How to calculate what you could earn from an Airbnb business

Calculating Potential Earnings

If you're looking to start an Airbnb business, you're probably wondering how much income a short term rental property could actually bring in each month. While there are a few online calculators that could help you estimate your potential earnings, most of them fail to show their calculation process. So, here's the actual calculation of how to calculate your potential Airbnb revenue.

First, multiply the year-round occupancy rate by your average daily rate.

For example, if you charge $200 per night and have a 75% occupancy rate, then here's what the equation would look like:

$200*0.75*365 = $54,750 total revenue before expenses and taxes

This is an easy way to see what percentage of occupancy is needed yearly in order to cover basic expenses, and then make an income as well. It's important to calculate out the potential costs before purchasing a new property or flipping an existing property.

The best way to determine what would be the expected occupancy rates based on the size, type and location of the property is to use a paid service called Airdna.co or Mashvisor. These services can be expensive since you have to pay for a monthly subscription based on each city you would like access to. At Modern Lending we provide this information to any of our clients once they get pre-approved to purchase a rental home with us. This can save them thousands and help them get customized information. 

These sites not only offer information regarding the expected occupancy rate on a month by month basis but also give you access to a full 365 day calendar on what the average nightly rate would be based on similar properties listed on Airbnb.

Calculating Potential Expenses

As far as calculating the potential income that your property will bring in, the above calculation works great. However, there are other expenses to take into consideration, as well. 

In order to calculate the expenses that your property will cost you each month, you will need to include your mortgage payment, property taxes, homeowners insurance, HOA fees, software costs, property management fees, as well as the cost of bills, utilities, and supplies for the property. You can omit the cleaning fees for the rental, as Airbnb guests will pay the cleaning fee. For yearly expenses on the property, you should include property planned repairs, furniture wear and tear, and minor decor upgrades. 

An additional cost that will need to be paid is profit tax. In most places, you need to pay taxes on any profit that is generated from your properties. In order to find the exact amount, you'll need to look into local laws and regulations. You also need to make sure you give Uncle Sam his fair share. 

One of the less talked about benefits of buying an Airbnb is the unbelievable income tax benefits. Not only do you get to reduce your tax liability by deducting any costs of operating the Airbnb; but you get to write off the depreciation of the home. Basically you get to take around $22,000 of a $600,000 home's value and write it off on your tax returns. Think of it like you get to earn $22,000 in profit tax free. You can also take advantage of bonus depreciation which can be in many cases the ability to write off up to 25% of the home's value in the first year! 

If you're looking for more information on how to purchase and rent out your first Airbnb property, check out our website.