Your success as a short-term rental investor starts with your ability to pick a good market.When choosing your market, we encourage you all to follow what we call the “3 Ps”. Each P stands for a different principle you need to follow when choosing a market. So let’s go through them!
When I say Popularity, what we’re trying to understand here is, how popular is this specific market for short-term rentals. Because, contrary to popular belief, you actually do want a market that is somewhat popular.
Because when a market is popular, you get two things.
You can find a market that allows for short-term rentals, but if you can’t find anyone to clean it, or there aren’t enough people coming into the town to book your place on a regular basis, then it’s not a market worth investing in. I know a lot of people shy away from competitive markets, and we do believe that there’s a certain point where a market becomes too competitive…
But a healthy level of competition is a good thing. So don’t run away from a market just because you see a lot of other listings there!
What you’re looking for here is how expensive the properties are, relative to the potential revenue they’ll generate.
Now, as a basic Rule of Thumb, if a property can generate 20% of its purchase price as its annual revenue, then it’s worth a deeper look. For example, if a property costs $500,000, then you should expect that property to generate about $100,000 in top-line revenue, including cleaning fees.
We have some properties that are doing 30+% and others that are doing closer to 20%. But 20% is a good starting point.
We’ve got another video where we interviewed our lender about all the details of getting approved for a 10% down second home loan!
Now, once you have your average daily rate, occupancy, and cleaning fees, you can figure out what that property's projected income is. So, for example, let’s say a property has an average daily rate of $250 and an occupancy of 75%. The property also brings in another $1,500 per month, or $18,000 a year in cleaning fee income. If we do some math here, we can see that $250 per day, times 365 days in a year, times 75% occupancy, plus $18,000 in cleaning fees gives you a total income of about $86,400.
Some of our favorite Airbnb's we've designed!
This is one of our tiny homes called the 70's House.
Isn't it fun and groovy?!
An EPIC twilight photo of one of our properties!
One of our favorite Airbnb murals and a cool hang-out spot in the backyard!
One of our Airbnb's chill gaming rooms!
Even if you don’t have an answer at that moment, just respond and say “Let me get back to you on that within the next hour or two hours, or however much time you need to figure out an answer”. But n one likes being left on read, especially the guest that just paid a couple of hundred bucks, or maybe a couple of thousand bucks, to stay at your property.
Our first-ever tiny home!!
Check out our YouTube video that highlights these same 10 easy steps to get started in Airbnb investing!