How To Properly Set Airbnb Pricing To Maximize Profit

If you're looking to bring in extra cash from a spare room in your house or a vacation rental property, you have options.

You can opt for a long-term renter, finding someone to sign a year-long lease (or even longer).

You can also go for a short-term rental strategy, using a platform like Airbnb to bring in renters for weekend or weeklong stays.

The big question is, of course: Which of these strategies will make you more money?

And then, after that, the follow-up questions: With a short-term strategy, what should the nightly rate be to maximize occupancy and profit?

How do you factor in cleaning costs? How much more time is required if you rent on Airbnb, and what is that time worth to you?

Luckily, there are tools to help you navigate these questions. There are a host of Airbnb calculators available online that will help you with a pricing strategy and help you determine roughly what you can make with Airbnb.

In this article, we'll go over Airbnb generally, and show the factors that go into projecting costs and revenue as well.

We'll also evaluate long-term vs. short-term rental strategies, and offer links to some Airbnb calculators to help you make the most of your rental.

Projecting Costs and Revenue With Airbnb

To figure out how much you can make with an Airbnb rental, you need realistic estimates about how often you can rent and what you can charge.

While there are some costs associated with Airbnb — a 3% service fee to process transactions, as well as cleaning fees — many of those can be passed on to the visitor.

Really, it comes down to market research and an understanding of renting behavior in your area.

To start, look at what others are renting their apartments or spare rooms for on Airbnb, both weekend rates and weekday rates.

Sit down with a calendar and identify times when lots of tourists typically come to town — if they do at all.

If you can, try to interview a local Airbnb host and find out what they charge … and how often they secure bookings.

The more information you can get, the better. It also helps to know the lingo when you’re learning the ropes.

A Glossary of Airbnb Revenue Terms

Knowing these terms can help you navigate conversations about Airbnb revenue and give you a better understanding of basic calculations that can help you figure out profitability.

Cash flow

Cash flow is basically "rent minus expenses."

Obviously enough, if you're spending more on a house than you're bringing in via rent, the property has a negative cash flow and you'll need to re-evaluate if the home is worth owning and, thus, renting.

Capitalization rate

Otherwise known as "cap rate," this is a real estate term that helps people understand if a property is a good investment.

The rate is determined by dividing the net income from the property (the money it's bringing in) by its market value.

If the cap rate is above 10%, that's generally thought of as a "good investment" in the industry.

Occupancy rate

This is a pretty simple statistic that looks at how often a property is rented vs. how often it is vacant.

When it comes to Airbnb, a lot of factors can go into what determines an occupancy rate — seasonal rushes, how much a property is marketed for, guest reviews, popular travel weekends, etc.

Potential rental income

This is how much money can be brought in by renting your property.

If you do a long-term rental, it's simply the monthly rent times 12. For Airbnb rentals, you'll need to factor in pricing and your estimated occupancy rate.

An Airbnb calculator (several are listed later in this article) will help you forecast that potential rental income and help you decide if it's a good strategy.

Should I Do a Long-Term or Short-Term Rental?

There are two uses for an Airbnb calculator.

One is to help you identify the best price to rent your home for, so that you bring in the most revenue through Airbnb or a similar platform.

The second is to help you figure out if it's smart to rent on Airbnb at all, or if you could make more money in rental income with a traditional long-term lease.

There are several other factors to consider when thinking about becoming an Airbnb host or not, beyond just "what makes more money."

These include questions about labor, time commitment, stress, and more.

The Money Question

Offering short-term or long-term rentals is one of the big questions of the real estate world, and people who can accurately make that call for each project are the ones who often find success in the industry.

When it comes to making more with Airbnb or a traditional long lease, there are plenty of factors that determine revenue — location, number of bedrooms, demand for rentals — but it almost always comes down to a question of occupancy rate.

Occupancy rate is almost always the determining factor in figuring out how much money an Airbnb can bring in.

Short-term rentals, with no other factors, can almost always bring in far more on a per-night basis.

A $100-per-night rate for an apartment, which would be cheaper than most hotel rooms in an area, could cover a $3,000 per month lease or mortgage in theory.

But that's the thing — the room would need to be rented 30 days a month to cover that cost, and few Airbnbs operate at a 100% occupancy rate.

This is where you need to be effective in estimating the number of guests your Airbnb can realistically expect.

Likewise, you need to look at the feasibility of an annual lease.

If you own a vacation spot in a popular summer town with few year-long residents, you can look at what you could make on Airbnb during the boom times.

From there, determine if it's more than you could get for an annual lease in a town that's all but empty nine months of the year.

The Stress Cost

This is an under-discussed issue when it comes to renting on Airbnb: Are you willing to sacrifice the time it takes to run an Airbnb efficiently?

Airbnbs take more work than a traditional lease agreement. A lot more work.

Airbnb renters need to learn how to access your property weekly, not annually. Keys need to be sorted out and handed off safely.

The apartment must be cleaned after every stay. Security deposits must be secured each time.

Questions need to be answered, lost keys replaced, garbage sorted, etc., etc.

These are questions you have to ask yourself:

• Do you want to deal with negative guest reviews if something goes wrong?
• Do you want to make sure a cleaning service is reliably there on time?
• Are you prepared to scramble if your cleaning service can't make it?
• If you don't want to do all that, are you paying a property manager?
• How will that affect your income opportunities?

Yes, you may be able to bring in slightly more money with an Airbnb after running the calculations and making your estimates.

But if it's close, you have to ask: Would I be happier just having someone sign an annual lease or even a seasonal lease?

Note:

This is just looking at spare rooms and apartments.

If you want to bring in a few extra bucks when traveling, or have a home office that you can convert into a spare room at times, by all means bring in some extra revenue via Airbnb.

Airbnb Calculators to Help You Maximize Profits

Below are some pricing tools that will help you determine just how much extra money you can bring in with Airbnb, or help you decide if you can make enough of a return on investment to purchase a home for renting on Airbnb.

Eliot

Eliot evaluates your location, home size, and number of bedrooms, and helps you calculate what you can earn on Airbnb.

They also have a trend predictor that looks at rental trends and events that can surge pricing in your area.

Mashvisor

Mashvisor's hook is that it packs "three months of research into 15 minutes."

What's nice about this Airbnb calculator is that it not only helps you calculate what you could make with Airbnb, but looks at rental comparisons in your area to help you identify what you can bring in with a long-term rental as well.

They have a monthly fee attached to the service, but if you want help, it can be a good short-term investment.

LearnAirbnb

LearnAirbnb's host calculator is a bit more robust than the other options listed above.

It allows you to forecast startup costs, recurring costs, and revenue, and it helps you evaluate your pricing strategy. At the end you can produce a two-year profit plan and ROI calculation.

Making the Most of Your Rental With an Airbnb Calculator

Airbnb can be a great way to bring in extra income if you have a spare room in your home, or a vacation property that sits idle.

But before you dive in, or purchase an investment property, it helps to do your research.

With these Airbnb calculators, you can determine a pricing strategy to help you maximize profit.

They can also help you determine whether Airbnb is a smart option or whether a long-term lease rental is better for you. Now get out there and take over the rental world!

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