Yearly Airbnb income reports are the reason why first-time entrepreneurs love the idea of looking for a fourplex for sale. Yet, it’s another thing to start with Airbnb.
There are two obstacles to turning a profit even in the first year. You have to pick the right property for Airbnb and finance it. It’s all about proper preparation and planning. Keep reading to find out how to maximize your earnings in the first year with Airbnb rentals!
Know the Market
For any sensible decision, you need data like cap rates and NOI. That data should help you calculate how much money you need to invest in Airbnb rental and break even after the first year.
Let’s say that you live in San Francisco and want to get a mortgage loan to buy an apartment for Airbnb. It’s a popular and high-value market, but it’s also risky. At least it is if you know how Airbnb works.
When you crunch the numbers, it seems like you are looking at $40,000 profits in the first year. But, you may earn less than $10,000 if you pick the wrong property. That’s why data is so valuable since it helps you estimate if your property is suitable as a short-term rental.
In any case, there are two scenarios for your first year with Airbnb. Either you already own the property, or you have to get one.
It’s much easier to start if you own a property. But, it’s possible to start earning even if you don’t own a property.
First-Year Costs
The two most common ways to get your short-term rental are to buy a property through a mortgage loan or become an Airbnb property manager.
The main difference is that a property manager gets a lean start, but the property buyer gets ownership of the rental. Each strategy impacts both the first-year costs and earning potential.
A property manager can lease a property for $1,500 and earn a total of $3,000 per month. That nets him $18,000, minus the total expense of $3,000 to $5,000. Thus, the property manager looks at $13,000 to $15,000 in the first year, and that is without additional renovation costs.
However, it’s necessary to have a good credit score and a downpayment to buy a property. Once you have the property, your guests pay off the mortgage while turning you a profit.
Of course, you can pull off both strategies. It all depends on what your end goal is with Airbnb rentals.
Earning Potential
Before you look for a fourplex for sale, reconsider market conditions. Try to gather the following data on your location:
- Is it a tourist location
- Is there a demand for housing at your location
- Do people have a reason to visit that location several times per year
- Is there a specific incentive to visit your location
- Do you live somewhere relevant for education or business
Your market is in demand if you check out at least three points from the list. San Francisco could be such a market. People come here to work, get an education, or visit as tourists.
Now, get your hands on a professional real estate app and find out about:
- The median price of real estate for that location
- The cap rate
- The median rate for short-term rentals
- The NOI for rentals of various sizes
- The available properties on the market
- The common offers for short-term rentals on that market
With that data, you know how much you need to invest upfront and what you can pull out from the rental.
Crunching the Numbers
It’s time to get back to the idea of buying a fourplex. Imagine that you have the following game plan. The goal for the first year is to turn a profit and pay off a part of the mortgage. Then, prepare to repeat the initial process.
Let’s say that you want a fourplex at $600,000 with a 20% down payment, 3,5 rate, and 30-year mortgage. You pay upfront $120,000, reducing your mortgage to $480,000. Add another $20,000 for renovation costs and get $500,000 of total debt you have. Your monthly mortgage payment is $2,600 over 30 years.
Since you have to live in a housing unit, you have three other housing units to rent. You can rent each unit for $2,500 which nets you a total of $7,500 per month. Once you pay off the mortgage payment, you have an additional $4,900, which totals $58,000 per year. But that is if you do everything right and have tenants for all your housing units.
Laying the Groundwork
The earning potential is there, you just have to read it. But, with proper financial math and planning, you can do it.
Getting a mortgage may be too risky of a move for most people. So, you can try to work as an Airbnb property manager and get your skin in the game.
Give it a try, and get money for the down payment. Then, get your fourplex and start turning a real profit.
