Real estate investment remains profitable, especially in the US. To stay ahead, you’ll need a good short-term rental investment calculator.
Generating high returns on your investment property is the most common motivation for getting into the real estate market. Fortunately, many potential investors perceive the short-term rental market as a lucrative source of revenue. They only need to determine the appropriate location and do the proper calculations.
Table of Contents
- Is Short Term Rental Property a Good Investment in 2023?
- What Is a Good Return on Short Term Rental Investment?
- How Do You Calculate Short Term Rental Return?
- Where Can You Find the Best Short Term Rental Investment Calculator?
To be sure that you’ll be able to produce profit, you’ll need a calculator that will take into account all of the factors and do the calculations for you. In other words, you need a short-term rental investment calculator to do the work for you.
A rental investment calculator helps project the performance of your investments, enabling you to make the best decision possible.
Fortunately for you, Mashvisor’s tools are designed to assist investors in estimating their potential income and making an informed investment choice. Continue reading to learn more about the benefits and features of a short-term rental investment calculator.
Is Short-Term Rental Property a Good Investment in 2023?
Yes. Short-term rentals are often seen as beneficial assets in today’s market. In fact, we’re happy to inform investors that short-term rentals are estimated to reach $82.78 billion worldwide in 2022.
According to the latest vacation rental statistics, the US leads the industry, with the greatest income projections for 2022. The US is expected to contribute the most to the worldwide vacation rental industry in 2022, with $17.66 million.
Basically, owning short-term rentals in 2022 (and in 2023) is still regarded as a viable business — but don’t take it as a certainty. The profitability of a short-term rental business is determined by a few key factors: most notably location, occupancy, and pricing.
Nonetheless, many investors see rental businesses as profitable since they provide additional flexibility, better upkeep, and larger revenues for the owner. Seasonal revenue from short-term rentals can surpass the investor’s expectations if handled and calculated carefully (using the investment calculator we stated).
Of course, there is a chance that you may convert your rental house into a large income-generating enterprise in the future. You may take advantage of all the benefits that come with purchasing a rental property — but don’t forget about using the right technology to compute the numbers.
Now, let’s focus on some crucial figures and see what is a good return on short-term rental investments.
What Is a Good Return on Short-Term Rental Investment?
Generally speaking, a return on investment (ROI) of 8% to 20% is acceptable for a short-term rental.
However, as long as your short-term rental home generates a profit, you are doing well. Yet, some returns are greater than others. So, what is a great rate of return on a short-term investment property?
A decent rate of return is roughly 10% if you use the cap rate calculator. Moreover, an acceptable rate of return is 8%– 12% if you use the cash-on-cash rate calculator. That being said, even with the stated rate of return percentages, some investors will not purchase a vacation rental house if the profit is less than 20%.
Ultimately, it is all up to you. If you’re happy with an 8% return, you can go ahead and purchase the home. However, if you wish for a 20% return, that is also acceptable.
And if you’ve wondered what the return on investment (ROI) exactly is, we can easily explain it.
Return on investment (ROI) is a real estate metric that determines how much cash is generated from an investment. It is often computed as a percentage of the investment cost.
Essentially, return on investment is critical for investors since it demonstrates how well their investment money is being spent. A good ROI encourages investors to commit to a short-term rental property since they know there will be a rate of return on the property.
How Do You Calculate Short-Term Rental Return?
It is pretty simple to calculate ROI on rental properties — simply use the following formula:
ROI = Annual Return / Cost of Investment x 100
If it looks a little complicated, you may alternatively use the formula below to determine your ROI. Despite their appearance, they are the same and will produce the same number.
ROI = (Gain — Cost) / Cost
Where:
- Gain: Refers to the Investment Gain
- Cost: Refers to the Cost of an Investment
Even though the above formulas appear straightforward, there are other things to consider as an investor. The additional factors are essential. They affect your rate of return on your short-term rental property, even if they are not initially considered in the equations given above. Consider the following factors:
- Repair and maintenance expenses
- The sum borrowed in the initial investment
- Any other debts or mortgages
Now, it may be challenging to keep all of this in mind when estimating your return on investment for your short-term rental properties. Luckily, Mashvisor’s short-term rental investment calculator allows investors to determine their ROI without the need to recall all of the variables.
The short-term rental investment tool assists investors in calculating their finances and viewing calculated returns in one spot. Rather than creating several complex spreadsheets and performing all the math on your own, the short-term rental calculator handles it all for you. You can even export the data.
Let’s go in-depth about the tool’s features.
Where Can You Find the Best Short-Term Rental Investment Calculator?
We are not biased, but Mashvisor provides one of the best short-term rental investment calculators out there.
Mashvisor’s tool allows investors to determine and evaluate their ROI based on the relevant figures for their investment property. The platform’s rental investment calculator also displays additional real estate details to investors, such as projected interest rates, property taxes, and property maintenance expenses.
In addition, pricing your rental correctly — and taking into account certain aspects that might influence the outcome — can be difficult. However, the procedure becomes surprisingly simple with the functions offered by Mashvisor’s rental investment calculator.
The following features of our calculator will be crucial in calculating the returns on your short-term rental.
1. Short-Term Rental Strategy
The very first thing you should do before adding variables to a short-term investment calculator is to determine whether your original approach is indeed the ideal one for your selected strategy.
Regarding that, Mashvisor’s short-term rental investment calculator can help investors in determining which strategy is most suited for their rental property. Long-term and short-term rental approaches are the most common. Both provide advantages and disadvantages, and Mashvisor’s calculator can point you in the right direction.
2. Rental Income Comparables
Comparable short-term rental properties are the ones in your neighborhood with traits in common with your investment property. So, analyzing them can assist you in crafting your investing strategy.
In addition, you can discover the median rental price in your desired neighborhood using Mashvisor’s short-term rental calculator. If the calculator suggests that your rental is priced far more than the average, it will not attract renters looking for housing, so you’ll need to make changes.
Ultimately, rental comps focus on current success, which is vital for real estate investors since it allows them to compare rental income.
3. Monthly Expenses
Mashvisor’s short-term rental calculator also assists investors in forecasting and managing their expenses. In reality, the tool helps you determine your monthly costs, which include:
- Cleaning fees
- Rental income taxes
- Property tax
- Utilities
- Property management
- HOA fees
- Property maintenance
- Insurance
4. One-Time Startup Costs
Your rental charges will include both monthly expenses (as discussed above) and one-time startup costs. Among them are:
- Total repair costs
- Inspections
- Furniture and appliances
- Closing costs
Basically, before investing in a property, you can use a rental income calculator to estimate the aforementioned one-time expenses.
Mashvisor’s short term rental investment calculator helps investors forecast and manage their expenses, such as one-time startup costs and monthly expenses.
5. Short Term Rental Key Metrics
Our rental investment calculator offers an overview of your property’s key data. But what exactly do the values imply?
The rental fee for a particular vacation rental is determined by its location, seasonality, house type, rent control regulations, conditions, and amenities. Such factors influence how much you will earn from your short-term rental.
But, more importantly, to achieve reliable rental income estimates, you must consider the four key metrics listed below.
Cash Flow
Consider evaluating how much cash flow your short-term rentalproperty makes if you want to know how well it is performing. You’ll be able to examine the results of Mashvisor’s short-term rental calculator in a few minutes.
Cash flow can be either positive or negative, but don’t let it scare you. The greater the positive cash flow displayed on your calculator, the better the performance of your property. However, there is no fundamentally favorable rental cash flow. Most real estate investors will aim to boost it by raising their rents.
While it is the most obvious strategy to guarantee that your revenue exceeds your costs, you must be cautious not to overprice your home, or you may lose renters.
Cash on Cash Return
In real estate, the well-known “rate of return” is frequently used to assess the cash income received on the investment property — in this example, a rental. Simply said, it is the yearly return on the investment.
A short-term rental calculator will assist you in determining the cash-on-cash return on your home. Although there is no exact number for decent cash-on-cash return, investors often consider returns around 8% and 12% adequate.
Cap Rate
Another metric that investors may use to compare property investments is the capitalization rate (cap rate). A rental calculator can assist you in determining how risky your investment is. The greater the percentage shown by the investment calculator, the more dangerous the investment is.
There is no official criterion, although a cap rate of 4% and 10% is commonly regarded as “safe.”
Occupancy Rate
The occupancy rate is probably the most dependable sign of your short-term rental’s success — an investment calculator can display these numbers. The occupancy rate is the percentage of rooms that are occupied over a given period. And the greater the estimated occupancy rate by the calculator, the better.
Obviously, investors should aim to have their properties occupied at least 50% of the time.
6. Mortgage
If you choose a mortgage as a method of financing, the monthly payments will be a key factor. Mortgage payments should be handled with caution — it is one of the numerous reasons why a rental calculator is required.
Fortunately, Mashvisor’s mortgage calculator can help you figure out how much the mortgage payments will be and the time it will take to pay them off.
To learn more about how Mashvisor can help you find profitable investment properties, schedule a demo.
Conclusion
We have successfully discussed the issue of a short-term rental investment calculator and why such a digital tool is essential for every real estate investor.
In the current real estate market, investing in short-term rentals may be a viable business venture — as long as the investor considers critical aspects like location, seasonality, and more.
Mashvisor’s rental property calculator comes with various tools that can help investors with all the required information when examining a short-term rental. It lets users compute the cap rate, cash-on-cash return, mortgage payments, and other metrics.
Therefore, by using our calculator, you can be sure that you are getting accurate information, saving time, and viewing reliable forecasts. Furthermore, using the calculator is simple and straightforward.
We would also like to point out our other tool that can be of great help: the Property Finder tool. It’s intended to help you and other real estate investors find the ideal investment property throughout the US housing market.
To get access to our real estate investment tools, click here to sign up for Mashvisor today.