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How to Analyze a Property for Short Term Rental – AirBnB

all right we’re rolling hey guys it’s
Adam Reek with StayMKE and today I wanted to show you a couple
of tools that we use behind the scenes to analyze the property to see if it
makes sense as a short-term rental so a couple different ways we can look at
this and we’re gonna dive into excel here the first scenario is a lease
scenario so this would be a property where the property owner or the landlord
is converting from a traditional long term rental into a short-term rental
model and we want to analyze to see how much money do we need to generate in
order for that unit to be profitable above and beyond or be profitable at the
same level or more than what that landlords currently getting as long-term
rental that’s kind of the incentive to do this right so here’s how we do that
I’ve got a couple of calculators built out here and basically these two boxes
go together and then these two boxes down here to go go together and they’re
essentially mirror images of each other so I’ll show you how this works so if we
are gonna assess a landlords current rental unit and we want to find out you
know how much do we need to generate on a nightly basis throughout the different
seasons of the year in order for this to make sense so what we do is we can put
in the rent that that landlord is currently getting or what they’re trying
to get I like to add a little 10% bump we want to be able to make more money
doing short-term rental than what we’re currently getting and we’ve got to add
in some money for some additional expenses that the landlord’s going to be
on the hook for that typically a tenant would pay for otherwise like the gas and
electric and the internet that’s going to give
a subtotal there we need to add in a management fee for ourselves which is
typically 20% that’s going to give us the gross revenue that the property
needs to generate so we need to get this much money in order to pay us pay the
additional expenses and still end up with a little bit more 10% bump from
what you’re currently getting okay so then from there slide back over to this
box here’s the revenue number that we needed to generate there’s a bunch of
stuff in here you don’t really need to pay attention to it gets pretty nerdy
but I have put in occupancy percentages throughout the various seasons that are
expected and based on that it’s gonna tell us what our nightly rate needs to
be in these different seasons and then it’s gonna tell us our average nightly
rate throughout the entire year and our average occupancy percentage throughout
the entire year so I can look at this look at the property look at the number
that the landlord is is hoping to get and it’s gonna spit out these numbers
for me and I can make a judgment call and whether or not I think these numbers
are realistic if they’re not realistic then it doesn’t make sense if I feel
confident we can hit these numbers and hit these numbers and still deliver that
to the landlord then we’ve got something worth talking about so then this
calculator up here is basically the opposite of that it’s we’re gonna start
with our nightly rate so we’re gonna put in what do I think this property will do
during the summer season on the average which is our peak rate put in the
occupancy percentages that’s gonna tell me the gross revenue that the property
will do we take out a management fee we take out the additional expenses we take
out the little premium that we want to be able to give that
landlord on top of their current income and it’s gonna give me my target monthly
rent so in other words if I see a property that I think I can do this with
and I can do this with this calculator is telling me how much rent that
landlord or a target number for me you know for current rent for a traditional
long term rental if if that property is currently asking $1100 I’m in pretty
good shape if that property is asking more than that I don’t think I can make
it work so this calculator tells me the level of rent I can go after for this
property and this calculator is telling me the nightly rates I need to achieve
based on the income that I need to deliver to the landlord I hope that
makes sense but the point is for property owners out there landlords if
you kind of if you know what you’re getting if you know what the markets
gonna bear is a long-term rental the tricky thing for most people is this
part you know it’s its how many nights am I actually gonna book and what are
those rates gonna be there’s a little bit more that goes into that there’s a
lot of data out there but we can help you figure that out we want to be
realistic about it we don’t want to you know come up with a bunch of
pie-in-the-sky projections that don’t have a prayer of actually coming true so
so that’s how we analyze a property that we’re considering leasing some people
refer to that as the arbitrage model some people refer to that as the sub
leasing model but that’s what it looks like all right these calculators are set
up to analyze a purchase so these are calculators that
I use when I’m analyzing a property to see if it would make sense for us to
purchase and this is also a great tool for my realtor friends out there if you
have a client who was thinking of purchasing something specifically for
putting it on Airbnb and and doing short-term rentals these are some great
tools so again they’re basically mirror images of each other
I’ll show you quickly how these work this one is basically going to tell me
how much can I afford to pay for a property based on the income that I
believe it’s going to generate so I’m gonna put in the occupancy percentage
the average nightly rate these are yearly numbers it’s gonna give me the
gross revenue for the property I’m gonna put in all of my expenses I’m gonna put
in the amount of cash flow that I want to end up with at the end of the month
and it’s gonna crunch the numbers and give me a purchase price so this is the
most I could afford to pay if I’m putting a mortgage on the property
that’s this is a 20% down four and a half percent 30-year amortization so
this calculator basically tells me how much can I pay for this property it’s
gonna do this it’s gonna bring in this much revenue it’s gonna cost this much
for expenses I want to make sure that I’m getting what I want out of it how
much can I afford to pay this calculator in the middle here should touch on
quickly this is a highly scientific technical metric that I came up with
called the PITA factor and it’s basically as you can see you know how
many bedrooms how many bathrooms and how many times a month am i going to turn
this thing over the bigger it is the more bedrooms the more sets the sheets
the more bathrooms the more times i’m turning it over the more arduous it is
to manage so that’s gonna give me my cashflow number
based on the PITA factor so this calculator here is basically the reverse
of this one over here this one’s gonna tell me how much revenue do I need to
generate based on a given purchase price so if I see a property that’s a hundred
forty thousand dollars I can plug that in it’s gonna tell me how much I’m gonna
borrow based on a twenty percent down payment if I put 20% down I need to
borrow this much there’s my monthly payment there’s the cash flow that I
want in my pocket at the end of the month based on the PITA factor here’s my
monthly expenses to pay all those numbers we need to generate this much in
revenue I think I’m gonna achieve 40% annual average occupancy that tells me
that I need to get an average nightly rate of 175 so kind of analyzing it
forward and backwards and I think it’s for me anyway it’s really helpful to do
that because you kind of approach it from from both sides and see if it makes
sense based on these numbers do I think I can find a property for that that’s
gonna do these numbers and then vice versa
do I think a property that I pay that much for can do these numbers so I hope
that’s helpful to at least give you an idea of kind of how we look at things
behind the scenes so whether whether you’re a property owner if you have a
property that you’re thinking about doing short-term rental with but you’re
not sure if it would make sense or if you’re considering purchasing something
specifically to do short-term rentals with give me a call we can we can run
some numbers pretty quickly for you here and makes
realistic projections and help you figure out if it makes sense or not so I
hope that helps if you have any questions or you’re interested in
learning a little bit more about how to analyze a property for short-term
rentals give me a call let me know I’ll be happy to help