What’s a Realistic ROI for Airbnb Investing?

What’s up guys, today we’re gonna be talking about what a realistic return on investment for Airbnb or short term rental investing will be. I’m gonna break this down for you because I have a lot of people that I talked to that just don’t really have a good sense of what they can reasonably expect for a return on a short term rental property. Some have really, really low expectations, which is great because we can blow them out of the water, and some are a little bit pie in the sky, but what they’re hoping to achieve. So I want to break this down for you, and give you a good idea of what you can reasonably expect. Now, bear in mind that if you do a bad job of investing Airbnb, you can lose money, not let alone get worse return on investment that what I’m going to talk about in this video. And if you do a really great job and you’re a bit more patient with it, you can do even better than this and get really great returns, compared to what I talked about in this video. So there is definitely a wide range of what you can achieve as a return on investment. But I want to give you an idea of what we typically see for a good property in a given market. On that note, before jumping into the numbers, I do want to also say that there’s a variety of different markets and different types of properties that you can invest in, I tend to talk on this channel a lot about more rural properties and larger properties, because there’s some of the ones that I like the most, and that we invest in the most. But that being said, we have people investors that we work with that have more urban properties, smaller properties, all sorts of different stuff. And you can get really great returns with just about anything, and all kinds of different markets all over the world, let alone just North America. And so if you have a specific type of property or a specific location that you want to invest in for personal reasons or lifestyle purposes, then you can almost certainly accomplish that while the same time getting a really great return on your investment, when it comes down to the actual dollars and cents. So without further ado, let’s actually jump into the numbers. And let’s start with the most important metric, in my opinion, for short term rental investing return on investment, which is your cash on cash return. Now, I’m going to break down in this video, a few different types of returns that you’re getting one being the actual cash flow that you’re getting from the property. And that is basically going to be what is the gross amount of income, the revenue coming in from the property. And then after you deduct all of your operating expenses for things like cleaning fees, maintenance, guests, medication, what have you, and all of your carrying costs on the property, like things like your mortgage, your taxes, your insurance, your utility bills, your internet, all those sorts of things, there’s going to be a net number at the end of that, that ideally you should be quite positive. And that’s going to be money that’s literally in your bank account, you can use it to pay your bills, you can use it to fund a holiday, you can use it to invest in the next property. And so the reason I think that cash flow or cash on cash return is the most important metric when you’re looking at a short term rental investment is because that is the most tangible and real return on investment you’re getting. The two other types of returns I’m going to talk about are going to be your for lack of a better way of describing your equity ROI. So that’s going to be additional equity that you build up in the property by paying down principal on the mortgage each month, that gives you a greater equity position that property, so it’s going to be returned there. Now again, you want to think about that. And you go, Okay, wait, if I pay down the principal and the mortgage, I build more equity in the property, but I can’t actually use that money, right, I can’t actually go and pay for a vacation without I can’t pay my bills with that I can’t go use that to buy another property, eventually I can by either pulling that equity out of the property through a home equity line of credit through a refinance or through just selling the property. But I can’t actually access that money until I do one of those different things. So important distinction there, your equity ROI is return on your investment. But it’s not a liquid one, it’s not one that you can use right away. So again, that’s why it’s a bit more of an afterthought. And then the last one is going to be the appreciation on the property over the long term, your property should go up in value, that property bought for $500,000 will eventually be worth six and $700,000. But it’s going to take time to get there. And it’s not going to look like this, it’s going to look more like this, right? And you’re going to be slowly going up and down as you progress in a generally upward trajectory. Right. And so there’s a couple of distinctions there as well, it means that with your property is worth less tomorrow than it was when he purchased it, then you can actually go and refinance it or pull out a home equity line of credit or sell the property for a profit unless you’ve built up substantial equity over years and years and years. Right. And so you can’t then pull money out. It also means that you can’t necessarily count on this in the short term, at least, you don’t know what your short term appreciation on the property is going to be. You can ask me what your long term appreciation is going to be over 1020 30 years, but in the short term, it’s going to make different fluctuations depending on what’s going on in the market. For example, Recently, we’ve had interest rates going up, which has had property values going down. So if you bought a property six or 12 months ago, it probably has depreciated from what you purchased it for four as opposed to appreciating. Now, that doesn’t actually matter. That’s what I want. I want people to remember here is it that doesn’t actually matter if you’re doing two things, one investing for the long term, because as a long term investor, we don’t really care about the short term fluctuations in our property’s value and to buying properties that cash flow really well, when I mean cash flow really well. I mean, they cashflow positive, because if you have a property, that cash flows positive, meaning that every single month, it brings in more money in revenue than it has in all of its expenses. That means that you don’t ever have to sell that property, you’re never going to be forced to sell it. So if the property value goes down, what do you do? You hold the property? Because it makes you money every single month? Why would you sell it? If the property value goes up? What do you do? You probably still just hold the property because it makes you money every month? Why would you sell that? And so that’s a really important thing to remember is that the short term fluctuations in property value don’t matter. As long as you’re investing for the long term, and you’re buying properties that cashflow positive, if you’re investing for the short term, then yeah, sure you care. Or if you’re buying a property that cash flows negative or cash flows really poorly, then what happens if the property value drops, and then it’s suddenly costing you a couple $100 a month to carry the property because the money you bring in each month is less than the money that has to go out each month to cover all the expenses, you did a bad job, you bought a bad property, well, then suddenly, it’s a burden to carry that property, you may decide at a certain point that you either can’t afford to keep holding on to that property or you don’t want to. And if that coincides with a time in the market where the property is worth less than you’d ideally want it to be, that can land you in really hot water. And so you want to make sure that when you’re investing in properties, you prioritise the cash flow overall else, and you think long term. So that’s my thoughts on just the differences between the different types of returns and why they’re almost valuable. And they’re also I think, addresses a question that a lot of investors asked me you guys just want to take a quick break here 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 right down below for a free training that will walk you through my exact strategy for investing successfully in Airbnb ease. Now, if you’re not ready to actually buy properties, and you want to get started managing other people’s properties on Airbnb the same way I got started and build a full time income managing other people’s properties, there’s actually another free training link in the description down below as well, that’ll be a really great fit for you. So whether you want to invest in short term rental properties, and actually build amazing cash flow and long term wealth by acquiring the assets, buying the properties themselves, or you’re looking to earn a full time income, managing other people’s properties on Airbnb, we’ve got some awesome trainings that are linked in the description down below, that’ll definitely help you out. When you sign up for the trainings, we’re also going to send you a few other tools and resources completely for free just to help you get started. Again, the links to sign up are in the description down below. And both trainings and all the tools are completely free. So make sure to register for the trainings, links in the description down below

And there also, I think addresses a question that a lot of investors asked me if is now a really good time to buy is now a bad time to buy. I see a lot of investors thinking that way. And the reality is, there’s never a bad time to buy. If you invest for cash flow, and you’re thinking long term, there’s only bad deals, there are certainly bad deals to be had at any different time in the market. And there are good deals to buy at any given time in the market. But this whole idea of trying to time the market and buy at the bottom and sell the top, it’s a fool’s errand, no one can do it successfully. Because we don’t know what’s going to happen in the future. No one has a crystal ball, myself included. And so you want to be investing and getting your money working for you, it’s always gonna be better than having your money sitting on the sidelines and cash not working for you and eroding to inflation, as long as you buy good deals. So let’s talk about those good deals and what your returns are going to look like overall. So like I said, the most important return is going to be your cash flow. And the best way to measure that is going to be the amount of cash flow you get relative to the amount of cash that you invest into the deal. The actual cash, I’m not talking about the property value, because part of that is likely going to be a mortgage if you’re financing the property. I’m talking about the actual cash that you take out of your bank account and put into this property that’s going to be for things like a down payment, your closing costs on the property, your furniture, those sorts of things. And so we like to see as for every dollar that we put in, we want to get 15 to 20 cents per year back in our pockets in cash. So that’s again, I see a lot of people going well can I make $2,000 a month on us short term rental? Sure you can Are you going to do that with a property that you bought for 50 or $100,000? Probably not. But if you buy a bigger property and more expensive property, as long as it’s the right one, then yeah, you can make a bigger dollar amount, because remember, the amount of cash flow that you get from your property is relative to the purchase price of the property. And the amount of the purchase price of the property is going to be the one thing that determines how much initial capital you put in, if you buy a one bedroom property, it can still get you a 15 to 20% cash on cash return, but it’s probably not going to get you as much cash flow as much actual dollars in your pocket as getting a bigger property, say a five bedroom property in that same market that you’re then paying more for, it’s more expensive property, people pay more for it to stay at it, and you get the same 15 to 20% cash flow. But that 15 to 20% is 15 to 20% of $400,000 as opposed to 15 to 20% of $50,000. Hopefully that makes sense. Maybe I made that more confusing that needs to be but I hope that made sense for you guys watching. So that’s our rule of thumb is 15 to 20% cash on cash return, that means that on a typical property, let’s use the example of a 450 $480,000 property, let’s just for easy numbers, use a $500,000 property and say that it comes fully furnished, so you’re gonna on that property put roughly $100,000 into it, because you’re gonna put 20% down payment, you’re gonna have a little bit of closing costs. Well, again, if we were doing a more detailed analysis, we’d factor that in, but just for argument’s sake, let’s say that you buy a $500,000 property and your total cash investment into the property is $100,000. That means that we’re looking to after paying for all of our expenses throughout the year for our mortgage, or taxes or insurance or cleaning fees, our utilities, expenses, our internet, our maintenance, expenses, everything, all of it, we want to be netting 15 to $20,000, in that year in profit and cash flow that we have now in our bank held that we didn’t have before, that’s taking 15 to 20% of that initial investment of $100,000. And so if you then were to buy a million dollar property and put $200,000 into it, then you’d be hoping for 30 to $40,000 in annual cash flow. Again, that doesn’t mean that if you just go and spend twice as much, you’re going to make more money. But it does mean that if you spend twice as much, and you also still find a really good deal for that higher purchase price, that you will still make more money, you will just make more dollars wise, you’re getting making the same percentage wise on your initial investment, but you’re making more dollars because a larger upfront investment. So hopefully that clarified if it wasn’t clear before I made the mod waters a bit more money than I apologise 15 to 20%. That’s what we’re aiming for, for cash on cash. Now, like I said, if you are patient, you find really great deals, you can sometimes get 25 Even 30% cash on cash return, if you get creative about the way that you finance the property, you can send your your cash on cash return through the roof, if you do a really bad job of investing, and you don’t do your due diligence, and you just kind of wing it and try to figure it out on your own, then you’re probably going to make a negative cash on cash return. So there’s a wide range, but our sweet spot what we’re always aiming for a salary of 15 to 20%, that’s usually a good investment that we would move forward on. Obviously, we find something that cashflow is even better than that, that’s great for the end. 20% is generally a sweet spot. That’s what we’re generally aiming for. And it’s generally very achievable in just about any market, you can do that. In North America, at least there are also a bunch of international markets where you can make those numbers work. As long as you just do your due diligence, you know how to find the right deals, you have good deal sourcing, you have good financing strategies, all these different things. Obviously, there’s a few different moving pieces there, which is exactly why we help investors with this. But that’s really the kind of benchmark. Now, let’s look at what I call overall return on investment as the most the other most important metric that kind of second most important metric. And that’s going to be a return on investment that factors in your appreciation and your equity build up from paying down principal and the mortgage. Because every month when you make a mortgage payment, part of that is going to be your interest, which is just going to the bank to make the bankers rich. But another part is going to be principal, that amount is going to start out smaller early on. And then as the mortgage matures, it’s going to be a greater and greater portion of the overall payment. And so that total ROI that you’re getting from the appreciation, and the equity that you’re building in the property should be between 25 and 30. Sometimes a little bit higher, of course, but 25 to 30% Total when you factor in the cash flow, the appreciation and the equity. Again, super important to realise that that extra few percentage points that extra at 10 to 15% that you’re getting is not actually the same as the cash flow the cash on cash return, because you can’t access it until later on when you either refinance, pull it equity through like Got a home equity line of credit or sell that property. But it means that on your money that you’re investing you’re making in reality over the long term 25 to 30%, which is a whole lot better than investing your money into the index fund, that’s going to make you five to eight to 10%. Maybe that being said, it’s obviously a lot less passive than just picking an index fund and putting it in there. And I don’t shy away from that fact, it is a lot more active form investing than other forms of investing. But if that doesn’t mean that it’s a full time job, it can still be very hands off. And for 25 to 30% returns, that’s really phenomenal. It’s really fantastic. And you can set up the systems and the processes, if you have the right team behind you the right process, everything else, you can figure that out, and it can be very, very passive, especially after the acquisition stage, actually acquiring the property is still going to be somewhat hands on. But the actual day to day management of it long term can be very, very hands off. For example, I don’t spend more than maybe 30 minutes to 45 minutes per week on managing our whole portfolio right now, because we’ve got a team behind me that helps you to manage everything. And so that’s pretty comprehensive video on the returns that you can expect from short term rentals and I went into a little more detail as expected, I would just like breaking down the different ways you make return. Hopefully that was all super helpful for you and valuable for you. If it was then please just let me know by hitting that like button below this video. 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