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 Metro Detroit property.
Because demand drives prices upward, it’s essential to understand the market research on the location to estimate Airbnb income before investing in a Metro Detroit property. The foundation upon which your income estimate will rely is in your real estate market analysis. One of the variants involved in the study is the location’s appreciation rates. 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; you must select a property that is a good fit for the 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 know you have the right Metro Detroit property.
The first step to determining which property will bring in the most cash flow is to estimate Airbnb income before investing in a Metro Detroit 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, so that you’re comparing realistic figures. You should also realize that there are likely to be days with vacancies. 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. 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 Metro Detroit 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.
Cash on Cash Return
Cash on cash return can provide you with the amount of money you’re earning for each actual dollar invested, most especially in the case where a mortgage is involved, to estimate Airbnb income before investing in a Metro Detroit property. 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.
The pros at Pinnell Enterprises, LLC can help you estimate Airbnb income before investing in a Metro Detroit property, walking you through the process step by step. At Pinnell Enterprises, LLC, we are your neighbors who live and work here in Metro Detroit, dedicated to staying current on market trends and helping you grow your real estate portfolio. At Pinnell Enterprises, LLC, we stop everything and take the time to understand your investment goals, helping you over any hurdles that you may believe are standing in your way. Let the professional investors at Pinnell Enterprises, LLC help you achieve your real estate investment dreams. Contact Pinnell Enterprises, LLC today at (734) 245-9654.