How to Find The Perfect Property To Purchase for Your Airbnb Business
Updated: Feb 4
Now that you have determined that you are free and clear in regards to the laws and regulations, let’s get the property hunting going.
You’re going to have to do some research here but we’ve broken the steps down to make the process as simple as possible to help you find the best Real Estate Investment to rent on Airbnb.
Ever hear the saying in Real Estate, “Location, Location, Location” ? Well that holds high regards. As with any investment property, location is the most important factor when selecting your perfect short-term rental.
As an Airbnb host/property owner you want your property to see a high occupancy rate and therefore the location you choose should be one in which the area enjoys a large number of visitors – tourists and business travellers or both. Pick a few popular travel destinations and don’t exclude small towns in your search as they also make for top markets for Airbnb Investments.
Locations with tourist attractions such as beaches, mountains, national parks, golf courses, restaurants, spas, sporting venues, monuments, grocery stores nearby are typically desirable places for travellers.
Seasonality is an important consideration as you don’t want to own a property that will sit empty thus not generating income. Look for locations where tourists and other visitors are present year-round. These locations will yield consistent demand for Short Term Rental Properties.
Another bonus tip would be to find a location that does not have hotels nearby which will help your rental property to enjoy a high occupancy rate.
The best investment property is one that you can afford to hold comfortably. To achieve this goal, you have to budget carefully. Consider all of your regular sources of income as well as your ongoing expenses in addition to your savings. Set yourself a maximum price which you can afford with your budget and hold yourself to it.
Keep in mind that the price of the property is just one cost you will have to cover. Other costs you will have to factor in are, closing fees, appraisal, inspection, property tax, insurance, possible maintenance fees, provisioning for vacancies, utilities, property management fee (if you decide to utilize a Property Management Company), furnishing your property, Internet and Cable services.
Every rental property comes with costs and expenses that will affect your ROI (Return On Investment). While short-term rentals can definitely be profitable, they can also cost more to operate. If your monthly expenses exceed your monthly income then it becomes easy to start losing money. Finding the perfect Airbnb incorporates setting a budget and breaking down your costs carefully.
3. Property Type
You’ve decided on the location, you’ve figured out your budget, now you’ll need to determine what type of property you should be looking at.
If the location you have chosen is in the city then we recommend you look at apartments or condominiums. You want the condo or apartment to have a gym and pool that is available for use by Airbnb guests and not just residents. If you can secure a parking spot with your purchase, even better. Remember that most hotels offer these amenities and it is one of the major selling points when travellers book hotels. The more amenities your property can offer your guests, the higher your occupancy rate will be.
The number of rooms is largely dependent on your budget.
A one bedroom can typically sleep 2 people comfortably and 4 max if you include a sofa bed in your living area.
We don’t recommend having a den to house a bed, futon or sofa bed. In our experiences, our units that had a den was an uncomfortable situation for guests sleeping in there. It can be done but we don’t suggest it.
A two bedroom unit can sleep up to 6 people dependent on the square footage. Two people each in your bedrooms and 2 people on a sofa bed which provides huge value to guests travelling in a large group. Think about it this way, rather than booking 2 hotel units, your guests can book one two bedroom unit. In our experiences, our two bedroom units have typically been very desirable properties. Often times it would be 4 people booking these units providing for a very comfy stay.
If your location is outside of the city and closer to a beach or in cottage country then the best choice would be to purchase a vacation home, cottage or beach house. This property type attract families and big groups.
The property type will determine part and parcel how attractive your property is to guests, which will dictate your occupancy and hence your rental income. The type of rental property you purchase will also determine the price you have to pay for it which will affect your ROI. Properties in the city will be priced much higher than a property in cottage country in most places around the world.
4. Property Search – The Fun Stuff
Now that you’ve covered the steps above, the browsing begins and this can be a lot fun. Keep in mind that you are not looking for your dream home. Visualize yourself as a traveler. Keeping this at top of mind will help put you in their heels. There are many avenues you can exhaust to find the perfect property. MLS, online listings, real estate sections of local newspapers, friends, family and acquaintances. Foreclosures, bank-owned and private sales can yield great returns if you can score these deals as you’ll be paying a lot less for them.
5. Work With A Real Estate Agent
Finding a seasoned Real Estate agent in Vacation Rentals can be a huge bonus for you. Also remember that on the purchase you are not paying anything so this does not affect your bottom line in any way.
Real Estate agents and brokers have access to the tools and best deals on the market.
We are retired Real Estate Agents and typically most of our clients in the past gave us free rein to secure Vacation Rental Properties for them as we knew exactly what to look for as it was our niche market.
A niched agent will be able to advise you on the top locations, the best property type, and the local legal and regulatory framework.
It is worth mentioning that a great Real Estate Professional has the necessary negotiation skills to secure you a much better price than you might be able to achieve on your own.
A Real Estate Agent will also be able to perform a thorough analysis for you saving yourself the time to perform tasks such as Comparative Market Analysis which we strongly suggest you do in your quest for the best Airbnb Property. CMA will help you to establish the fair market value of the property you are considering so that you do not pay over what you should for it.
Have your Real Estate Agent estimate the monthly rental income based on the average occupancy rate and the nightly going rate for your property type. A seasoned niche agent can easily do this for you by scouring Airbnb and other sites such as booking.com and Expedia and prepare a report for you. They can also used much more advanced tools to do this which is highly recommended. If the numbers don’t make sense then chuck that listing to the side. Your agent shouldn't present you with listings that don’t produce as long as you ensure that you ask for these things. This way your agent knows that you know what you are talking about.
Never settle for a property with negative cash flow. You don’t want to leave things up to luck or chance. The numbers have to speak to you. Positive cash flow properties are what you want to be looking at. Keep at top of mind that a good cap rate is above 8%.
6. Short Term Rental Performance Prediction
The conservative Real Estate Investor may be the type to buy and rent long term but you’re much more savvy than that and have another investing strategy in mind.
Long term rentals yield a fixed return per month and to mention the possibility of long term tenants failing to pay their monthly commitments. In our experience with Short Term Rentals, our guests never receive keys unless payment is collected first so that eliminates completely the possibility of tenants staying their term without payment (a hassle that conservative investors face often).
Short Term Rentals on the other hand experience fluctuating revenue on a monthly basis. Some months will heavily outperform others handsomely and others not so much. With data at our fingertips these days, there are tools out there that can help you predict what your property should yield on average giving you even more peace of mind having done all of the above steps we outlined.
Airbnb Analytics tools are beneficial as it analyzes properties within the U.S to help predict performance. Your realtor may already have access to such tools but if not then it may be wise to open up conversation about it. Airbnb Analytics aids the end investor to predict future outcomes allowing them to make decisions with confidence. Airbnb Analytics utilizes data to help you analyze the ROI and performance of properties based on some of the following factors.
Comparable Rental Income
Estimate Rental Expenses
Cash on Cash Return
Airbnb Occupancy Rates
Now that you’ve read through this post, you are well equipped to start your quest for the BEST Short Term Rental Property.