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Why Airbnb Is A Great Business For A Portfolio
Through the first three quarters of 2022, Airbnb has spent over $1.1 billion on sales and marketing, up 33% from the comparable period of 2021. But keep in mind that according to chief financial officer David Stephenson, only about 10% of traffic from bookers is the result of advertising. Most traffic, therefore, is organic.
Airbnb knows that most people already know about its platform and don’t need an ad, which is a competitive advantage, in my opinion. Therefore, it focuses much of its marketing budget on recruiting more hosts so that it can grow its supply. And by growing its supply, the company can ensure it has ample options for bookers no matter where or when they’re traveling.
ABNB PS ratio data by YCharts.
Airbnb Calculator: How Much Can You Make On An Airbnb In 2023
Want to know how much you can make by becoming a host on Airbnb? Then this guide will introduce you to our Airbnb calculator that helps you calculate your income on Airbnb.
Airbnb can help you generate a lot of income, but it can be hard to know how much you’ll earn as an Airbnb host. The answer depends on many factors, including your location, the type of property you rent out, and your willingness to manage the business. To help you figure this out, we’ve created this calculator that will show you what kind of profit potential there is for renting out your home through Airbnb.
“How much profit does Airbnb make? How much does the average host make on Airbnb? How much does Airbnb take from hosts?” These are among the most common questions we receive from customers. And while we can’t answer the first two, we can calculate how much Airbnb takes from hosts.
There are a lot of things that Airbnb takes from you as a host. It’s possible to make more profit on your Airbnb than you would in any other way.
If you’re looking to make money from your home, Airbnb is a great option. The more money you can earn and the more time that goes into managing it, the more profit potential there will be.
The profit potential of an Airbnb rental investment is based on several factors, including location, amenities, and your ability to manage the business. Learn more about how much you can make on an Airbnb by following these steps:
Airbnb’s Target Market
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Identify The Best Cities For Airbnb Investment
The key to successful Airbnb investing is knowing how to research real estate markets with short-term rental profitability in mind. Proper Airbnb market research will lead you right to the best cities for Airbnb investment. So what should you be looking for to find the best city to invest in Airbnb property? The following are the most crucial elements.
For a complete guide on how to choose a real estate market, I suggest you read: How to Choose a Real Estate Market to Invest In.
What Is Airbnb Investing
Real estate investors who use the Airbnb investing strategy buy rental properties and list the whole thing or specific rooms on the platform. Investors rarely occupy the properties themselves and live there. For investors who own multiple properties, using Airbnb as a source of income is a great strategy. Because they are so user-friendly for both tenants and renters, platforms like Airbnb, VRBO, and others have become extremely popular in the past ten years.
Is investing in Airbnb profitable? is the next query from novice investors. Because Airbnb rentals offer so many opportunities, investing in Airbnb is one of the most successful real estate investing strategies. With that said, there are advantages and disadvantages to investing in Airbnb. Lets discuss the benefits and drawbacks of Airbnb investments before you start looking for properties to invest in.
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Understanding The Work Involved
Before you dive head first into short-term rentals, its important that you understand that there are pros and cons. There can be a lot more work involved than in a single family home or long-term rental. Some of the cons are the same, such as dealing with squatters or revoking security deposits. Youll need to constantly be communicating with guests and vendors. Also, youll need to make sure the property is maintained and that you are pricing your listing adequately and competitively. Fortunately, there are ways to automate a lot of these tasks, but that will take work to set up.
Why I’m Not Waiting For A Possible Economic Storm To Pass
According to Bloomberg, 70% of economists say a U.S. economic recession is coming in 2023. And this possibility is why, according to The Fly, Wolfe Research analyst Deepak Mathivanan recently downgraded the stock of Airbnb rival Expedia, which owns Vrbo. After all, an economic slowdown would logically slow travel demand, which could impact Airbnb’s business as well.
CEO Brian Chesky is far more optimistic about what adverse economic circumstances will do to Airbnb’s business. As he pointed out in the company’s recent conference call, the Great Recession incentivized people to start hosting on Airbnb, to earn extra income. The same could happen if a recession materializes in 2023.
Data from third-party analytics company AirDNA is similarly encouraging. AirDNA predicts that overall short-term rental demand will increase 5.5% in 2023 and that average daily rates will increase 2%. Both of these things would be huge for Airbnb in the coming year.
I bring up these disparate viewpoints on the state of the travel industry and the implications for Airbnb’s business to highlight wisdom from investing guru Peter Lynch, who said: “Nobody can predict interest rates, the future direction of the economy or the stock market. Dismiss all such forecasts and concentrate on what’s actually happening to the companies in which you’ve invested.”
Jon Quast has positions in Airbnb. The Motley Fool has positions in and recommends Airbnb. The Motley Fool has a disclosure policy.
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Other Ways To Invest In Airbnb
If you love to travel or have made money hosting on Airbnb, investing in the company may seem like a no-brainer. But keep in mind that investing in individual stocks can be incredibly risky and expensive, even for experienced traders.
Thats why financial experts recommend you devote most of your investment portfolio to index funds and exchange-traded funds that hold hundreds, if not thousands, of stocks. This substantially decreases the risk your investments experience wild price swings that may lose you money.
Luckily, its easy to find Airbnb in funds: Approximately 100 ETFs hold Airbnb shares, according to ETF.com, and with its recent inclusion in the Nasdaq 100, youll be able to gain exposure in any Nasdaq 100 fund.
Investing In Airbnb: Best And Worst Markets For Airbnb Investment
What comes to mind when you think about Airbnb?
Probably, images of happy vacations, beautiful condos, life on the road, or maybe even your very own last Airbnb experience.
Vacation rental property platforms like Airbnb become even more relevant when you consider the nomad lifestyle.
After all, a huge selection of safe and vetted places to crash at after constantly being on the road sounds like quite the catch especially if we consider the often close proximity to the locals, something that most legacy hotels do not provide.
But thats all from a travelers point of view. What about the hosts property owners, real estate investors, and the people who already own or plan to purchase rental properties in the future.
What do they think of Airbnb, and how does it fit into their future plans for rentals and real estate business.
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A Good Airbnb Return On Investment
Finally, what it really comes down to is the potential Airbnb return on investment. Try to find out what kind of cap rate you can get when you invest in Airbnb property in a certain city. A good cap rate for Airbnb rental property is between 8% and 12%.
Where Can You Get All of This Airbnb Data by City?
While Airbnb laws and tourist statistics can easily be found online through a simple Google search, finding Airbnb data on:
- Airbnb Daily Rates by City
- Airbnb Rental Income by City
- Airbnb Occupancy Rates by City
- Airbnb Cap Rates by City
requires more sophisticated tools. If you want free access to this kind of Airbnb data, you can typically find it on Mashvisorâs real estate investment blog. We have an entire section dedicated to top locations where we list this data to help you pick the best city to invest in Airbnb property. Here are a few good places to start:
Approaching Home Owners Interested In Renting
This strategy is similar to renting a furnished home as Airbnb, but it doesnt require you to sign a lease.
You approach a landlord who wants to rent out his property.
Youll start by telling them how they can make two to three times more money renting their home as Airbnb.
This, Im sure, will raise the homeowners eyebrows, and theyll want to know more.
Thats where your offer to manage their property as Airbnb comes in.
In other words, you get all the benefits without any risk.
Finding the right landlord is the hard part.
The best place to start is on Craigslist or Oodle, where you can find people who want to rent their homes.
The next step is to send an email or contact the landlord.
You can propose an arrangement that earns them significantly more money than traditional long-term rentals.
This method will earn you money, but it will necessarily require a more practical approach. You have to find a suitable property.
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How Does An Airbnb Rental Property Work
When Airbnb started out, it was mostly a service to rent out a room in someones primary residence. However, it quickly expanded to include pretty much any type of dwelling. You can rent out an entire house, condo, or apartment even a converted garage, a treehouse, or a mobile home. Plus, you can do this all over the world. Almost every country has Airbnb properties, so youre not restricted to the United States.
Aside from having a clean, pleasant, and unique place for people to visit, there are some basic essentials for being an Airbnb host. As encouraged by Airbnb itself, these essentials include:
- Being responsive. Try to respond to guest requests and questions within 24 hours. This is just good business and keeps your response rate high.
- Accepting trip requests. If your space is available, accept your guests booking as often as you possibly can.
- Avoid canceling. Cancelations are a huge inconvenience for any guest, but especially for those who may be traveling from far away to enjoy your Airbnb rental property.
- Maintaining a high rating. Guests should be able to expect consistent quality and its up to you as the property owner to live up to those expectations.
Occupancy Rates Must Be Good
Even if a city is touristy, are people staying in Airbnbs instead of hotels? An easy way to find out is to hop on Airbnb, enter several date ranges, and investigate the top listings in the search results.
Even if an Airbnb is available for the period you selected, it should have many periods of unavailability over the next few months to indicate a favorable occupancy rate. Check the availability calendar for the listing. If most of the listings have empty calendars for weeks or months with no bookings, things arent looking good.
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Promising Tourism Statistics And Forecasts
Airbnb may be legal in a city, but is there a demand for it? In order to figure this out, youâll want to investigate the tourism statistics:
- On average, how many tourists visit annually? Has this number been increasing or decreasing over the last few years?
- What does the forecast look like for the local tourism industry?
- Is the demand for short-term rentals subject to seasonality?
Ideally, you want to find an Airbnb market that welcomes lots of tourists, even if certain seasons are hotter than others. Take the Philadelphia real estate market for example. 45 million tourists flood Philadelphia neighborhoods every year! This would make it one of the best places to invest in Airbnb property.
A Neighborhood in Philadelphia
But how will you know if these tourists are staying in fancy hotels or in Airbnbs? The next few factors on this list will help you figure this out.
The Local Laws Must Be Airbnb
Some cities make it challenging for Airbnb owners. For example, in Los Angeles, you can only rent an Airbnb if it is your primary residence. Even then, you must apply for a permit and not rent it for more than 120 nights per year. If you want to rent it out for longer, you must apply for additional licenses, which can be a big hassle and you may not qualify.
Always investigate the existing local laws before buying a property you intend to rent on Airbnb. Also, check if lawmakers in the area have been considering laws that target Airbnbs.
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Choose The Right Property Type
There is no right property type for Airbnb rental investing. You should keep your ears to the ground and get to know the type of people who demand short term rentals in that neighborhood. In a place like a city center, youd probably want to invest in a condo or small apartment. Thats because in this case, your Airbnb rental would likely attract business travelers. Also, youll be paying more for a single family home in that kind of location.
In a resort location, you might want a property type that offers more privacy such as a single family home. Thats because this location will probably attract young couples and small families or groups. Since this type of investment would require more out of pocket costs, you need to calculate your potential ROI so youre not biting off more than you can chew.
What kind of property is best for Airbnb?
Heres the straightforward answer: The best type of property to buy and rent out on Airbnb is the one that makes you the most money. To a large extent, your ROI from your Airbnb properties will depend on your chosen location. Odds are that you already have a specific type of customer in mind. If you do, place yourself in their shoes and think about the property type theyd most fancy. What amenities would appeal to them? In what type of neighborhood would they like to stay? Walkability is one key thing to consider especially when youre trying to attract millennials. You should check the neighborhoods walk score.
Get Your Airbnb Rental Ready
Once youve purchased an Airbnb rental property, its time to get it ready for guests. Consider what additional amenities you will offer as Airbnb hosts.
Youll need to furnish and stock the property. Be sure that you have property damage protection in place just in case. There is some risk involved to property owners.
Is this an investment property for passive income? Or will this be your primary residence during off periods? You can generate income either way.
Be sure to include clear, accurate photos and descriptions of the property and amenities. Mention if you require a cleaning fee for your properties.
Youll also need to set a price for your rental. Be sure to factor in the costs of operating the property, such as furniture, cleaning, and laundry.
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You Can Invest In Airbnb By Purchasing Shares Of The Stock
Airbnb stock, which trades on the Nasdaq under the ticker symbol ABNB, can be purchased through a brokerage firm or financial adviser. Brokerage accounts are easy to set up and usually charge little fees per trade. Charles Schwab and Merrill Edge are two brokerage firms that you can utilize to purchase shares of Airbnb stock.
It’s important to be aware of the difference between a brokerage firm and a financial advisory firm. Brokerage firms allow you to make stock trades on their behalf, although they wont manage your investment portfolio.
Balance Sheet And Share Repurchases
Airbnb has an outstanding balance sheet with nearly $10 billion in cash and liquid assets and only $2 billion in long-term debt. With its firm financial footing, Airbnb likely won’t be beholden to unfavorable loans at currently high interest rates as it continually invests in product development, spending over $1 billion in 2022 already.
Another positive that comes with Airbnb’s hoard of cash is that the company recently began a $2 billion to offset dilution from its employee stock programs. As a result, Airbnb finally lowered its diluted outstanding shares for the first time since becoming a public company to roughly 680 million for Q3 2022, compared to 684 million for the prior quarter.
Investors generally prefer to see a company’s share repurchase program significantly lower its outstanding shares, so each share is worth more over time. But at least Airbnb is aware of its growing share count and has a plan of action to reverse the investor-unfriendly trend.
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