Estimating Revenue

[Michael7006]

Hi everyone - currently looking at buying a house in a ski resort town to be used primarily as an Airbnb. We have a pretty good model in terms of expenses but have a lot of questions on the revenue number. We have used AirDNA to gather some data but was trying to get any recommendations if 1. people have had good luck with AirDNA and 2. Any other sites that may help us gain some estimates on revenue. Obviously there is going to be a lot of uncertainty from house to house but looking to try and find some data that may help us make a decision.

[Robin4]

@Michael7006 

Hi Michael, I wish you luck with your hosting venture, there are a few things you should consider.

To buy a property for the sole purpose of short term renting is a substantial risk, as many have found out over the course of the Covid pandemic. Unfortunately the mortgage doesn't stop simply because the guests can't come. You need to have a plan B to cover every eventuality.

To the pricing of your proposed property you should not use other properties in your area as a rough price guide. Unless your property is part of a condo development where every property is of a similar spec, every property and owner will be faced with a different set of costs. Sites like airDNA  are not accurate and should not be relied on for establishing a rental figure. Obviously seasonal pricing will be involved with what you are proposing but, I suggest to every new host, don't just pluck a hosting figure out of the air and hope it will work for you. You know your circumstance and it's up to you to establish how much money you require to meet your commitments and make a profit......you need to run a profit/loss spreadsheet similar to the one I have designed for my hosting......

 

If you accurately use a spreadsheet like this it will tell you what your bottom line is to run your property profitably.

Don't be tempted by Airbnb's continual prompts to lower your price to attract more bookings. Airbnb do not give a proverbial whether you make money or lose it, all they are interested in is their service fee, and if you sink or swim, that is no concern of theirs.

Do your own homework and don't try to take shortcuts or depend on sites which just give out generic information. Hosting can be a great way to supplement your income but you need to establish a firm footing for your particular situation on which to build it! 

Cheers.........Rob

[Mike-And-Jane0]

@Robin4 I would argue some of your direct costs are actually indirect costs. I am thinking lines 10, 17, 18, 19?, 20 and 21 (at least the depreciation bit). I do however think the concept is great as I truly believe, with fuel prices where they are, some hosts who do not understand the difference between direct and indirect costs are not even covering their direct costs with bookings this winter.

[Robin4]

@Mike-And-Jane0 

Yes, you are right Mike, I may have perhaps not categorised all the items correctly, particularly 'gardening'! But this spreadsheet is applicable to me as, I live on the property, my thinking was, the direct costs are those I would not have to take into account if I was not involved with STR. Whereas, the indirect costs are shared costs.....they are there regardless and a percentage of them I offset as an STR expense.

These indirect costs are the ones that many hosts do not take into account. This hasn't been set up by an accountant, another contributor (Ben and Angel from Auckland)  put forward the concept a few years ago, I just adapted it and put it into a workable Excel spreadsheet and just use it as a framework to make sure I am not losing money by hosting......

Mike there are basic holes in it. When you look at the way I use this spreadsheet it looks like the cleaning fee is a nightly charge, which of course it is not.....it is only applicable to the first night, but I do clarify that at rows 25,37,39.

A lot of these figures appear to be very minimal, which they are, but they are accurate for me! This is not a business for me Mike, it's a hobby, the extra bit of income is great but, we don't need it. We don't have a mortgage or any loans.......in a monetary sense we owe the world nothing. By producing our own power, doing most of the work myself, utilising special shopping deals and all the time taking advantage of bargain buys, I am able to keep my costs to an absolute minimum.

After covering expenses we average a net $360 per week out of STR, around $18,700 pr year. That's $130,000 that short term renting has put in my pocket over the 7 years we have been hosting and just under 82% of that has been from Airbnb.

My point in bringing this up once again is to impress upon hosts starting out, build your hosting on a strong foundation, don't think whatever you get from Airbnb is simply money for jam, you do have to work for it and realise that there are costs involved in achieving it!

Cheers........Rob   

[Michael7006]

Hi @Robin4 - appreciate the comments.   We do have a pretty rigorous model that takes into account most of the expenses that we feel pretty comfortable with looking at different houses and assessing.  The biggest issue that we currently have is getting an estimate for cell B4, that is where we have discussed looking at AirDNA before but there data seems to be all over the place.  When evaluating some place you have to make some assumption on revenue which is what I'm trying to get more input on how others evaluate that. 

[Helen3]

Your issue is @Michael7006  that in many areas there have been a substantial fall in bookings as utility bills are sky-rocketing and therefore people cut back on luxuries such as holidays so you can't rely on current supply and demand in your area to forecast future demand. And many markets are oversaturated ie more supply than demand. 

In some areas you can buy market research reports from your tourism bureau to look at tourism footfall.

Personally I wouldn't buy an investment property purely for STR unless you are comfortable you can cover all your costs if you don't get the revenue you expect. 

[Lorna170]

@Michael7006  Who are you intending to compete with?  Other single home rental owners or resorts?  If you were to look at the local resort fees for a weekend or week, you may get a feel as to what the current market will bear from the guest perspective.  If you review AirBnB and the other OTAs or local realty companies, you will probably be able to discern a bottom price.  Remember that hotels and resorts can spread their costs over many units whereas you will only have one, and it might be empty for as much as 50% of the season, depending on how you allow it to be rented; weekly, bi-weekly or monthly, or just for weekenders.

I am fortunate enough to own my properties outright, so I do not have to cover a mortgage.  After defining my operating costs, I determined what I needed to bank in order to make the property worthwhile.  My yardstick?  What would I make if the investment money were to remain in a stock portfolio versus bricks and mortar?  How long did I intend to own the property and what would the expected value be after X years if sold?  

Good luck with your venture!