Analyzing a short term rental investment for cash flow is critical to know if there is financial sense to the property you are looking at. With that, I wanted to share the sensitivity analysis spreadsheet I have created to analyze a short term rental investment. Let’s jump straight into analyzing a short term rental property with first understanding the numbers!
Understanding The Inputs There are three different types of inputs you will need to understand before you can effectively analyze a property. Below is a screenshot of all the inputs we will use to analyze a property.
Short Term Rental Inputs
First, you need to understand a good base price for your nightly rate. There are many ways to come up with this number, but the goal is to set a conservative number for this. This number is used to as the minimum price you will charge per night for offseason. In almost every short term rental market, there are high seasons and low seasons. The number input into this cell should be what you feel comfortable having as a nightly rate for off season.
To get this number, I would go to Airbnb, and search for a certain number of guests and leave the dates unchecked. This will bring back the top listings that can accommodate that number of guests. You will want to do this and then go into specific listings and click on their calendar for dates in the offseason. See what nightly rate comes up. Click into 10-15 listings to get a good understanding of what the nightly rate is. There are other factors you will need to consider, i.e. location, amenities, private pool, etc. so try to find properties that match yours.
Second, determine whether you can generate extra income each month for your property. Here are a few ways you can generate extra income from your property
- Offer an early check-in for $20
- Offer to heat the pool if the guest asks for $20/day
- Offer a late checkout for $20
- Offer extra cleaning services if someone has a long stay
There are other ways you can generate extra income, but those are some of the things I have used. For my Airbnb, I generate between $40-100 of extra income a month.
Third, it is important to estimate how many different bookings you expect per month. Why? This will help you understand cleaning costs. Each time you have a new group staying at your place, you will charge them a cleaning fee and you will pay a cleaner. This brings us to our next input.
Next, you will have the cost for you to pay a cleaner to turn the property. If you want to take on the extra work, you can clean yourself and in this case the cost would be $0. If you are like most short term rental hosts, you will pay a cleaner to turn the property. Call cleaners in the area to get an estimate of the cost per cleaning for the size of your property. Get a few estimates and again, be conservative with this number.
Finally, you have your Airbnb Cleaning Fee. This is the extra charge to your guest for cleaning the property. That’s right, you don’t have to take money out of your pocket to pay for cleaning. Pass this charge along to your guest. This is completely normal in the short term rental space. Go through different listings in your area to see what people are charging for cleaning. Personally, I charge $110 per cleaning to my guest, and my cost for my cleaner is $100. This means I “profit” $10 per turn. This money will go towards replacing anything that needs to be replaced after a guests stay.
- There are key inputs to properly analyzing a short term rental property. Understanding these inputs will help you better analyze properties
- Use your competition in the area to get more accurate data for your inputs. I actively use my competition to see their prices for both nightly and cleaning rates.
- Don’t forget that you can “make money” from cleaning fees. There is no reason to eat this cost entirely. I make $10 per turn and this becomes extra income I use for replacing common things that get damaged in the home.
Don’t forget @TheYoungRetireeBy33’s 3 Core Principles:
1 – Your money should make money for you⠀⠀⠀⠀⠀⠀⠀⠀⠀
2 – Start early to realize the power of compound interest⠀⠀⠀⠀⠀⠀⠀⠀⠀
3 – Eliminate your largest expense by house hacking