Assess the Financial Feasibility of your Airbnb Rentals

Airbnb

By Lellith Garcia

Airbnb is a good option if you are planning to invest in real estate rental property. Airbnb has been gaining popularity for the past years because of the homier setup compared to hotels. And once tourism starts to revert after this pandemic, Airbnb rentals will continue to flourish again.

Suppose you are planning to start your Airbnb business. In that case, you should consider the ins and out of business and be familiar with the growth drivers and factors affecting the project’s financial feasibility.

Let us tackle below the factors to compute the revenue and expenses for your Airbnb rental.

1. Computing for Revenue

There are various considerations when computing for revenue. It includes the rental fee, average stay per customer, and occupancy rate.

Rental Fee

The rental fee would depend on the property you are offering. The more amenities you put on a property, the higher the price. You can cater to different clienteles and offer rental spaces that accommodate their specific needs. Let’s say you want to cater to solo travelers, couples, groups, or families. Per circle has different needs. You can offer smaller rooms for solo travelers, but for families, you can offer bigger rooms with additional amenities such as extra beds for children, walkers for babies, etc.

Average Stay per Customer

Stay per customer will vary. Others will only stay for a day, but others can stay for days. If you offer different properties, project the average stay per property based on your research and estimates.

Occupancy Rate

The occupancy rate is lower in the first year since you are still establishing your name and foothold in the rental industry. It will start to increase in the succeeding years. Then you can estimate a full capacity of 90% since your rental spaces will not be occupied all year round.

2. Projecting your Operating Expenses

Operating expenses incurred for Airbnb are the Airbnb hosting fee, consumables, cleaning and laundry services, and utilities.

Airbnb Hosting Fee

The Airbnb platform charges a 3% hosting fee, which can increase if you use Super Strict cancellation policies or an Airbnb Plus host.

Consumables

Providing consumables is a must if you are into a short-term rental. It can just vary as to the varieties of consumables you are offering. The basics are soap, shampoo, toothpaste, coffee, and coffee complements. Allocate your budget for these consumables not to exceed the projected expenses.

Cleaning Services

Ensure cleanliness of the rooms or properties you are offering. Have an in-house services or on-call Eastern Suburbs cleaners who will clean right away after check-out of customers or in-between stays of longer-staying customers.

Laundry Services

Fresh sheets and towels are a must for your customers. Take to laundry right away those with 1-2 days stay upon check-out and request of the longer-staying clients. You can have an in-house laundry service or have some laundry services do it for you. Whichever is more economical for you.

Utilities

Keep track of your utility’s expenses. Before buying appliances, make sure that they are energy-saving types to save in the long run for the utility expenses rather than save on the purchase prices of the appliances – since energy-saving appliances are expensive compared to their ordinary-type counterpart.

3. Estimating the Needed Capital Expenditure (CAPEX)

After acquiring the property, you may still need renovations, improvements, and water and electricity installation. That would be your total initial CAPEX for building and building improvements. You will also need to invest in home appliances, and furniture, and fixtures. Also, allocate budget for annual CAPEX for improvements and replacements.

4. Taxes

Depending on your location, taxes may vary. Other cities charge higher taxes compared to other cities. So, consider this when deciding where to establish your Airbnb rental.

Presented above are the significant factors affecting the financial feasibility of your Airbnb. You can also use a financial model template where you can input all your assumptions and estimates. It will provide you with a more in-depth analysis and metrics in assessing the viability of your prospect venture.

About the Author

Lellith GarciaLellith Garcia is the Marketing Manager of eFinancialModels.com, which provides a rich inventory of industry-specific financial model templates in Excel spreadsheets. Lellith has been involved in preparing various financial model templates, which are loved by entrepreneurs, consultants, investors, and financial analysts looking for assistance to speed up their financial modeling tasks.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.