Estimate Rental Income of Your Airbnb in 2022

It’s important that you estimate rental income before investing in Airbnb. The best thing is that the process isn’t as hard as you might think.

Table of Contents

  1. How Much Can You Make on Airbnb?
  2. Why Should You Estimate Your Airbnb Vacation Rental Income?
  3. When to Estimate Your Airbnb Short Term Rental Income
  4. Three Ways to Estimate Your Airbnb Rental Income
  5. Final Thoughts

Airbnb rental properties have also become popular among real estate investors and guests. As an investor, you get to enjoy a higher income potential, passive income, flexibility, property value appreciation, and portfolio diversification, among many others.

Whether you’re a beginner real estate investor or an experienced one looking to add a short term rental property to your portfolio, one question may linger; “How much money can I earn from an Airbnb rental property?”

In this article, we will look at how to estimate rental income for your Airbnb in 2022. Read on to find out about Mashvisor’s Airbnb profit calculator.

How Much Can You Make on Airbnb?

According to the Airbnb platform, hosts in the United States make an average of $9,000 annually. The figure varies from location to location. Some hosts in top markets make up to $25,000 every year.

Other than location, your earnings as an Airbnb host are also dependent on several factors, including:

  • Airbnb occupancy rate
  • Seasonality
  • Airbnb daily rate
  • Number of properties under your portfolio

Why Should You Estimate Your Airbnb Vacation Rental Income?

Estimating your Airbnb vacation rental income is essential in understanding the present and future Airbnb market trends. You can calculate Airbnb rental income to determine the best markets to invest in a vacation rental property.

If you plan to expand your business and grow your portfolio in the next few years, such information helps you stay competitive. After all, you must learn how to adapt to pricing trends if you expect to grow.

That said, here are some metrics that you will understand once you estimate your Airbnb vacation rental income:

Potential Rental Income

Your potential rental income is simply the amount of money you can expect to make from your vacation rental every month. Calculating the rental income for long-term rentals is straightforward since you can simply multiply the monthly rent by 12.

However, with a vacation rental property, you’ll need to use an Airbnb profit calculator, like Mashvisor’s estimator. It is because you need to account for the abovementioned factors, such as the Airbnb daily rate and occupancy rate.

Occupancy Rate

Occupancy rate refers to the ratio of the number of days the Airbnb rental property is occupied to the number of days it’s made available for booking. Keep in mind that the number of days available isn’t necessarily all the days of the year. Sometimes you may need to pull your listing down for personal use.

Your rental occupancy rate should be higher than average. If it’s more than 50%, then it means that it’s occupied for more days than it’s vacant. Just like rental income, factors affecting occupancy rates include location, daily rates, seasonal changes, and guest reviews.

Related: What Airbnb Occupancy Rate Can You Expect in 2022? 

Airbnb Rental Expenses

Short term rental property expenses are particularly higher due to maintenance tasks. Since you experience a higher tenant turnover, you need to organize cleaning and other maintenance tasks every time a guest checks out.

Unless you’re an experienced Airbnb investor, it can be hard to calculate a short term rental’s property expenses. Learning how to use an Airbnb rental income estimator can help you compute the following rental property expenses:

  • Startup expenses: These are one-time expenses, such as closing costs, inspection, rehabilitation, furniture, and appliances.
  • Recurring expenses: These are ongoing monthly expenses, such as mortgage payments, cleaning and maintenance, repairs, Airbnb service charge, property insurance, and marketing.

Airbnb Cash Flow

Cash flow is simply the rental income minus the property expenses. A cash flow calculation helps you establish whether the investment property makes financial sense or not. A property worth investing in should have a positive cash flow.

Airbnb Cap Rate

The cap (capitalization) rate is a return on investment metric that is calculated by dividing the net operating income (NOI) by the property’s market value, then multiplying the result by 100. A good property investment should have an Airbnb cap rate of at least 10%.

Airbnb Cash on Cash Return

Airbnb cash on cash return is another return on investment metric that you can use to determine a property’s current and future profitability. You can calculate it by dividing your property’s annual cash flow by the initial cash investment and multiplying what you get by 100.

As you can see, the cash on cash metric is used to measure the net income generated by your Airbnb compared to the initial amount of money invested in the property. It is important when comparing an Airbnb vacation rental property to other short term rentals.

We’ll be looking at some of the above metrics more in-depth in a short while.

When to Estimate Your Airbnb Short Term Rental Income

Learning how to estimate Airbnb vacation rental income is an essential step before putting your money into the investment property. It helps you know whether you’re making a good investment since you estimate your earnings.

However, it’s also important to keep calculating regularly, say annually, so that you can keep up with market changes and trends. For example, you can calculate the rental income every year to establish whether to raise or lower your daily rates.

Your expected profits or cash flow can also change depending on your situation. For example, if you’re done paying for your mortgage, you can expect to generate a higher cash flow. It is why you should regularly estimate short term rental income.

Related: A Complete Beginner’s Guide to Cash Flow Formula 

3 Ways to Estimate Your Airbnb Rental Income

If you’re interested in investing in a short term rental property in 2022, then you want to find out how to actually estimate rental income. While there are different ways to calculate Airbnb rental income, we’ve broken down the process into the following:

1. Conduct Market Analysis

Firstly, you must find a good location to invest in before you can estimate Airbnb rental income. Location is a core foundation of profitable vacation rental investments. Once you’ve found a profitable location, you can then estimate how much you should expect to make.

A real estate market analysis helps you establish the following:

  • The property value appreciation rates in that specific location
  • Future market performance and trends based on predictive analytics. As the name suggests, predictive analytics help you predict the future performance of a market based on historical data. The data is essential in helping you prepare for the future as you identify how trends will affect your income.
  • Whether your location of choice is suitable for short term rental property investments. Markets vary. Some are more suitable for long-term rental properties, meaning an Airbnb property in that area may not generate enough rental income.
  • Identify the rental property demand in that area. You want to pay special attention to the Airbnb occupancy rate (or vacancy rate) since it directly impacts your rental income.
  • How much property expenses can you expect to pay? As we’ve seen, property expenses determine whether your investment remains profitable or not. Your location determines how much property taxes, licensing and permits, insurance, and repair costs you’ll pay from your rental income.

Once you’ve gathered and analyzed market analysis data, you can now have a rough estimate of the Airbnb rental income in your preferred location.

2. Conduct Investment Property Analysis

Once you’re done with the market-level analysis, it’s now time to carry out an investment property analysis. In short, it’s now time to start looking for a potential short term rental property since you’ve spotted a few good locations.

Here’s how to perform a comprehensive investment property analysis:

Calculate Cash Flow

Cash flow is also known as net profit. As we’d seen earlier on, it’s the amount of money you’re left with after paying for all your expenses. Property expenses vary and may be specific to you and your investment.

Firstly, you need to estimate your rental property income. Your Airbnb rental income depends on your daily rates and occupancy rate. As such, it’s important that you start by setting your daily rates strategically. It is especially important if you’re in a competitive market where guests have many options to choose from.

Your daily rate should be high enough to generate a positive cash flow but not too high to push potential guests away. Be wary of setting the rates too low since you’ll be leaving a lot of money on the table. Nobody wants to run a loss-making venture.

Next, calculate all your property expenses by adding your Airbnb service, maintenance and cleaning, mortgage payments, property management, and utility costs. Also, don’t forget any fees that may be related to using software to help you manage your investment property. Based on the property expenses and cash flow goals, you can now estimate rental income.

Let’s look at an example of how to calculate cash flow. Let’s assume you receive $2,500 from your short term rental property and must pay $700 to settle the property expenses. In this case, you have a positive cash flow of $1,800 every month.

Note that the above is a simplified calculation to help you understand cash flow. Remember, you also need to account for the occupancy rate.

Calculate Cap Rate

A positive cash flow isn’t enough to convince you to buy the vacation investment property. While short term profits are good, you also want to be assured of long-term gains. This is where the cap rate comes in.

The cap rate is a return on investment metric that allows you to estimate the returns from your investment property over a certain period of time, considering the property’s purchase price. Other than giving you an insight into how profitable an investment property is, you can also use this metric to determine the risk of your Airbnb investment property.

Here’s how to calculate the cap rate:

Cap Rate = Net Operating Income (NOI) / Property Value

The net operating income (NOI) is calculated as follows:

Net Operating Income (NOI) = Gross Income – Operating Expenses

Remember that there are a few other estimates and calculations to be made before you can use the above formula. However, once you’re ready to use the cap rate formula, you can estimate the rental income of your Airbnb property seamlessly.

The few formulas above will help you estimate Airbnb rental income. So far, we’ve been using city averages to make the calculations. What we need to do now is take a closer look at area-specific estimates. This is where we perform a comparative market analysis.

Calculate Cash on Cash Return

The final metric to measure the return on investment when analyzing your investment property is the cash on cash (CoC) return. The CoC return is quite similar to the cap rate.

However, instead of dividing the net operating income by the property’s purchase price, we divide it by the total amount of money you’ve paid from your pocket. The calculation is based on the total cash invested rather than the property’s market value.

Here’s how to calculate the cash on cash return:

                        Cash on Cash Return = Net Operating Income / Cash Invested

Let’s assume you’re buying a short term rental property for $350,000 and you’ve placed a 20% down payment, which is $70,000. The down payment is the total cash you’ve invested since your mortgage covers the rest.

Assuming your net operating income is $3,500, your CoC calculations will look like the following:

CoC Return = $3,500 / $70,000 = 0.05%

Of course, the above is a simplified cash on cash return calculation. In a typical calculation, there are many other factors to account for, such as closing costs and renovation costs.

Related: What Is a Good Cash on Cash Return?

3. Perform a Comparative Market Analysis

A comparative market analysis (CMA) helps you collect most of the data you’ll need to estimate the rental income of your short term investment property. The CMA method allows you to calculate Airbnb returns using Airbnb comps.

Airbnb rental comps are other properties that are similar to your property in size, features, and amenities. Rentals comps are located in the same neighborhood and must’ve been sold recently since the real estate market fluctuates often.

The above factors make Airbnb comps an excellent yardstick to measure your rental property. They’ll let you estimate your property’s:

  • Fair market value
  • Airbnb daily rate
  • Airbnb occupancy rate

Collect the above data and compute the essential numbers using the cash flow and cap rate formulas. The numbers you get will be an estimate of your property’s rental income.

How to Estimate Rental Income of Your Airbnb in 2022

You can use Airbnb rental comps to compare similar properties in your preferred neighborhood and estimate the rental income of your vacation rental.

Final Thoughts

Every investor needs to learn how to estimate rental income from Airbnb before investing. You want to invest in a vacation rental that will not only generate handsome returns in the short term but in the long term as well. The only way to know whether the investment makes financial sense is by calculating the potential rental income.

Mashvisor is your best friend when investing in real estate. We offer a myriad of tools to walk you through your investment journey. You don’t need to worry about accuracy and reliability since we get our data from credible sources.

Sign up to Mashvisor today and start your 7-day free trial, followed by 15% off for life.

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