How to Calculate Vacation Rental Profits (In 5 Minutes)
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- เผยแพร่เมื่อ 8 ก.ค. 2024
- Before you buy any vacation rental/short-term rental investment, you’ll need to calculate exactly how much it will cost and profit each month. With some mastery of short-term rental analysis, you’ll be able to easily look at a property and see what features and amenities can be used to massively boost your ROI.
Avery Carl, master of everything short-term rental-related, walks through two properties with different bedroom counts and how to calculate profits on both. Avery shows how a simple bedroom addition could be the difference between tens of thousands in profit annually, higher cash-on-cash return (CoC), and a higher cap rate.
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Vacation Rental Market Analysis in 4 Simple Steps:
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00:00 Analyzing Short-Term Rental Properties
00:27 Property 1: Revenue and Details
01:39 Property 1: Using the BP Calculator
04:47 Property 2: Revenue and Details
05:34 Property 2: Using the BP Calculator
Great analysis. Loved the insight on the 2 vs. 4 bedroom COC return.
Great info! I was adding 5% to vacancy not realizing it was included in the gross amount. Thanks!
Great numbers walkthrough on STRs! Thanks for the info.
phenomenal tips. Thank you!
Pretty good tips. I note all of them down.
I'm loving your videos Avery! Before you, Bigger Pockets did not have the same quality of content for short-term rentals...
Great video. Quick question... Why include cleaning fees if you are passing those fees onto the guests?
This is a pretty solid formula!
Happy Thanksgiving 🦃😎
Do you have any videos or examples of short term rental investments that are international?
I appreciate all the information!! I'm new to the vacation rental game, and my question is what amount of time do you need to spend in the property per year to be able to get the 10% down instead of 20%? also, are your examples based on someone buying these properties personally, or with an LLC or S-Corp for legal protections? Thanks so much ofr all the info and great job on the video!!
Where can I run these numbers with my STR?
Is the occupancy data from Airbtics?
How are you getting 10% down payment? Wouldn’t you have to live there full time for a year?
Thanks for taking the time to do a walkthrough and get people's wheels turning on STR. Clearly a rockstar in her industry.
I bet she would ask quite a bit more for these units on MLS. She will have investors blowing up her email and inbox for 1600mo cash flow on a 2 bedroom for $450k on a 2 bed. The "simulated" selling price is what drives the returns on this.
The income analysis is skewed. 65k/$188 = 345 nights per year occupancy. New construction is considerably less price.
The 750k home would not qualify as a vacation mortgage due to it being over the jumbo loan limit. You would have to put at least 20% down.
Yeah that and I thought you had to tell the lending folks that you were planning to use it for an investment property not a primary home, and they usually want at least 20-25% down? But I’ve never bought an investment property so I don’t know what I’m talking about
@@zachnunya8749 You can use the vacation/2nd home mortgage at 10% down payment for a max of about 600k in 2021 (it will increase a bit in 2022). You only need to stay at the house about 10 days a year and you're allowed to short term rent it the rest of the year.
@@michaelwarren3626 ohhhh gotcha thanks good to know
That's assuming the lender is selling the loan on the secondary market. Fannie/Freddie guidelines are easily circumvented with a portfolio loan at your local CU!
@@michaelwarren3626 any PMI?
Anyway you can show one that is little more realistic for average person,..not half million or more cabins🙏?
First property shows $188 rent a night so if you multiply that by 365 days that equals = 68,620 a year and you estimated that it’s “gross income” is 65,000, which doesn’t makes sense to me !!
One would be lucky to get %50 occupy rate on a short term rental in normal times (pre-Covid-19 era) so your real income should be half of that (if ones lucky) !
I believe she said it vacancy rate was already built into the numbers.
@@michellebacon3117 vacancy rate is not built into the revenue number. $188/ nt is not a reduced number. You don t use 95% occupancy as a datapoint in even the best of times.
What do you figure for thr vacancy rate, what is typical?
Also, what percentage of time does the purchaser of the property have to spend there to qualify for a 10% money down mortgage?
AirDNA will avg vacancy rates of comps, super accurate tool.
its not going to be rented 365 days a yr and what about extreme weather when no one is there ? do I have to qualify for the loan or get a % of the rental income ?
Think for the big one she assumed it would be rented like 24 days a month and 28 for the little one . Unless I saw something wrong
Is there mortgage insurance attached to this at all at 10% down? I would imagine but I didn't get to see it in the numbers. The returns are amazing though! :D
I have wondered the same thing as well
Yes there would be MI. Just figure that into your monthly mortgage cost.:)
If you can qualify, I've been told that Navy Federal will do low down loans without PMI as a benefit, I just havent used them yet.
Most credit unions do not require PMI.
Who cares if you're making money, just work that into the numbers.
No mortgage insurance, no cost for furniture, no cost for rehab, only 10% down, like 5% vacancy, etc. And because it is self-managed, it is not scalable. Especially with 95% occupancy! Come on BiggerPockets show more realistic videos.
Lets compare your STR portfolio to hers then eh?
@@padronianful I do not have any STR. I've done the math, they are not that profitable. Especially if you factor in my own time into the investment. I stick to long-term rentals, residential and commercial.
@@housefanman of course you don't have any STRs. If you did, you wouldn't be such a skeptic.
95% occupancy is standard in tourist destinations, most credit unions don't require PMI regardless of DP, standard for STRs to be sold furnished, and if they're not, the cost is only in year one and still depreciable, AND totally scalable with self managing...in fact, probably easier to self manage with automation and VAs.
You may have "done the math", but millions of STR owners would disagree with it.
Like all real estate...location, location, location. Enjoy your 6 Cap commercial prpoerties lol
Not to mention not even including supplies for guests like pantry items, breakfast foods, soap/shampoo, linens is a big one as well that need to be replaced more often that you'd think. That's not even mentioning repair and replace cost for larger furnishings as well as kitchen items. I personally own and manage 3 of my Airbnb listings in Seattle and it can definitely be a great investment and income generator if purchased correctly and run expertly but this was a big oversight.
@@padronianful If she's using "VAs and automation" then that should be in the budget. And if this STR you dream of is so easy with 95% occupancy and stocked with such great furniture - why would they sell! lol. I only sell my less profitable or high maintenance properties... Not my highly profitable low maintenance ones!
No PMI accounted for
I heard Airbnb is upping their fees to about 15%+ is that true? If so, would you recommend doing VRBO instead?
Vrbo they book every 5 months
When you include the fee the customer is paying both Airbnb and VRBO are over 15%.
Paid option on Bigger pockets. $40/momth
Thanks for all the great content and suggestions! In the first example, it seems we're assuming an occupancy rate of 95% (= 65000/188/365). Is that realistic, or, are there other components of revenue I'm missing? Thx again!
it's $188/avg
@@brandonlagrange5307 that still comes out to 95% occupancy.
Does your income calculation include any cleaning/service charge fees that are charged to the tenant?
Aren't cleaning fees pass through?
I appreciate the walk through. Are all your acquisitions recently renovated and furnished? Those are huge setup costs that you didn't discuss, and they would drop the CoC return quite a bit.
Can you do another video to show us how you analyze a property that you would need to renovate and furnish?
Take the estimated NOI and subtract the reno. estimate from your contractor. Furnishing is waaayyy too subjective to have a rule. New/used, budget/luxury...massive delta in cost.
@Michael Park good point , there is a rule of thumb regarding cost of new furnishings for a STVR based on number of bedrooms.
I have a vacation rental I bought on the central coast of California. I put 50% down on a 1031 exchange. I have owned it for 15 years and have never turned a profit. We love going there or I would have sold it. I recently paid it off after selling another rental and thought I would finally turn a profit. But just got a $30,000 repair bill. I have around $300,000 in passive losses so it will take some time to use them up. I keep seeing articles about vacation rentals being such a good investment and I don't see it? just a few years ago I saw a video by Robert Kyosocki saying they are the worst investment to own. Now it seems everyone is pushing them?
I did STR analysis for rentals in Las Vegas market and it's not worth it unless your occupancy is over 80% which is not realistic. She uses 95%, I rarely see long term rentals with this occupancy. Smoke and mirrors. Learn your base rates before making decision.
50% down will spin off a terrible Return on Equity.
Not sure on specifics of your home, but it isn't the asset class that's not producing, it's YOUR asset.
What kind of numbers did you run before pulling the trigger?
There's a reason institutional investors are getting into STRs... they outperform all other real estate classes, but like anything, you gotta buy the right house
the question I most wanted is how to analyze all of those other websites to come up with $65,000
Unless you get the actual numbers from a property owner regarding income and expenses the numbers you use for analysis are just a guess. No one can say that all properties in that area with 2 bedrooms average 65k per year. No one can do a comparison using 5 year figures. To buy a property more in depth analysis should include new construction price per sq ft vs existing construction.
I noticed that you mentioned 10% down because you will be using the property for yourself at times. What does that mean?
You can get a second home loan (only requires 10% down) as long as you stay in the home for 14 days out of the year or 10% of the amount of days it is rented.
@@robertprieto6938 pmi?
@@adn1107 You will have to pay pmi, but it a small portion of your monthly payment. It is not impactful as long as your Cash on Cash return is acceptable.
@@robertprieto6938 and I guess we can only have 1 second home at any given time?
@@adn1107 That is what I believed as well, but you can have multiple as long as they are in different markets. They also have to be more than 50 miles from your primary. Although you can have multiple, the income of the property will not be counted toward the DTI. So you are restricted in your total monthly debt to income.
Is this truly cash on cash return? The speaker referenced Improvements that she did, but those costs weren't included. If they were included, I suspect the coc return would be much lower. And those costs would be higher for the larger property.
She mentioned the price of the home was the amount she would list the home today. This may mean she purchased it and did her renovations for much less. This example shows the overall cash on cash return if buying at today property value.
@@robertprieto6938 this is helpful. Does the high coc return imply that the offer price could be higher?
@@chrisc1071 Technically you may offer more since you have such a high CoC, but you want to make sure you are creating as much equity as possible from the beginning. Also, you may want to give yourself more of a margin since short-term rentals have more volatile than long-term rentals.
To all the hidden cost comments:
Start at 2:32 where she quickly mentions CapEx how they just did a rehab so dont expect to turn profits for at least the 1st year. Then right past 3:00 she mentions cleaning 5x a week and costs associated with that.
Why does not she factor in rehab and furniture? Is 15% CoC target valid when accounting for rehab and furniture?
I think she means not to expect any cap expenditures the first year meaning she won't need to do any work on the property since she has already done that. That is what I'm understanding it to mean.
How is the first property only $6500 down ? 10% of $500k is $50k.
What happened to the Avery Carl vids. Is there another way to hear Avery Carl advice. I really like Robuilt, but I feel like my Personality really understands the way Avery presents information and miss that content!
I did STR analysis for rentals in Las Vegas market and it's not worth it unless your occupancy is over 80% which is not realistic. She uses 95%, I rarely see long term rentals with this occupancy. Smoke and mirrors. Learn your base rates before making decision.
Is 5% vacancy accurate?
This is Terrible. 95% occupancy rate!? At best you are seeing 55% - 70%. No cost for furniture either. Do better.
Self-managed properties in the smokey mountains can push into that 90 percentile occupancy rate. You don't know the area, so don't speak so assuredly on things you're ignorant of.
@@Jekyll_Island_Creatures I hope everyone gets these numbers. It would be tremendous! It would be great. Side note, I literally own property in Banner Elk. I know the area. Move on.
We have multiple STRs in Destin, FL that all see 85%+ occupancy, so while 95% may be high, 55% is low. The good news is - if the numbers work at 55% they will really work after better marketing and property management push it to 80-85% or more. Opportunities are everywhere if you know where to look.
@@johnmoranMREA-Careers great to hear you are doing 85%. This is one stat I truly hope for all of us I am wrong on. How many STR do you have in FL? I keep hearing good things out there. Keep it up :)
@@Jekyll_Island_Creatures explain how many years these properties averaged 90%+? That means in the off season of 6 months you would need to average 6 days per week rental. That kind of exaggeration is only seen from the Biden White House!
Just because you say you are going to stay in it sometime during the year, that does not meet loan requirements. You will need to put 20% down or risk the bad word, Mortgage Fraud. Also, you number of nights projected on both of these examples are way too high on an annualized basis. I like your advice but you need to be real on these two concerns.
Ease up on the face filters, geez.