Short Term Rentals (Airbnb, VRBO, etc.) can make great money if done well but can also be a tricky endeavor. How can you know whether this is something you want to do? There are three main things to consider when trying to decide how much money you can make:
1) Know Your Market
Knowing your market is by far the most important thing in determining how much money you can make. Having rentals in two different markets makes it easy to compare and contrast markets. People staying in Austin are willing to pay more than those staying in San Antonio. The 2/1.5 I manage in Austin consistently stays full at over $100/night while the 2/1 I manage in San Antonio struggles to get $90. Often, people are traveling to San Antonio to visit family and are just looking for a less expensive place to stay, while people traveling to Austin are on vacation and want more luxuries during their stay. This is great for my small back house that is easy to clean and maintain because there is always a demand for a budget option. Proximity to downtown matters in both markets, but it probably matters more in the Austin market, as more people are traveling to visit downtown, while San Antonio’s downtown does not seem to be quite as much of a tourist attraction. Ways to get to know your market beforehand would be checking out other Airbnb’s and what they are renting for (be sure to check multiple dates and use dates that are further out to get a better picture of rates), as well as checking into hotel prices and where people typically stay in hotels. Once you get a picture of the market, you need to find your niche.
2) Know Your Niche
Finding your niche can make or break your short-term rental. There are often holes in the market that can be exploited with a keen eye. Are there large rentals near downtown? If not, being able to find one can be great for business as there are often large groups wanting to visit the downtown area. Is there a great demand for small rentals near an army base that could be visited all-year-round? Are there big events somewhere in the city that draw a large crowd and could be great for business? Once you find your niche and become the best in that niche, the profits begin to roll in.
3) Know Your Pricing
This is one of the toughest areas and is constantly changing. Trying to navigate the balance between being consistently booked and having good rates is always a battle. Companies like BeyondPricing and AirDNA help you do this, but most of the time you need to set a base rate. This is based on the two factors above, as well as ratings and collections that you are on (the Work Collection, Family Collection, etc..). Much of this is trial and error, but be wary of always using Airbnb’s Smart Pricing. Using the Smart Pricing and the Smart Discounts, I had a month-long booking for my first Airbnb at $17/night. Needless to say, I wasn’t thrilled. But I have learned my lesson, and I continue to get better at pricing my rentals correctly.