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Measure Your Airbnb ROI: Use Our ROI Calculator

Airbnb remains a strong investment option. To invest in short term rentals, use an Airbnb ROI calculator to determine a property’s profitability.

The short term rental market is one of the most lucrative investment options when it comes to investing in real estate. The rise of home-sharing platforms like Airbnb in the late 2000s opened various opportunities for real estate investors, even homeowners, to earn extra income. Until now, despite a slight cooldown in the real estate industry, the Airbnb market remains strong.

Table of Contents

  1. Is Airbnb Still Profitable in 2023? 
  2. How to Calculate Your Potential Airbnb Profit  
  3. What Is an Airbnb Profit Calculator? 
  4. How Does Mashvisor’s Airbnb Profit Calculator Work?
  5. Find the Best Airbnb Rentals Using Airbnb ROI Calculator

Finding a profitable investment property is vital to becoming a successful Airbnb host. In order to do it, you need to identify the best location for investing in short term rentals, study the Airbnb data, and determine if the area is good for making a profitable investment. Keep in mind that not all locations are optimal for Airbnb investing, so finding the right market is important.

Whether you’re a first-time or seasoned investor, studying and analyzing the market manually can take up too much of your time and energy. Researching real estate data on your own can be time-consuming, and it’s also prone to error. Fortunately, online real estate analytics platforms like Mashvisor and tools like the Airbnb rental calculator make the process easier. 

Mashvisor offers tools so investors can identify the best properties for investing in short term rentals. One of them is the Airbnb return on investment calculator, which helps calculate the potential returns of a particular investment property. This blog will teach you how to measure Airbnb ROI using Mashvsior’s real estate ROI calculator.

Is Airbnb Still Profitable in 2023?

Many investors are wondering if Airbnb will make a good investment in 2023. The short answer to the question is yes. In fact, despite ongoing fears of a possible recession, experts believe that the short term rental market will remain stable. While the general outlook for the Airbnb market is good, it doesn’t go without risk. As an investor, you should know the pros and cons first before investing.

Reasons Why You Should Invest in Airbnb in 2023

Since home-sharing platforms became available, short term rentals gained popularity among both investors and guests worldwide. 

You can find several reasons why many people prefer to stay in a short term rental property over a hotel. For starters, Airbnb rentals offer unique features and amenities that are not provided in hotels. Also, they are a lot cheaper, too.

In addition, Airbnb rental properties provide a more home-like experience for guests. In some short term rental properties, for instance, guests can access kitchen amenities that allow them to cook. Large groups also can opt to rent an entire property to accommodate them. Such options are not usually possible with other hospitality services, like hotels or hostels.

These are a few of the reasons why Airbnb attracts a high market demand around the world. In 2023, the short term rental market is expected to remain stable and robust, despite the slight uncertainties in the real estate industry. Here are three reasons why you should consider investing in Airbnb this year:

1. Hedge Against Inflation

The current state of our economy is such a rollercoaster ride. Investing in the stock market is a risky business nowadays. A great way to minimize the risks of inflation is to invest in real estate, and an Airbnb investment is one of the best strategies to consider. 

Investing in the best short term rental markets allows you to earn substantial returns despite the uncertainty of the economy. It is because there are people who will still go on vacation no matter what the prevailing economic condition is. Keep in mind, though, that it’s really important to strategize carefully to be a successful Airbnb owner.

2. High Profit Margins

One of the biggest advantages of investing in Airbnb is its high profit margins. In fact, if you choose the best investment property for short term rental, you could earn twice as much as you could earn from a long term rental property. Remember, however, that short term rentals are seasonal, and the average rate you can charge per night may vary depending on the season.

Choosing the right location that attracts guests all year round can help your bottom line. The more peak seasons in a year, the higher returns you can expect to earn from your investment. To know the potential profit of an Airbnb investment property, it’s important to use an Airbnb ROI calculator. Such a tool can help you make the right choice on which income property to buy.

3. Less Tenant-Related Risk

Renting out your home to complete strangers, even for the short term, can be scary. After all, it’s difficult to entrust your investment asset to people whom you do not know. The great thing about renting out your vacation rental using home-sharing platforms like Airbnb, however, is that you can check reviews about the guests before you accept them.

Unlike investing in long term rentals, where you need to do the tenant screening process yourself, Airbnb investing makes the process easier for you. Moreover, there’s less risk that the guests won’t be able to pay their rent because you’re given the option to charge the fees and nightly rates through the platform.

Related: 40 Best Cities for Airbnb Rental Income in 2023

Risks of Investing in Airbnb in 2023

The Airbnb market is one of the industries that were adversely affected when the pandemic came about in 2020. When the whole world was placed under strict lockdowns, many short term rental owners suffered significantly. As a matter of fact, some of them were forced to close down their business because they couldn’t keep up with the cost of mortgage and maintenance. 

Fortunately, the short term rental market is also one of the first industries that immediately got back on track when the lockdowns and travel restrictions were gradually lifted. The high demand from travelers from around the world are one of the reasons why many new investors want to buy vacation rental property to list on Airbnb. 

However, as with any type of investment, investing in Airbnb also involves certain risks that investors should be aware of. Knowing what you’re getting yourself into is vital so you can find a way to mitigate the risks and lessen their blow. Here are a few things that you should understand before you decide to buy an Airbnb for sale:

1. Your Income Is Generally Unpredictable

As mentioned, the short term rental business is seasonal. Your nightly rate varies depending on the seasonality—during peak season, you can charge a higher rental rate, while you should adjust your rate during the low season. It’s also worth noting that even if you adjust your price, there’s a possibility that your occupancy rate will remain low, depending on the demand.

In general, your rental income is unpredictable if you invest in Airbnb compared to investing in long term rentals. To minimize this risk, it’s crucial to study the market by performing a thorough rental property analysis. This way, you will be able to identify which markets experience a high occupancy rate throughout the year, offering a high potential for continuous income flow.

2. Interest Rates Might Continue to Rise

While many real estate experts are expecting the interest rates to fall this year, there is nothing specific as of the moment. So, before you start looking for vacation homes for sale in your chosen location, you must understand that the interest rates may still continue to increase in 2023. It will significantly affect your investment acquisition cost and overall profitability.

However, if you choose the right market to invest in, the advantages may just outweigh this risk. After all, a short term rental property in the best Airbnb market will likely generate high returns. It’s best to use the best Airbnb return on investment calculator to ensure that you’re buying the right investment property with a high potential for good returns.

3. The Airbnb Laws and Regulations Could Change

One of the things that make the short term rental market a unique investment is that the laws that regulate this investment may vary from one place to another. Also, there’s a possibility that the said regulations could change over time. So, what happens if the laws change and how will it affect you?

Simply put, you’re at risk if you buy an Airbnb property in a location where there are no clear short term rental rules, then after a few years, the city decides to issue certain restrictions. As an Airbnb investor, it’s crucial to stay updated on the rules and regulations related to short term rentals to stay in compliance with the law.

Don’t know if your desired location has restrictions? Check out Mashvisor’s Airbnb regulations page to verify.

How to Calculate Your Potential Airbnb Profit

Before you invest in Airbnb rentals, you need to establish first that the location you’ve chosen allows the operation of short term rentals. When browsing for vacation rentals for sale, check the potential Airbnb profit a particular property can generate. It can help you decide which property will give you the highest possible return on investment. 

Calculating the potential Airbnb ROI is possible without the use of an Airbnb return on investment calculator. In fact, investors in the past only did manual computations when assessing the profitability of different investment properties. Note, however, that it takes time, energy, and patience to calculate the Airbnb ROI manually.

Here are the simple steps that can help you determine the possible return on investment of a particular Airbnb property:

Step 1: Do Your Research and Analysis

To calculate the potential ROI of a short term rental investment without an Airbnb ROI calculator, you need to spend time on research. There are a couple of things that you should research: the real estate market where you plan to buy a vacation rental and the investment property itself.

Real Estate Market Analysis

Location is an essential factor that can greatly affect your success as a vacation rental property owner. If you want to generate high ROIs from your Airbnb investment, it’s crucial to find a real estate market that is optimal for short term rentals. To do it, you must conduct a thorough real estate market analysis. 

You need to identify a profitable market by making sure that the location attracts a high demand for vacation rentals. The best short term rentals for sale are those that are located in a place where tourists often visit. When conducting an Airbnb data analysis for a certain real estate market, make sure to be able to identify the following:

  • Seasonality: How often is the area flocked by visitors?
  • Popular attractions: What attractions draw visitors to the area?
  • Demand for vacation rentals: What is the percentage of visitors who stay at short term rentals versus those who stay at hotels?

By conducting a market analysis, you’ll be able to determine if such a market is ideal for investing in Airbnb. Keep in mind that some markets are more optimal for investing in long term rentals. You don’t want to end up buying a short term rental property in a market where there is no sufficient demand for Airbnb.

Investment Property Analysis

Once you identify the best market to invest in short term rental, you should analyze the investment property next. While an area is good for investing in Airbnb, not all properties located there can generate a good ROI when listed as a vacation rental. A thorough property analysis lets you know if the property comes with the potential to earn a high income.

You need to find out how much the property will likely earn as a vacation rental by looking at rental comps in the same area. They can help you identify if the property will be profitable when listed on home-sharing platforms like Airbnb. You must determine certain figures to find out how much you can make from renting out a particular property as a vacation rental. 

Here are a few important things that you need to know:

  • Airbnb Occupancy Rate: The occupancy rate refers to the number of days the property is occupied versus the number of days it is listed for rent. In general, the higher the occupancy rate, the better income you can expect to receive. 
  • Average Daily Rate: This is the average per-night rate in a year you can charge to guests, considering both high and low peak seasons. If a property has a high average daily rate, it is likely to generate a high return on investment.

Related: How to Find Rental Comps to Price Your Property

Step 2: Calculate Your Potential Income

After you’ve gathered the important Airbnb data, you can then calculate the potential Airbnb returns by multiplying the average occupancy rate in a year by the average daily rate. Then, multiply the result by 365 (the number of days in a year). 

For instance, if your average daily rate is $120 per night and the property’s average occupancy rate is 75%, your potential income is:

$120 x 0.75 x 365 = $32,850

The calculation above is your potential income before expenses and taxes are deducted.

Step 3: Gather Additional Information About the Property

There are several factors that play important roles when it comes to calculating the return on investment of a short term rental, not just the occupancy rate and average daily rate. To get a more accurate computation, you also need to use other metrics, such as cash flow, cash on cash return, and cap rate.

Cash Flow

Cash flow is the money that goes in and out of your business. Investors often report two types of cash flow. Cash inflows are typically the income that you get for renting out the property, while cash outflows are the amount of expenses and other costs associated with the property. For an Airbnb property to be considered a good investment, it needs to generate a positive cash flow. 

A positive cash flow property means that there are more inflows than outflows. As an investor, you should aim for a positive cash flow property so that you will realize a return on investment quickly. It means that the investment property that you should buy must generate more income than its expenses.

Let’s go back to our sample computation above. Remember that in our example, we only calculated the gross income in a year. We did not take into account the expenses that you should spend while operating the Airbnb rental. 

If the expenses are more than the gross income, then you’ll suffer a loss. That’s why when finding the cash flow, it’s crucial to determine the possible expenses and other costs associated with owning the property. The expenses typically include the following:

  • Monthly mortgage payments
  • Closing costs
  • Property insurance
  • Taxes
  • Repairs and maintenance
  • Utilities
  • Property management
  • HOA/condo dues

The cash flow formula is simple. You just need to subtract the cash outflows from the inflows. Once you’ve determined the total expected expenses of a property, then you can deduct the amount from your gross annual income. This way, you’ll find out if the property will generate a positive or negative cash flow.

Cash on Cash Return

The cash on cash return is a rate of measure that can also help you analyze how much your potential ROI would be from an investment property. Airbnb’s cash on cash return allows you to identify your potential return while taking into account the financing method you use for acquiring the property. 

To calculate the cash on cash return, you need to divide the net operating income by the total amount of cash you initially invested into the property. It is the total money you paid from your pocket when you bought the property. It typically includes the down payment, closing costs, and repairs or improvements paid for in cash.

Here is the cash on cash return formula:

CoC Return = Net Operating Income / Actual Cash Investment

For example, if your net operating income is $2,000 and your actual cash investment is $40,000. Then your cash on cash return is:

$2,000 / $40,000 = 5%

Good cash on cash return value varies depending on the location of the property. In general, real estate experts agree that a cash on cash return between 8% to 12% is considered good and profitable. However, in some markets where the appreciation rate grows significantly, a cash on cash return of at least 2% is considered acceptable.

Cap Rate

Cap rate, or capitalization rate, is another rate of measure that can help you determine if an investment property will make a worthwhile profit. The cap rate is almost similar to the cash on cash return—the only difference is that instead of the total amount of cash invested, the cap rate is calculated using the value of the property.

For example, if the property is selling for $130,000, and your annual net operating income is $4,800, then your cap rate is:

$4,800 ÷ $130,000 = 3.69%

Similar to cash on cash return, what is considered a good cap rate will depend on where the investment property is located. In real estate markets where the home appreciation rate is high, a cap rate of 2% or higher is acceptable.

In general, it is possible to calculate your potential Airbnb return on investment without the need for an Airbnb ROI calculator. However, it can be time-consuming, laborious, and also prone to error. If you don’t want to calculate the ROI on your own, you have the option to use real estate tools, such as the Airbnb ROI calculator.

In the following section, we will discuss the process for calculating the potential short term rental profits using a real estate calculator.

Related: Real Estate Investing for Beginners: How to Calculate Cap Rate

What Is an Airbnb Profit Calculator?

An Airbnb profit calculator is a tool that can help real estate investors determine which property will make a good investment without doing things manually. An Airbnb return on investment calculator is usually available with online real estate platforms like Mashvisor. With an Airbnb rental calculator, you don’t need to perform the abovementioned steps on your own.

The best Airbnb ROI calculator should be able to provide you with accurate Airbnb data so you don’t need to research the necessary figures manually. It’s important to note that there are plenty of Airbnb investment calculators available online; however, not all of them are created equal. Make sure to choose the best Airbnb calculator to work with for accurate measures. 

In the next section, we will learn how Mashvisor’s Airbnb return on investment calculator works and why it is considered the best short term rental calculator available.

How Does Mashvisor’s Airbnb Profit Calculator Work?

Mashvisor’s Airbnb ROI calculator is the most sought-after tool by both seasoned and new real estate investors planning to buy a short term rental property. With Mashvisor’s real estate ROI calculator, conducting a rental analysis has never been easier. The tool aims to provide investors with accurate short term rental data to help them make the right decision.

How Does Mashvisor's Airbnb Profit Calculator Work?

Mashvisor’s new Airbnb ROI calculator automatically estimates the cap rate, daily rate, occupancy rate, expenses, and cash flow based on nearby Airbnb comps. But you may adjust these numbers to get a more accurate projection.

What Information Can You Get From Mashvisor’s Calculator?

When you use Mashvisor’s Airbnb return on investment calculator, there’s no need to do manual research and analysis to get the information that you need. Mashvisor provides all the necessary data to calculate all metrics needed to determine a property’s profitability. 

With Mashvisor’s investment property calculator, you’ll have instant access to the following data:

  • Monthly Income: There’s no need to determine the monthly revenues you can earn from a property by studying the comparables. Mashvisor does the research on your behalf so you can get this important figure without a sweat.
  • Expected Expenses: Mashvisor also provides the expenses associated with an investment property based on actual comparable properties. The best thing about it is that you can also customize your own expenses if you think you prefer to spend more on a certain expense category. 
  • Cash Flow: Because the income and expenses are already provided, Mashvisor instantly calculates the cash flow of a certain investment property so you don’t have to do this manually.
  • Cap Rate: The tool also serves as a cap rate calculator where automatic calculations are provided so you’ll know the cap rate of a certain investment property. It allows you to determine if the property will make a good investment or not.
  • Cash on Cash Return: Mashvisor also provides the cash on cash return of a property. To make the calculation more accurate, you can use the mortgage calculator (also provided by Mashvisor) and set your preferred financing details. You can customize your down payment, loan term, and interest rate for a more personalized computation.

How to Use Mashvisor’s Airbnb ROI Calculator

Using Mashvisor’s Airbnb investment property calculator is relatively simple. Following the steps below to find the best short term rental property that can help you generate the highest possible returns:

Step 1: Perform a Property Search

The first step to using the Airbnb return on investment calculator by Mashvisor is to search for an investment property to analyze first. Simply type your preferred city, neighborhood, or zip code on the property search bar and you will see a list of results that matches your search.

What’s great about the feature is that you can customize your results by setting certain filters, such as budget, property type, property size, cap rate, cash on cash return, and more. Through the feature, you can easily find a property that matches your preferences.

Step 2: Choose a Property That Interests You

After hitting the search button, a list of properties that meet your criteria will be shown. Choose the property that interests you by clicking on it. Then, you will be directed to a landing page where you will see all the necessary details about the property. 

Step 3: Study the Information Provided

You will get an overview of the property’s valuation analytics, including its rental income, expenses, cash flow, cash on cash return, cap rate, and a 10-year payback balance. What’s more, you’ll also see a side-by-side comparison of the relevant data for short term rental and long term rental investment strategies. 

You can go deeper into your Airbnb investment analysis by checking out the occupancy rate, tax history, detailed list of expenses, and neighborhood analytics. All of the data are instantly provided for you. Plus, you’ll see information for both short term and long term rental strategies to determine which strategy is most optimal for this particular property. 

Step 4: Customize The Figures

You can make the computation results more personalized by customizing your own figures into the provided calculator. For example, you can adjust the expenses according to your preference. If you think you will spend more on maintenance, then you can increase the figure as you see fit. If you prefer not to hire a property manager, you can remove this expense.

You can also customize your mortgage details based on your planned financing method. Mashvisor’s Airbnb ROI calculator allows you to set the down payment, mortgage type, loan term, and interest rate so you’ll have a more accurate computation based on your preference.

Step 5: Make a Decision

Based on the return on investment figures provided by Mashvisor’s Airbnb ROI calculator, you can now make a decision whether buying the property to list on Airbnb is a good idea or not. You can repeat the process for several properties that interest you so you can see which one will generate the most returns. 

Experience first-hand how Mashvisor’s Airbnb ROI calculator works. Start your 7-day free trial now.

Find the Best Airbnb Rentals Using Airbnb ROI Calculator

Despite the uncertainties in the real estate market currently, the Airbnb market is expected to continue to thrive. In fact, experts believe that the short term rental market will remain as strong as ever. However, not all locations and investment properties are good for investing in Airbnb. If you plan to venture into short term rentals, make sure to study its profitability potential first.

Using Mashvisor’s Airbnb return on investment calculator is the best way to see whether or not an investment property will make a good investment. The tool eliminates the need for manual research, therefore reducing the risk of error. With Mashvisor’s rental analysis calculator, you can easily find the best investment property that can help you become a successful investor.

Find out how Mashvisor’s Airbnb ROI calculator can help you find the most profitable investment property. Schedule a demo today.

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