Over the past few years, the Airbnb investment strategy has been a very lucrative way for investors to make money in real estate. This is due to the increased popularity of short-term rentals as a better alternative to hotels since they offer a more personal experience.
Are you looking to invest in short-term rentals? Well, not all Airbnb properties are created equally. You can easily lose money if you invest in the wrong property. To determine whether an Airbnb investment is profitable, it’s important that you know how to evaluate an Airbnb investment before making a purchase.
Not sure how to conduct a proper Airbnb investment analysis? No worries. In this blog, we’ll walk you through the step-by-step process of evaluating an Airbnb investment to make sure that it will be profitable.
Related: Invest in Airbnb – It’s 100% Worth the Investment
1. Research the City
The first step in our guide on how to evaluate an Airbnb investment is to analyze the city. The profitability of your Airbnb investment depends on a number of factors but largely on its location. The location of your property will have the most impact on the return on investment and, therefore, should always be the first thing you look at when you evaluate an Airbnb investment. You need to conduct thorough Airbnb market research to determine the viability of the city for Airbnb investment.
Here are some key things to consider when researching the city:
Tourist attractions
Is the city a popular travel destination? The best cities for Airbnb investment are those that see a high influx of tourists and business travelers. For instance, cities with game parks, beaches, and mountains will typically have high average nightly rates and occupancy rates.
Airbnb regulations
To evaluate an Airbnb investment and its location, you should also examine the local Airbnb regulations. Some cities have regulations restricting short-term rentals or laws that may affect your Airbnb business. Note that local regulations vary greatly and often change. Therefore, make sure you research the latest Airbnb regulations that apply in your city.
Seasonality
Your bookings may fluctuate throughout the year due to changing seasons and events happening in the city. If you want to have a steady cash flow, you should try to buy Airbnb property in markets that will have bookings throughout the year. You want to invest in a city with a high Airbnb occupancy rate. The more short-term bookings you get, the more your Airbnb rental income will be.
The easiest and quickest way to do Airbnb market research is to check for Airbnb city data on Mashvisor’s real estate blog.
Related: How to Conduct Vacation Rental Market Analysis
2. Research the Neighborhood
After confirming that the city is good for Airbnb, the next step to evaluate an Airbnb investment is to research the neighborhood. While the city may be lucrative for Airbnb investment in general, the profitability potential of the neighborhoods within the city will typically differ. In other words, not all areas within the city will be good for Airbnb investment.
So before you decide to purchase an Airbnb investment property, you should research the neighborhood. While the neighborhood doesn’t always have to be fancy, tourists and business travelers will want to book Airbnb rentals that are in a comfortable place to stay. For instance, the property should be located near a means of transport with quick and easy access to tourist attractions and other popular places within the city. Moreover, the neighborhood should have a low crime rate and essential amenities like restaurants and shopping centers.
The best and easiest way to determine the profitability of the neighborhood where the potential Airbnb investment property is located is to do a neighborhood analysis using Mashvisor’s Heatmap Analysis Tool:
Make sure to evaluate the neighborhood of an Airbnb investment. The best way to do so is with a real estate heatmap.
This uses a range of colors to show the performance of different neighborhoods in your city based on the following metrics:
- Listing price
- Airbnb rental income
- Airbnb cash on cash return
- Airbnb occupancy rate
The color code system allows you to easily compare the performance of the neighborhood of your target property with other neighborhoods.
You can also check out Mashvisor’s Neighborhood Analytics page for the area you’re investigating. You’ll get more in-depth neighborhood data here.
3. Analyze the Airbnb Investment Property
The last step to evaluate an Airbnb investment before making the final decision on whether to buy it or not is to analyze the property itself. Assuming that you are satisfied with the city and neighborhood of your target property, you can now run the numbers for the property.
The more efficient you are in conducting your investment property analysis, the more accurate your decision will be. While real estate investors can use Airbnb spreadsheets to analyze Airbnb data, it’s typically time-consuming and is prone to errors. The fastest and most accurate way to perform Airbnb investment analysis is to use Mashvisor’s Airbnb investment calculator. If your target property is not already listed on our platform, you’ll need to add it by entering the property address. With the calculator, you can access a number of readily-calculated Airbnb investment metrics that are based on big data and Airbnb analytics.
They include:
- Airbnb rental income
- Cash flow
- Airbnb cash on cash return
- Airbnb cap rate
- Airbnb occupancy rate
The best way to evaluate an Airbnb investment is to use Mashvisor’s investment calculator!
As a real estate investor, you want to invest in rental properties with a good Airbnb return on investment and positive cash flow. You can use the above metrics to compare your target property with other Airbnb investment properties for sale in the market to determine if it’s the best option for you.
To avoid overpaying, you should compare the property’s fair market value with the selling price. If you don’t know how to value an Airbnb investment, don’t worry. With the Airbnb investment calculator, you can easily find Airbnb comps and do a comparative market analysis.
Related: Four Things to Consider Before Purchasing an Airbnb Investment Property
The Bottom Line
While buying Airbnb property is delivering great returns worldwide, profitability is never guaranteed. Therefore, you should know how to evaluate an Airbnb investment to ensure that it is lucrative before making a purchase. With Mashvisor’s Airbnb tools, you can do it in just a matter of minutes. If you are looking to invest in Airbnb, be sure to use this guide on how to evaluate an Airbnb investment to ensure that you make a smart decision.
