Understanding Airbnb metrics is key to determining your success. Learn more about the three metrics that you need to consider before investing.
We’re nearing the first half of the year. Yet, general knowledge about investing has not changed the slightest bit. It still represents a lucrative form of earning generous profits and creating a stable passive income.
Table of Contents
- 6 Key Airbnb Metrics for Investors
- The Easiest Way to Calculate Key Airbnb Metrics
- The Final Verdict on Key Airbnb Metrics
- FAQs
Investors seeking a steady income, wealth, portfolio diversification, or long-term financial security are interested in investing in Airbnb.
With this investment venture, there is always potential appreciation, which means higher profits for the investor. Apart from increased value, investors can generate a steady flow of income through rental payments.
The million-dollar question is, how does one know which investment property is the next hit?
Well, the good news is that investors can predict the success of their next investment based on key Airbnb metrics. With the help of investment tools that do the math for you, an investor’s decision-making process is much more straightforward.
Watch our video below to learn about the most important real estate investing metrics:
To learn more about how Mashvisor’s three key metrics can help you predict the success of your next Airbnb investment, read on.
Related: Four Things to Consider Before Purchasing an Airbnb Investment Property
6 Key Airbnb Metrics for Investors
Blindly investing in an Airbnb for sale that “seems” profitable is a no-go. There are still some key property metrics that you need to consider beforehand.
Understanding these key Airbnb metrics allows you to assess whether investing in a particular property makes financial sense. These metrics are not limited to one evaluating the potential success of only one property, though – they’re also used to compare the profitability of multiple properties for sale in a particular real estate market.
Without further ado, here are the three key metrics that provide excellent guidance for investors looking to gain experience in the Airbnb investing field:
1. Airbnb Occupancy Rate
Airbnb occupancy rate is the ratio of the number of nights an Airbnb rental is booked to the total number of nights it was available for booking and reservation throughout the year.
The rate is usually determined by considering different factors, such as location, seasonality, level of customer service, and reviews.
If you are looking to invest in this property type, Airbnb occupancy data is crucial for determining your potential rental property rate of return. This data is critical in its co-depending factors as well: Airbnb rental income, cash flow, Airbnb cap rate, and Airbnb cash on cash return, which we’ll discuss in a second.
Logically speaking, a higher occupancy rate means higher chances for success. Although there’s no ideal occupancy rate for your Airbnb property, we can single out that anything above 65% is considered desirable.
If your potential Airbnb is showing similar signs, it is likely that it will generate more profit and generally be in high demand for the upcoming season.
Below is the official formula for calculating the occupancy rate:
Occupancy Rate = (Total Booked Nights / Total Available Nights) x 100
Regarding Airbnb, the average length of nights of stay depends – it can be from one to four days, or from five to seven days (bearing in mind the tenant’s visit purpose). Also, when it comes to canceling, the guest’s cancellation rate is much more common than a host’s.
The best part? You don’t have to do 80% of the work that was once required. With advanced investment tools, evaluating and assessing the potential of your Airbnb has never been easier.
Make the most of your investment strategy and rely on Mashvisor’s Airbnb calculator to do the math for you.
Mashvisor’s Property Finder features a unique calculator that utilizes key Airbnb metrics for accurate computations.
2. Airbnb Rental Income
Before you invest in Airbnb, there’s one more thing – you should learn how to estimate your anticipated monthly income.
By definition, Airbnb rental income is the amount of money an Airbnb investment property will generate periodically. Again, logically, the higher the Airbnb rental income, the higher your rate of return.
However, Airbnb rental income is influenced by a number of factors: occupancy rate, average daily rate, length of stay of your tenants, as well as any additional fees that you might charge.
Here’s how to calculate Airbnb rental income:
Rental Income = Number of Booked Nights x Average Daily Rate
If you’re a beginner investor, then you should definitely note down the following:
Keep in mind that the formula mentioned above stands for the gross income – this is before deducting all the extra expenses and fees tied to your hosting obligations. Moreover, monitoring your rental income regularly is crucial to maximize your profits.
Read Also: How To Calculate Cap Rate for Potential Income Property
3. Airbnb Cash on Cash Return
Airbnb cash on cash return is used to determine the return on investment of Airbnb for sale. It is the annual pre-tax cash flow of an Airbnb rental property as a percentage of the total cash you have invested.
Here’s the formula for calculating cash on cash return:
CoC Return = (Net Operating Income / Total Cash Invested) x 100
Although investors might devote most of their attention to cash on cash return, it’s important not to neglect other factors that contribute to the profitability of their investment property. These include taxes, ongoing expenses, or potential appreciation.
4. Airbnb Cash Flow
Airbnb cash flow is one of the most important Airbnb investment metrics. It is the difference between the total rental income and the total rental expenses. An estimate of the Airbnb cash flow gives you a more accurate value of the actual profit you are likely to generate from your Airbnb rental property. As a real estate investor, you should aim for positive cash flow.
5. Airbnb Return on Investment
While cash flow is a significant metric when buying Airbnb property, you shouldn’t rely on it alone. Another key metric that savvy investors use to estimate the profitability of Airbnb for sale is the Airbnb return on investment. Airbnb ROI is a measure of how much profit a short-term rental makes as a percentage of its cost.
A higher Airbnb ROI shows that the returns generated by the Airbnb property compare favorably to its cost. However, a higher Airbnb ROI could suggest that the Airbnb investment comes with a higher risk. While a good ROI will vary depending on factors such as location and property type, generally, it should range from 8% to 12%.
To account for different variables, Airbnb return on investment can be calculated in two ways:
6. Airbnb Cap Rate
One significant Airbnb ROI metric to take into account when evaluating Airbnb investment opportunities is the Airbnb cap rate. It is the net operating income (NOI) of an Airbnb rental property as a percentage of its fair market value or price.
NOI refers to the difference between the annual Airbnb rental income and the annual Airbnb operating expenses. What distinguishes NOI from cash flow is the exclusion of financing costs.
Airbnb cap rate is used to show the profitability of an Airbnb property when bought fully in cash. It does not take into account the method used to finance the rental property. Therefore, it’s a crucial Airbnb investment metric for comparing multiple Airbnb properties for sale.
The Easiest Way to Calculate Key Airbnb Metrics
For years, investors have been using Airbnb investment analysis spreadsheets to do the calculations.
As it turns out, it was the least time-efficient option. Real estate market trends were changing rapidly for them to keep up.
The main problem with this old-school method is it is susceptible to human error–which is unacceptable in this business field.
Luckily, real estate investors nowadays don’t have to worry about the struggles of manually collecting and analyzing market-specific data anymore.
The most efficient and reliable way to perform a promising Airbnb investment analysis is to rely on Mashvisor’s Airbnb calculator.
This calculator uses Airbnb rental data from reliable sources, Airbnb analytics, and machine-learning algorithms to calculate the key Airbnb metrics in a matter of minutes.
Navigating the tool is fairly easy as well.
Investors can just type in the preferred city or neighborhood that sparks their interest and click on it for more information. When they scroll down, they’ll be able to see the rental strategy for this investment property in question and determine whether it makes financial sense to proceed.
They will get the key metrics mentioned earlier and other important analytics.
To find the best-performing property that exceeds all your expectations and generates the highest income, use our calculator to forecast all the metrics that play a vital role in your Airbnb’s success:
- inquiry to booking conversion rate
- total revenue
- nightly rate
- revenue per available room
The Final Verdict on Key Airbnb Metrics
We successfully put our stamp on the discussion about three key Airbnb metrics that can assist investors in predicting the success of their next investment.
Let’s just go over the key takeaways one more time.
One thing’s for sure – the popularity of Airbnbs as an investment venture is not falling behind this year. Investing in this property type is especially popular with beginner investors who want to upgrade their portfolio, gain experience, and secure long-term financial security.
To make sure that they’re on the right track, Mashvisor offers its unique services. Our specially designed Airbnb calculator provides real estate investors with three key metrics that serve as reliable success predictors: occupancy rate, rental income, and cash on cash return.
The easiest way to evaluate all your metrics (not just the ones we’ve singled out) and ensure that you have a secure strategy in front of you is by relying on Mashvisor’s Airbnb calculator.
Finally, professional hosts that aim to provide the best possible experience to their tenants should definitely focus on the unique features of their Airbnb, safety and security, and regular maintenance.
To start analyzing the best Airbnb investment properties in your city and neighborhood of choice, Sign up for a 7-day free trial now, followed by 15% off for life.
FAQs
What Are Key Metrics for Airbnb?
Key Airbnb metrics that will help investors predict the success of their investment are: occupancy rate, rental income, and cash on cash return. These, combined with other vital analytics (cap rate, average daily rate, etc.), contribute to an easier assessment and a firm decision.
How to Analyze Data for Airbnb?
With the help of Mashvisor’s Airbnb calculator, investors can view the estimates in a matter of minutes.There’s no more need for manually collecting and analyzing Airbnb data to determine whether it’s a wise financial move.
What Should Airbnb’s Key North Star Metrics Be?
It’s safe to say that your Airbnb’s key north star metrics should be: occupancy rate, rental income, cash on cash return, daily rate, cap rate, and so on.
Is Airbnb Profitable?
No doubt about it!
As we know it, the US real estate market has had its fair share of growth and challenges over the years. However, even after the consequences of COVID-19, the housing market managed to enable investors to stay afloat and generate income in their field of business.
Airbnb, in particular, has fundamentally changed the real estate market. Choosing Airbnb as your next investment opportunity is an excellent chance to gain experience (especially if you are a beginner investor).
Consider this fact from Market Splash: Over 150 million people choose Airbnb when booking their vacation stays.
This fact alone is sufficient evidence that investing in Airbnb will be a lucrative business opportunity this year.