When my wife and I began this endeavor to start an Airbnb in our home we knew it would be successful. Our goal was to match 75% of the mortgage with Airbnb income. The Nashville market was really heating up and Airbnb was just beginning to get some traction here in late 2014.
Airbnb was still such a new phenomenon that our local government had not implemented legislation regulating short term rentals yet. However, hosts were required to be properly permitted after new legislation was adopted in May 2015. Luckily, we finished creating our Airbnb space in May 2015 and were first in line to apply for a permit. Applying for a permit was fairly simple. I won’t bore you with all the details, especially since every market is different and the ordinances change from time to time. After a week or two, the short term rental permit came in the mail.
May 30, 2015 was the first day. June 2015 was the official first month. It was a home run. This is how I made $2,863 my first month as an Airbnb host.
Now, numbers can be relative and especially so when it comes to different markets across the world. A one bedroom rental in Nashville is completely different from a one bedroom rental in New York City. So on and so on. If you have had the chance to read through my previous blog posts you would have read that my Airbnb is in the lower level (the basement, to be exact) of my home. You are welcome to check out my post on Decorating An Airbnb.
The 1,000 sq. ft. space included one bedroom, kitchen, bathroom, and a living space. Ideal for two people, but can accommodate three no problem. Hotels in my area charge $150-$175/night on average for a one bed room during the week. Higher on the weekends. We researched the market to see what other host’s were charging around the area. And to stay competitive with the hotel industry my wife and I wanted to make sure we offered our guests great pricing. Therefore, we decided on $99 per night. I am thrilled to report that in June 2015 our Airbnb was booked every night!
At the time our monthly mortgage payment was $1,640 (now $1,450 after re-financing). With the new Airbnb addition our home was now 4 bedrooms, 3 1/2 baths, and around 3,250 square feet. That payment may seem like a lot for some of you. Others it may be low. All depends on your type of loan and location. This payment includes principal, interest, taxes, and insurance. Like I said, the goal was to hit 75% of the monthly mortgage amount each month:
- Monthly Mortgage Payment – $1,640
- Monthly Airbnb Income Goal – $1,230 (75% of mortgage payment)
- Airbnb Income: Month One – $2,863 (174.6% of mortgage payment)
The months preparing and creating the space were well worth it. We now knew this was a fantastic investment.
Hitting Your Number
“How much can I expect to make as a host?” I hear this question more than any other. Like most things in life the answer is typically, “it depends.” However, I try to stay away from these types of responses. It does not truly answer the question and leaves that person even more confused. On average, a host earns roughly 81% of their mortgage in Airbnb income per month. This number falls more in line with the owner-occupied host rather than the non-owner occupied host. Obviously, the more rooms available the greater the potential to make more income. Starting out, my number was 75% (or roughly $1,200/month in revenue. Your number may be 25%, 50%, or even 100% of your mortgage.
Here are key items to consider when determining your number:
- Airbnb: Search Airbnb within a 5-mile radius of your home. Compare similar listings to your own to determine proper market pricing.
- Hotels: Search hotels for weekly and weekend pricing. Pricing will fluctuate during peak travel times but finding the average will help you price your Airbnb properly. You may not have many guests if you charge $150 per night when the hotels around you charge $100 per night.
- Real Estate Agent: Contact a local real estate agent to get up to date market pricing on long term rentals. It is beneficial to know what monthly rent is for long term residential homes.
- Family & Friends: Reach out to the people around you. Ask them if they would pay X to stay in your Airbnb but to be honest with their answers! Mothers are biased!
- Yourself: In the end, you will be the deciding factor on what your number will be. Put yourself in your guests shoes. How much would you pay per night to stay in your Airbnb? If you put your guests needs and wants first then pricing almost becomes secondary.
Smart Pricing is an automated tool created by Airbnb that evaluates thousands of prices and automatically adjusts your nightly rate to match those prices. By turning on this feature you instruct the tool to auto adjust your daily prices within the minimum and maximum price range you have chosen. This is essentially how hotels operate during slower travel trends. Adjustments are based on:
- Supply and demand in your area for that specific date
- Your Airbnb listings features
- Booking History
I tested smart pricing and realized that it was not for me. However, it may be a very useful tool in your market area. I discovered that smart pricing is great for booking those days scattered between days that are already booked. But, since it evaluates thousands of prices, my suggested nightly rate for random nights during the week were reduced by 20-30%. One can argue that charging $100/night and not getting booked is worse than charging $50 and getting booked. Sure, $50 is better an $0. However, my Airbnb was consistently getting booked at this price point.
I will say that smart pricing is beneficial during slower travel times of the year. The rental market in Nashville slows way down during the winter months. As do the majority of markets. When it is cold, people tend to travel less. Therefore, keeping a set price point throughout the entire year may not be the best idea during those cold winter months. Smart pricing can auto adjust to match market pricing but the nightly rate may be reduced by 20-30%. But hey, $50 is better than $0!
My New Number
My initial goal to make 75% of my mortgage payment in Airbnb income was blown out of the water. After that first month my wife and I realized we wanted to offer more than just a typical place to stay for our guests. In order to do that we streamlined as much of the logistics as possible. Keeping the entire process as simple and professional as possible. And on average Airbnb hosts make 81% of their mortgage payment. I wanted to do better and knew my Airbnb would do better. After looking at the numbers again I knew that my Airbnb would generate 100% of my mortgage payment. In fact, since the Nashville market was so strong and steady my Airbnb could generate more.
My new number: 125% of my mortgage payment (or $2,050 per month)
It was a challenge that we faced head on. Always listening to our guests comments on how to improve the space was priority one. Simplifying the check-in/out and answering the guests questions before they even knew to ask in our welcome folder. I am excited to report that out of the 15 completed months since June 2015 (September 2016 not included) my Airbnb hit that goal 12 times. The three months that did not meet the goal: November 2015, December 2015, and February 2016. We had family in town for Thanksgiving in November 2015 so we blocked off a week for them. If not for that then November would have met the goal. However, the other two months, December 2015 and February 2016, were impacted by slower travel times in those winter months.
Whatever you decide your number will be it is important to remember to have fun! Airbnb is a great way to supplement income while providing a wonderful experience for people. Don’t take that for granted. Listen to their comments and realize without them your Airbnb would not be successful.
Thank you for reading this! Join the Start An Airbnb community today and leave a comment below. Contact me via email at firstname.lastname@example.org
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