There are multiple incentives to enter the short-term rental market through Airbnb. It makes total sense for both a property owner and an aspiring property manager. Regardless, financial planning is crucial for success. It’s all about using data to estimate whether the renovation brings you an ROI. For that, the cash on cash return calculator is the best tool you can use.
Finally, the math is simple here. All you have to do is make an educated guess how much potential is in a refurbished rental property.
There’s a reason why managers never see an ROI from their Airbnb rentals. The unsuccessful managers fail to understand the financial formula behind the profitability of Airbnb short-term rentals. It’s all about knowing how to calculate an ROI on a property investment and cash on cash return calculation. To execute cash on cash return calculation, you subtract annual pre-tax cash flow by total cash invested. You get an annual pre-tax cash flow by subtracting mortgage costs from annual operating income. And, you get total cash invested when you sum up down payment, closing costs, and rehab costs. That calculation gives you an estimate of the rental’s profitability. Yet, you are still at the point of speculation. Financial math is but a part of the art of refurbishing your apartment.
Still, the cash on cash calculation remains the core of the whole operation. But, it only becomes a palpable estimate when you know how to make the most of the apartment for Airbnb. For example, you may own a property on the outskirts of a city. It requires some renovation before you list it on Airbnb. However, that alone isn’t a promise that you can get a return on your investment. Instead, it may be a waste of money and time if people won’t book it.
The whole premise of short-term rental profitability is that you can book the apartment for most of the month. If it’s too far from the city, there’s less demand for the apartment. Thus, you earn less money and fail to turn a profit. That’s why you have to look at the location and median price for short-term rentals there. Then, evaluate the apartment and its amenities. Finally, calculate the cost of everything and move to renovate the apartment.
Refurbish the Apartment
Now you have to learn how to turn an old apartment into a profitable Airbnb unit. Here, you want to concentrate on:
- Indoor fixes
- Outdoor fixes
You may skip outdoor fixes if you have an apartment in a building without a patio or a yard. However, if occupant may access outdoor facilities, fix:
- Outdoor decor
For indoor refurbishing, fix:
- Wall paint
- Wood paint
These are elementary fixes for your Airbnb apartment. A patio or a garden is a plus for any short-term rental. Tenants love them, and these spaces are excellent for parties, hanging out, or relaxing.
However, most of the money should go into indoor renovations. Declutter the apartment first. Then, freshen up the apartment by adding new tiles and painting the walls. If necessary, invest in flooring that requires less maintenance. Take 30% of your total investment and put it into bathroom renovation. With that, you may move on to style the apartment.
Decor and Furniture
The next thing you want to shop for are items for decor and furniture. If you manage to match the general taste of your guests, it can increase the perceived value of the apartment. Then again, furniture is rather expensive. Depending on the size and the number of rooms in the apartment, you may need more furniture. Beds are a must but are also the most expensive furniture. So, if possible, buy a queen-size bed if you have more rooms. Or if you have a single bedroom, get a king-size bed.
Then, you can buy items such as:
- Kitchen nooks
- Wall decor
You can get anything as long as it doesn’t clutter the apartment. If you need inspiration, browse through top-rated rentals on Airbnb. Try to find what makes them visually appealing and replicate their style. All that is left is to stack up on the amenities.
The purpose of amenities is to make the apartment more functional. While visual appeal is a plus factor for guests, functionality is equally important. To get your home Airbnb ready, you need amenities like:
- Smart TV
- Air condition
- Pet-friendly spaces
- Digital locks
So, it makes a lot of sense to invest the most money in refurbishing and amenities. These are the things that make the apartment habitable. The decor is a valuable part of the equation, but you can always keep it minimal.
If you are a beginner, that is a huge advantage. Once you get some experience with Airbnb rentals, invest more time in apartment decoration. However, if this is your first apartment, look for apartments that require less work and amenities. Renovate the apartment and list your apartment.
Refurbish the apartment and list it on Airbnb. Provide a superb experience for your guests. Make your apartment a reliable source of income. Renovating your apartment and listing it on Airbnb is a simple way to create another income stream. Research as much as possible. Make a choice that is the foundation of your future Airbnb rental success!