the best way to estimate your ROI. But what counts as a good ROI?

Both the capitalization rate and the CoC rate are percentage-based metrics that express the rate of return on investment.

These metrics express the rate at which you will be making money as a percentage of the property’s value or the amount of cash invested.

So, a property with a cap rate of 5% will generate that much of the property’s value in the form of rental income in a year.

The question is, then, what is a good cap rate to have for an Airbnb rental?

Different investors can disagree on what is considered a good cap rate. But the general rule is that anything above 8% is good.

In theory, the higher it is, the better.

But in reality, when you’re using an Airbnb ROI calculator and you see a property with an abnormally high cap rate, it often means that the property’s data is flawed.

However, a good investor using a reliable Airbnb ROI calculator can easily find short term rentals with cap rates above 8%. And 10% is seen as the sweet spot for a lucrative property.

But finding properties with these high ROI estimates can be challenging if you’re not using a calculator tool.

Even if you’re not using the calculator, you’ll want to use a real estate investment platform for other purposes.

So, the next question that you should ask is: what is the best Airbnb ROI calculator to use in today’s market?

What’s the Best Airbnb ROI Calculator to Use?

When searching for the best Airbnb ROI calculator, you’ll encounter several options that specialize in offering specific types of data.

But the best Airbnb ROI calculator helps investors find the best investment properties to turn into long term or short term rentals.

And this tool is Mashvisor.

Mashvisor’s ROI calculator tool is part of a much larger platform that helps investors in three primary ways:

• Conduct research on markets of different sizes to gather market-wide insights about property prices, rental rates, and ROI projections
• Search for investment properties for sale based on filters and estimates about their rental rates and ROI metrics
• Analyze individual properties and see a breakdown of what their ROI will look like in the future

Mashvisor’s platform is equipped with powerful analytical capabilities. It pulls massive amounts of data that can be used to produce all kinds of useful insights and calculations.

These capabilities are important when talking about the best Airbnb ROI calculator. They all help in providing accurate and up-to-date results that investors use to their advantage.

How Mashvisor’s ROI Calculator Works

The Airbnb ROI calculator that Mashvisor offers is connected with other parts of the platform. Every property listed on the platform has its own ROI calculator page.

When going to the calculator page, you’ll find several sections:

• At the top, you’ll find the property’s details and info. These include a breakdown of important metrics, such as the rental income and cap rate.
• The main part of the page includes the interactive calculator. It breaks down all of the property’s costs and expenses. You could also change or add certain variables.
• The bottom section has a rental comps table. It showcases similar properties in the same area and the main metrics for comparison.

These sections of the Mashvisor ROI calculator tool provide everything that investors will need to make their investment decisions.

However, the investment property page also includes other useful tools and graphs.

The calculator tool includes a mortgage calculator where you can set the following:

• The type of mortgage you want to use
• Its duration
• Interest rate

This will help you get more accurate results for your CoC estimates.

Additionally, the analytics tab shows you what your ROI will look like in the next 10 years of your investment.

Finally, you can save properties that you would like to look at again later. And you won’t lose any changes you’ve made to the mortgage calculator or the expenses.

Give the Mashvisor Airbnb ROI Calculator a test drive today using our 7-day free trial offer!

Bottom Line: You Should Use an Airbnb ROI Calculator

The best Airbnb ROI calculator can help investors estimate their returns before buying a property. And it can do so quickly and with ease.

Investors who estimate the ROI of their investment will find that the process can take months to complete on their own.

First you have to gather all the required Airbnb data and information and do all the rental comps to estimate rental rates. Then, you have to figure out all of the possible costs and expenses to calculate the cap rate and CoC.

This process, from start to finish, can take around three months to complete.

However, using an ROI calculator like Mashvisor’s will let you get the same results and more. And you can use it on as many properties as you need in less than a day.

Whether you’re looking to find properties for sale or if you want to calculate the ROI of your Airbnb rental.

Mashvisor’s Airbnb ROI calculator can help you take your short term rental investment to the next level.

Want to see Mashvisor’s Airbnb ROI calculator in action? Book a time for a demo of our platform now!