Data Resources to Assess Income Potential

When getting started, how do you assess income potential?

Thinking about getting into short-term rentals? Understanding what makes a good deal takes time, but here are some first steps to begin to lean into assessing income potential.

How to assess income potential on a property?

If you are seeking to assess income potential for a market or property, its both an art and a science. There are many companies who sell data to help you with this, but no data source tells the full story. And I did use the word sells; there are some free tools which I'll share with you, but if you are going to invest in or start a short-term rental business, then YES - expect to invest some funds to verify your income projections. Your investment is worth it. But because the more reliable source of data is very pricey, I've got some insights for you to help hone in on a market or two without spending hundreds.

Select a Market.

If you aren't sure what market to lean into, lean into reports from various companies that provide "Best Place to Invest in a Short-term Rental" that meets your specific criteria (distance from your primary home, market type, etc) I'll be honest - for many of my coaching clients this is where we spend a lot of time, so I know saying it and doing it are two very different things, but hey - if you'd like to feel really confident then let's HOP ON A CALL and talk about how I can help you. Anyway, sales pitch aside - Allow me to point out that these "best place to invest" reports use the "average cost of housing" in the markets - not the average cost of housing suitable as a short-term rental. While these reports are good to help find markets maybe you didn't think about - they don't necessarily actually work as an investment as proposed.

As a side note, a couple years ago I took just such a report that had 25 markets on it, and I put together my own analysis of the market. Only two of the markets actually showed strong potential once I put the data together; I eventually invested in one of them.

Assess The Housing Market.

At a glance, scroll through the real estate For Sale listings and assess for homes that recently sold that would have made for a good rental in that market. What did they sell for? Does that work for your budget? I would recommend you look at several such homes, and then you can review what's for sale as well.

Get a Rough Idea of Income Potential

AirDNA Rentalizer and Data Rabbu have free tools to allow you to get income potential on a specific address. In my experience, AirDNA is more accurate but Data Rabbu is more conservative (by far), so if the numbers work by Data Rabbu's estimate its likely to be a strong investment. Then you can play around in VRBO and/or Airbnb and pick a similar set of criteria as the property you are looking at and see what the pricing is at different points in the year. This is not an exact science and is not going to be incredibly accurate - many factors drive income, but it can give you a ball park. Price drivers can increase income significantly over average in a market - or drop it below average; a ocean or lake front home will get far more than ocean or lake access, a hot tub in one market is a price driver, a hot tub in another doesn't drive price but it does drive occupancy, so every market has different price drivers.

Compare.

Given that income is driven by many, many factors your task will be leaning into to really understand price drivers and how a property does or does not possess those price drivers. It also means understanding supply, seasonality, and regulations in a market in order to make a reasonable estimate of income potential for a property, but this very high level process can give you insights as to the investment potential in a market, and this rudimentary process helps you hone in on one important factor - is this market worth your time to lean into, based on ball park income potential and the cost to acquire housing?

Looks Promising?

If the cost of housing compared to the income potential looks promising, now its time to understand the regulatory environment - you can start here in some markets as it will be easily accessible information, but in many markets it takes less time to do the work I just described to assess for income potential vs. housing cost then it does to lean into understanding the regulatory environment. But I wouldn't go any further until I knew that short-term rental regulations were feasible in this market, or what the restrictions were so you aren't leaning into a market where there are severe restrictions - or even a moratorium.

Leaning In.

If everything looks promising, then its time to lean into buying data to really work up an analysis. I always recommend AirDNA for a number of reasons - they pull data from both VRBO and Airbnb (many data clearinghouses only pull AirBNB), I like to assess the Top Grossing Properties in a market to assess how much people will spend in a market, and I also can run data to help me understand if over supply is an issue. You can buy a zipcode for a month for under $100 - and its the same data lenders use if you are getting a DSCR Loan. There are other data clearinghouses, and the marketplace is always changing - just assess where they get their data from, what sources they are pulling it from, and how long they've been in business. No data source is 100%, by the way. Not every property is in Airbnb/VRBO and because those platforms don't sell or share their data the data that is being provided has been scraped and tested - definitely room for error. But averages are only that - you really need to do your work to understand what the price drivers are and how they impact the specific property and experience you will be providing guests.

Unicorns.

Just like any industry, there are properties that will be in demand and make more money in a market because they offer something rare and unique. Demand is strong for short-term lodging, and its not going anywhere. The right house, in the right location, at the right price will be a good investment always. So trust your gut and confirm with data. I usually have a conservative proforma that I use as my buy/don't buy decision and an optimistic proforma as my "I think we can". I've hit the optimistic every time.

Get a RoadMap to Confidently Invest

I'll be honest, this is a big decision and there is a lot more to it than I've just described. This is absolutely the very beginner basics; really understanding price drivers, estimating your expenses, rounding out your knowledge gaps to have a well-flushed out business plan so you know your investment is sound takes time. I offer something for everyone on my Resources Page - content providers and educators in this space, an eBook for getting started, and info on my Coaching Program - check it out HERE and gain the confidence you need to confidently execute on your short-term rental business goals.

PS - I also offer a Deal Deep Dive, so if you are looking for expert eyes on your deal - leverage my expertise and insights and get a written report detailing the income potential assessment for YOUR next deal; Book today HERE

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Hey Boss! I'm Kate, owner/founder of The CEO Host. If you are interested in taking a leap into short-term rentals - or have some questions about your existing business, my goal - passion, and career, is to help YOU succeed. I've coached hundreds of folks getting started or looking to optimize, analyzed more deals (and duds) than I could count, completed thousands of hours of education and training, attended conferences... So don't be shy. A good CEO knows to bring in expert help - and that's what I'm here for! Lets HOP ON A CALL and chat!

Categories: : buying