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.
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.