I actually tried to work out the economics of it based on the rate we were paying ($200/night) in a place that was clearly worth at least half a million.
$200 per night. Assuming they only get occupancy on the weekends, and use some weekends for themselves. Then you could reasonably presume they can get maybe 150 rental-days in a year. More likely to be 100. Let’s use 100 because it maths easy.
That’s $20000/yr. If you were only paying for your place with short term rentals at that pace, and interest wasn’t a thing, it would take 25 years to break even. If you include interest at a trivial 4%, then you’re looking at a 40 year mortgage.
And that’s not including all the cleaning, repairs, etc.
So if you’re using the place as an income stream, yeah, that ain’t happening. Not unless it’s in a high-demand location that you can charge a lot more for.
Unless you’re looking at it like a retirement-home-in-waiting or something.
It makes sense if you use realistic occupancy rates. Apparently they’re up to 70% in many cases. But even 50% occupancy changes the numbers completely. The thing to remember is it’s not all about weekends. People book week-long trips all the time. And AIrBnBs cater better to those longer vacations than hotels do. It’s nice to have some room to spread out if you’re going to be there for a week.
The other thing is that many of these properties were bought before the most recent property price boom, and the owners have low interest rate mortgages locked in. That property you stayed at might have been purchased for $300k with a 30 year mortgage at 2.75%. In that scenario, the owner put $60k down and has a payment of $980/month without taxes and insurance. Maybe $1300/month with? So that would be $15,600 per year. And if they manage a 50% occupancy rate at $100/night, that would be $18,200 per year in income. They would need some for maintenance and cleaning, but the property could still easily be cashflow-positive or nearly so. Even if they get no net monthly income on the property, they now have an expensive appreciating asset that they’re not making net monthly payments on. And in the few years since they bough the $300k property, it’s now appreciated to $500k, earning them $200k in pure profit. If they bought five years ago, they might have turned their $60k investment into $260k in equity in just 5 years. That’s one hell of a rate of return.
How much did the real estate value of the property go up during your experiment? Even if there’s no cash flow, helping to pay the mortgage while you sit on an appreciating asset might make sense monetarily.
I actually tried to work out the economics of it based on the rate we were paying ($200/night) in a place that was clearly worth at least half a million.
$200 per night. Assuming they only get occupancy on the weekends, and use some weekends for themselves. Then you could reasonably presume they can get maybe 150 rental-days in a year. More likely to be 100. Let’s use 100 because it maths easy.
That’s $20000/yr. If you were only paying for your place with short term rentals at that pace, and interest wasn’t a thing, it would take 25 years to break even. If you include interest at a trivial 4%, then you’re looking at a 40 year mortgage.
And that’s not including all the cleaning, repairs, etc.
So if you’re using the place as an income stream, yeah, that ain’t happening. Not unless it’s in a high-demand location that you can charge a lot more for.
Unless you’re looking at it like a retirement-home-in-waiting or something.
It makes sense if you use realistic occupancy rates. Apparently they’re up to 70% in many cases. But even 50% occupancy changes the numbers completely. The thing to remember is it’s not all about weekends. People book week-long trips all the time. And AIrBnBs cater better to those longer vacations than hotels do. It’s nice to have some room to spread out if you’re going to be there for a week.
The other thing is that many of these properties were bought before the most recent property price boom, and the owners have low interest rate mortgages locked in. That property you stayed at might have been purchased for $300k with a 30 year mortgage at 2.75%. In that scenario, the owner put $60k down and has a payment of $980/month without taxes and insurance. Maybe $1300/month with? So that would be $15,600 per year. And if they manage a 50% occupancy rate at $100/night, that would be $18,200 per year in income. They would need some for maintenance and cleaning, but the property could still easily be cashflow-positive or nearly so. Even if they get no net monthly income on the property, they now have an expensive appreciating asset that they’re not making net monthly payments on. And in the few years since they bough the $300k property, it’s now appreciated to $500k, earning them $200k in pure profit. If they bought five years ago, they might have turned their $60k investment into $260k in equity in just 5 years. That’s one hell of a rate of return.
How much did the real estate value of the property go up during your experiment? Even if there’s no cash flow, helping to pay the mortgage while you sit on an appreciating asset might make sense monetarily.