How much DOES size matter in real estate?
In this video, I go over the answer to this question for Airbnb investing.
Everyone loves the phrase “Heads in beds” but what about in YOUR market? How do you determine the best type of property to buy and why?
I show you how to determine it and exactly which tools I use to make it happen. I also answer some frequently asked questions on making that decision.
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What’s up guys? In this video, we’re going to be talking about what size of property is best for Airbnb, a lot of people wonder whether they should get a bachelor or one bedroom, a three bedroom, five bedroom, a 20 bedroom place, what’s ultimately going to give you the best overall returns? Which one should you put your money into? And so that’s what we’re going to be talking about in today’s video. So let’s dive right into it. And I want to start off by saying that there is no one single right answer to this question that applies to every single market, each market is going to be a bit different. And in any given market, even if you find the right answer to this question, you may still find outliers that make a property really, really good as an investment. For example, if you look in a particular market, and you find that three bedroom properties produced the greatest ROI, then that doesn’t mean that you’re never going to find a great five bedroom property, maybe one’s going to go up for sale, that is at a really low rate, because the seller wants to get rid of it fast. And you can still make a really good return on your investment, even if it’s not the optimal size of property based on your initial calculations. So with that out of the way, let’s talk about how you can figure out in a given market where you’re most likely to find success, meaning which size of property is typically going to yield the best ROI in a given market. So there’s a few things you’re going to want to look at in order to answer this question for yourself in your particular market. One, you’re going to want to have access to air DNA, or another form of data. Another company that provides this type of data is called all the rooms I really like them. They’re another really great company in this space that we’re gonna be talking more about on this channel over time. But you’ll want data on how properties perform in a given market. So air DNA and all the rooms are typically the best sources to go to for that data. And specifically, you want to be able to parse the data and sort it by different sizes of properties so that you can see how much income a one bedroom typically generates how much a two bedroom, three bedroom and so on and so forth. The next thing you’re going to want to get a feel for is the average purchase price for a property of different sizes in a given area. Typically, if you’re working with a realtor, they’ll be able to provide you with some insights on this. You can also do your own kind of general research by looking at homes that have sold in your area over the past 3060 days and see what they’re typically going for and try to get a feel for what the average is depending on the size of property. Obviously, this is going to be a little bit more tricky to do because there are qualitative factors to a property as well, a property with really high end finishings is going to sell for way more the lower end finishings properties, slightly different neighbourhood is going to sell for different amounts. But what you’re really looking for are just averages. Because we’re not looking for a specific property. At this stage of our market research, we’re really just looking for what size of properties to focus on where we’re most likely to find the greatest ROI. So think about the averages don’t think about the specifics to too much, quite yet. When you’ve got that data, you really just want to compare the two. So what I like to do is figure out a ratio, I take the amount of income that a typical one bedroom can generate and divide it by the average purchase price, that’s going to give me a ratio of how much income I can generate for a property relative to the average purchase price for a property that size. Obviously, the larger the ratio there, the better it is. Because if I can buy a place for $500,000, let’s say and generate $50,000 a year in income, or buy a place for $600,000 and generate $100,000 a year in income, I’d much rather buy the ladder, because I’m only spending an extra $100,000, but 20% more on the purchase price to double my earning potential. So that’s the distinction that I’m looking for is I’m looking for where the biggest what I call gap is where I can see a big jump from okay, it doesn’t actually cost that much more to purchase that one additional bedroom. But I actually do get a substantially different number on the revenue side, I’m getting way more income. And typically where I see this most commonly show up is at the three, four or five bedroom mark. And the reason for this is relatively simple. There’s actually a couple factors here. One is that purchasing a property that’s got that fourth or fifth bedroom generally doesn’t cost that much more, because you got to think about there’s still just one kitchen, there’s still just one dining room, there’s still one living room, there’s still one roof, all these hard costs that come with having a property and you’re not actually increasing them as you increase the number of bedrooms. Sure you’re increasing the square footage, you might add another bathroom, you know those sorts of things, but you’re not adding a second roof because you have an additional bedroom. And so, incrementally speaking, you’re not adding 20% to the purchase price or 25% of the purchase price just to add that extra bedroom on. However when You get up to more bedrooms, it means you can occupy more people, you can accommodate more people in that property. And that does a couple things for your listings performance on a platform like Airbnb. Number one, it means it opens you up to a whole new segment of the overall demand in the market, where if guests are looking for a place to accommodate their group of eight or 10, people, they just don’t have a lot of options to choose from. And so now you get access to those additional pool of people that are booking for your property. So you get more demand overall for your property, you’re also going to be in an area that’s less competitive, because there’s just naturally fewer properties that can accommodate larger groups pretty well. Any property can accommodate a one person group or a two person group, all you need is one bed. So they can go and choose that one bedroom, place that two bedroom, three bedroom, four bedroom, and so on and so forth. But very few places can actually accommodate eight to 10 people. So you access more demand, and you actually also access a less competitive portion of the demand. The other thing that happens is that when people are travelling in large groups, especially when they’re travelling, and large groups of friends, they can usually justify a higher price per night, because they can split that cost amongst your group of friends. Or if you’re appealing to corporate travel, then they can justify that by being a business expense. So there’s all kinds of different ways that people can justify paying a higher nightly rate when the property can accommodate more people. So for that reason, I found that if you’re doing the right stuff, you’re taking care of your listing, if you’re optimising it that generally larger listings are going to be easier to get booked. And they’re going to book up for higher Navy rates compared to smaller listings that have a lot more competition and a lot less flat price elasticity. Guys just want to take a quick break to say that for those of you watching, who want to build cashflow, and long term wealth by purchasing Airbnb ease and short term rental properties, there’s a link in the description down below for a free training, they’ll walk you through my exact strategy for investing successfully in Airbnb ease. The training walks through the three most important things that you need to know if you want to successfully buy your first or next short term rental property. And again, the link is in the description down below for you to sign up completely free. When you sign up for the training, we’re also going to send you our ROI analysis tool completely free so that you can analyse properties the right way and find properties that will generate amazing returns. Again, the link to sign up is in the description down below. And both the training and the ROI analysis tool are completely free. So what that all means is it generally speaking, again, this is just a general rule of thumb, not the case, for every single area, somewhere around the three, four or five bedroom range is where you’re gonna see a really sweet spot where you can pay a little bit more to get that extra bedroom in terms of purchasing the property, but you’re not actually going to pay that much more and you’re going to generate way more money on short term rental. But again, the way you want to figure this out for you yourself specifically, is to go and compare the average average revenue numbers for from properties of different bedrooms size in your area, compared to the average purchase prices, find that sweet spot for you. And you may actually find that one bedroom properties generate really good returns, it really just depends on the market. Because the other factor here is what type of guests are actually travelling to this location, you might be investing in a location that’s really really popular amongst couples, and not so popular among larger groups of friends. And so if that’s the case, then it may not really make sense to spend the extra money buying a larger property because the demand for that is just not really going to be there. So the best way you can do this is using tools like air DNA, all the rooms and your realtor to gather this data so you can make the right decision for your own specific market. I’d love to know if you have any questions, any thoughts, just let me know in the comment section down below. If you liked this video, if it was helpful to you, then make sure you let me know by just hitting that like button takes half a second just click the Like button there. It really does help me out tremendously with growing this channel, getting these videos in front of more people. And last but not least, if you’re new here and you haven’t subscribed, or you check out all these videos and you just haven’t subscribed yet, for whatever reason, make sure you take half a second as well and click the subscribe button. I post two new videos on the channel every single week all focused on helping you to perform better and make more money on Airbnb and short term rental. So if you’re into that and you want to learn more, then make sure that you hit subscribe, check out the links in description down below. All that said thanks for watching this video and I’ll see you in the next one.