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Investors consider Airbnb as one of the most profitable ways to generate money in real estate. The primary factor that contributes to the increasing appeal of investing in Airbnb is that many people now prefer short-term rentals over hotels because the former offers a personalized accommodation experience.
However, despite its popularity, an Airbnb property rental business may position itself on the losing side. As a real estate investor who wants to invest money in Airbnb properties, you should know how to evaluate a property before buying it. In this way, you can determine the profitability of an Airbnb investment.
This article will help you how to do an Airbnb investment evaluation the right way. Read on below to ensure you can make a profit from your Airbnb investment.
Know about the City or Locality
Make sure to know the city or locality where you are planning to operate your Airbnb rental business. The location of the property plays a primary role in its return on investment, and it must be your first consideration in making your Airbnb investment analysis. Also, take note of these various location factors to determine the viability of your investment.
- Airbnb Regulations. Researching the local regulations covering Airbnb properties in your preferred location is crucial in your investment analysis. Some localities have laws and regulations that restrict the operation of short-term rentals. These local rules vary significantly, and you must study them because they may affect your investment.
- Tourist Attractions. Choose a city that draws a high number of tourists every year. Look for beaches, outdoor spots, theme parks, and other attractions. One good indicator of Airbnb's profitability is if the location is a popular travel destination. You can generate high occupancy rates if there are many attractions in the area.
- Seasonality. There are inevitably events and seasons that happen in the city that can affect your bookings. There are highs and lows throughout the year, and you have to be mindful of them in making your investment decision. Look at city data in doing your market research.
Study the Neighborhood
The next step after researching the city dynamics is to analyze the neighborhood of your Airbnb property investment. The potential for profit of neighborhoods within the city may vary from the viability of the city in general. Some neighborhoods might not be ideal for your Airbnb investment plan.
Therefore, studying the neighborhood is vital before purchasing a property for Airbnb rental. Sometimes, the opulence of the neighborhood is immaterial, as long as the visitors to the locality get decent and comfortable accommodations.
For example, tourists want a neighborhood that is accessible to the popular attractions and amenities within the city. It is also essential that the place has a low crime rate to make them feel safe during their stay.
You can use a data analytics tool to know the profitability of a neighborhood based on several metrics, such as the average listing price, occupancy rate, rental income, and cash on cash return. Some analytics tools have a heatmap or color code feature that allows comparison between your target neighborhood and others within the city.
Evaluate the Airbnb Investment Property
Now, we will explore the last step in our guide: analyzing the Airbnb investment property itself. Say, you are okay with the city and the neighborhood. Then, it is now time to evaluate your target property.
The efficiency of your property analysis typically leads to more accurate decision-making. You can abandon the old way of using spreadsheets to assess Airbnb data, as they are prone to errors and consume a lot of your time. Instead, use an investment calculator to do your Airbnb investment analysis in a faster and more accurate manner.
Using an investment calculator designed for Airbnb investment can help you evaluate your target property based on relevant Airbnb metrics. These factors include Airbnb cap rate, occupancy rate, cash flow, rental income, and cash on cash return.
It should be your goal as a property investor to put your money into Airbnb properties with positive ROI and cash flow. Utilize the above-mentioned metrics in comparing your target property with other Airbnb properties that are up for grabs in the market to know whether it is the best deal.
Moreover, compare the selling price with the fair market value of the property to avoid spending more money. Using an investment calculator, it is easy for you to search for Airbnb comps and conduct a comparative market analysis.
Endnote
While it is a trend right now to invest in Airbnb investment properties, it is not always a guarantee to profit from it. It is still crucial to evaluate your Airbnb property investment. There are three steps to do an investment analysis in this matter, namely: studying the city, doing research on the neighborhood, and evaluating the property itself.
