How To Analyze Properties for Short Term Rental

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What's up guys, it's James here and in today's video, I'm going to talk about how to analyze properties for short term rental. Now, this is going to be a video that will be really useful for you, regardless of what strategy you're using to go about short term rentals, whether you're doing rental arbitrage and renting properties and flipping them onto Airbnb, or using a percentage management fee model like we teach and like we've got the free training LinkedIn description down below for or you're actually buying properties and you want to put those on Airbnb, this is going to show you how to analyze properties properly for Airbnb so that you know exactly what you can expect to earn in the property on that property over a given year, that's obviously a very valuable skill to be able to have.

Because you want to be able to know how much you can earn to make sure it's gonna be worth your while and a good investment of whether it's your time or your money into either managing this property or buying the property for short term rental and Airbnb. So before we dive into all that, I just want to let you know that linked in description down below, we've got some really great free goodies for you guys. So number one we've got a free train is going to show you exactly how to build a full time income and earn a full time income managing other people's properties on Airbnb, even with absolutely no experience whatsoever.

So even if you've never even hosted or stayed at an Airbnb before, I'm going to walk you through the exact step by step process that I use to be able to build a six figure Airbnb management business in just under 12 months. And I'll walk you through absolutely everything. And we're going to give you some really great free tools to help you in building your business as well. So you're actually going to have the tools and the tactics and the resources that you need to really make this fancy success and have a substantial income coming in from managing other people's properties on Airbnb. The other thing is exactly relating to this video, we actually will profitably projection tool that highly recommend downloading as well as the setup instructions for it, because that's going to link you up to some really great resources that I'm going to talk in more detail about in this video that will help you to actually analyze properties for short term rental.

Now, the first thing I want to talk about when it comes to analyzing properties for short term rental is we want to get our basics or fundamentals down and agreed upon. Now the first thing that I want to make sure that we agree with is that you want to be basing your projections on more conservative numbers, meaning that you don't want to look at the best performing year ever, you want to look at the average year. And you don't want to be looking at the best case scenario, you want to be looking at an average case scenario. This way, regardless of what it is you're investing, whether it's just your time, like with a management fee agreement, or whether it's your actual money.

If you're doing rental arbitrage or buying a property, you want to make sure you get the best possible return on that and you don't want to be risking all bunched together. You know, the famous investor Warren Buffett always says rule number one of making great return on your investment rule number one of making money and being wealthy is don't lose money. So you want to make sure that in addition to maximizing your upside, you also minimize or if possible, completely eliminate your downside. Now the way to do that is by analyzing the property and doing so conservatively to make sure that you're not going to be putting yourself at risk of losing a whole bunch of your investment of time or money.

Now in order to do this, there's a couple things we need to watch out for. Number one, like I mentioned, is looking at the actual year that you're basing your projections on. And we always want to make sure our projections are based on historical data, we don't want to just go into Airbnb and look at what other properties are priced at. Because when we do that, we don't actually know the real numbers of what they're getting booked for. At the end of the day, it's important to remember that Airbnb host can set their price at whatever they want. They want to set it at $10 a night or $10,000 a night, they can do that, it doesn't mean that the property is actually going to get booked for that amount. And it doesn't mean that that's the optimal price of the property should be set up.

So we don't want to rely on that inaccurate data. In order to derive our analysis, we want to make sure that we're actually looking at a historical analysis of the data and figuring out which properties performed the best overall, and what their prices were for their nightly rates and what their occupancy rates were in a given period of the year. When we do that, we want to make sure that we've looked back to a year that is actually going to be an accurate representation of the long term perspectives for this property. So give you an example a property that I recently actually purchased is north of Toronto in cottage country. Now cottage country tends to be doing exceptionally well in 2020 and 2021.

Because a lot of people in Toronto want to get out of Toronto, there's not as much to do Toronto right now, which was once a vibrant city with tons to do is now pretty much just a suburb with really great takeout. So a lot of people want to get outside of the city and they want to go up in cottage country. So if I were to buy a property based on the 2020 numbers, I would be willing to pay a whole lot more for that property because the numbers are quite inflated for 2020. Now that might work out well, for me holding the property in 2021, because likely this year is going to be as good as or maybe even better than last year. However, in 2025, it might look a whole lot different.

Because suddenly, when things are opened up in terms of global tourism, there might be a lot less people looking to travel domestically the way that they are now. And so when that starts to shift back to the way it was before, I might be into some hard times. So I made sure that when I bought the property, I was basing it off of the 2017 to 2019 numbers. And looking at those numbers as my baseline for my bet my worst case scenario for performance, rather than looking at the 2020 numbers, which would have been substantially higher. Now what that means is that I base my projections on something that is likely going to be true in a couple years from now.

And now in the next couple years, I'm likely going to earn a whole lot more than what I'm projecting, that's gravy, that's great, it's a lot better to be in that position where I'm earning more than I expected for a short period of time, rather than less than I expected for a long period of time. So that's number one, you want to watch out for looking for the year, that's going to give you an accurate representation of the data. Now you also want to do is base those conservative projections off of not your best case scenario, not your shining example of what you hope that your property can someday be, but offer more conservative outlook on that. So again, I'll give you an example.

Now I brought a property that's got six bedrooms, now it is a six bedroom property. But as far as six bedroom properties go, it's on the smaller side of six bedroom properties. So when I was running my analysis, I could have compared it to other six bedroom properties. But what I found was the other six bedroom properties in that area tended to be quite a bit larger, they had more space, and they were typically a lot more luxurious than what my property is going to be once it's all renovated and ready to go. So what I instead chose to do was look at the four and five bedroom properties and compare to those numbers, because that was going to be a much more accurate representation of how my property would actually be.

Now, that being said, I do expect that I will perform slightly better than those four and five bedroom projections, because at the end of the day, I do have an extra bedroom to accommodate more people. When you can accommodate more people, you end up having more demand for your property. And the guests that are staying there are looking at it from a different lens financially because they can split it amongst more people. So at the end of the day, I think again, I will outperform my projections, it's pretty reasonable to expect that I will. And I'm not over projecting and being you know, more optimistic with my projections and being on the more conservative side.

So yeah, you also want to look at the specifics of the property that you are buying or you are managing or you are renting for rental arbitrage. And you want to look at what it's actually going to perform like based on other comparable listings, and you want to be conservative when looking at those comps. Now, with that being said, those are sort of our baseline rules for doing this analysis is we want to stay on the more conservative side. And there's a couple things we want to look out for in order to effectively do so. Now, once you've got that established, you need the right tools in order to run this analysis. Now there's a couple of different tools out there.

Now my favorite, the easiest one to use is going to be the profit projection tool that I've linked in the description down below. That's one that we made specifically for the purpose of analyzing properties for managing under an 80% 20% management fee model meaning a management fee agreement where you're collecting 20% of the property's revenue as a management fee, that means that 20% of the revenue is going to go to you 80% is going to go to the property owner you're not paying anything to buy or rent or furnish that property.

That's exactly what we teach you how to do in the link free training down below in the description. So again, if you want to know the specifics of how to build a business that way, then check out that free training link down below. This property instruction tool is a tool that I built specifically for analyzing properties for that purpose. Now if you want to do rental arbitrage, the same exact tool can be used. And at a basic level for analyzing properties that you're looking to buy. This tool can be used as well.

However, I do recommend having a more in depth tool for actually acquiring properties because you're going to have to take into account different expenses such as your carrying costs your mortgage, you know your interest rate, your downpayment, you want to make sure that you take into account all of your other carrying costs, like your utilities, your your yard maintenance, other maintenance, all these different things, management fees, cleaning fees, everything that you can think of, you know, when you're managing the property, you don't have the stress of that you don't have to think about that stuff that still falls on the property owner.

When you own the property, you need to be able to account for all of that and make sure the numbers still make sense. So the profit projection tool will be a good tool for looking at the top line income that your property can earn. But then for breaking down the expenses, you need another tool like another one that I've used, and if you are interested in learning more about that, then just reach out to me, let me know in the comment section down below. We can get in touch, and I'm happy to send that over and share that with you as well. Or alternatively, you can also just find my email on the about section of this channel, and you can reach out to me by email.

Now, all that being said, once you run this analysis, you want to make sure that it's going to be worth your while. And so you want to again, have some baseline expectations. As far as that with your with rental arbitrage, I always tell people, you want to make sure that you're going to be at least at the very least, doubling your money every single month. Because at the end of the day, if you're not performing that, well with rental arbitrage, you might as well have the property under management fee. I like I tell people at 90 95% of properties realistically are a better fit for the management fee model than they are for rental arbitrage.

Because you can make just about the same amount of monthly income and not have any of the overhead not any of the upfront costs of bringing that property on board. So it ultimately just makes your business a lot more scalable, a lot friendlier for cash flow, that makes it a lot more sustainable. So for most properties, you're going to want them on that management fee model. But if you can find properties that are going to double and triple your monthly rent payment and performance, then it's great to bring those on under the rental arbitrage model.

For your monthly management fee model, you want to make sure it's going to be worth your time, meaning that the property is going to generate management fees upwards of six or $700 per month, I generally use as a rule of thumb to not manage any properties that are going to be bringing in less than six or $700 per month, just to make sure it's worth my time. Because if I'm managing 10 properties, I want to be earning about six figures for managing those 10 properties. And that should be my net income. So that's really great. You can use that as a baseline. And then obviously, for buying properties, we're all going to have our desired preferred rate of return.

But you can really use these tools to help you get closer to that and figure out exactly how well you can do in terms of generating that return that you're looking for. There's a couple other things you're gonna want to look at with buying a property, there's a couple different ways that you can earn a return on your investment. There's the cash on cash return mean the actual money that you're making. After all your expenses are paid every single year, there's also going to be the equity ROI, meaning you're paying down the mortgage every single month.

So you're gonna be able to calculate in the amount of equity you're gaining throughout the year. There's also the appreciation ROI that gain you're getting from the property appreciating about 2% per year. And so I can tell you that for my property, we're projecting on the conservative side of things over 250% ROI in year one. Now, that also includes a lot of equity game, because we are doing a renovation doing a cash out refinance. But that is going to be a substantial ROI. And that's what I want to share with you as well is that you can get crazy numbers.

If you pick the right property and you add the right amenities, and you do things properly, you can get an insane, almost unfathomable return on your investment. Now is it sit back on a beach and hang out while the money just rolls into your bank account? Absolutely not. I think it's pretty funny that people talk about real estate investing as if it were completely passive and completely hands off. Now, it can require a very minimal amount of time, if you partner with the right people, you have the right people on your team, but you still do have to put time and energy into buying that property.

You know, it's not as simple as just buying a stock where you just go and put your money into the stock, you have to go and find the right property or find someone who you can partner with who will find you that great deal. And then take care of actually managing it or again, find someone who can do that for you. So there are ways to make it very, very passive and still get a phenomenal return on your investment. But it's not going to be completely passive in the same way that it would be if you were just to put your money into stocks, for example.

Again, if you want to learn more about that, I am likely going to be working with a very, very, very small group of people very individually, in a very niche little group here over the next 12 months to help them actually start investing into short term rentals, it's gonna be something very selective for just a very small group of people. And you're gonna need to have some money set aside or be willing to partner with joint venture partners to make that work. Again, it's not going to be for everyone. But if you think it might be a good fit for you, and you're looking to potentially get started investing in properties for short term rental, you want to work with me to do it, then just let me know in the comment section down below.

Or you can go to the about section on my profile here on my YouTube channel and find my email there and just send me an email there and get in touch again, gonna be a very, very small group of people and it's not for everyone. Otherwise, I know a lot of you guys are here on the channel because you want to earn a full time income managing other people's properties on Airbnb and you want to learn how to manage other people's properties on Airbnb without having to actually invest money into buying or renting or furnishing them. So again, there's a link in the description down below to a free train that walks you through step by step process that I used to be able to do that and get myself into a place financially where I am able to go and invest a substantial amount of money into buying properties now.

So if you want to learn all the process for that, then just check out the link in the description down below, check out that training is completely free. But make sure you grab yourself a spot before it's too late because we aren't going to be running that training forever. So just make sure you jump in and grab yourself a spot check that training out. If you like this video, then let me know show me give me a thumbs up hit that like button it helps you out tremendously with YouTube's algorithm. So I'd very much appreciate that.

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Make sure you click it get subscribe to the channel and anything more you want to know if you have topics you want me to discuss in upcoming videos just let me know in the comment section down below any thoughts you want to share? Let me know in the comment section down below. I hope this has been a really awesome and valuable video for you. And again, there's all kinds of cool resources and tools for you in the description down below. So check those out. And with all that being said, Have a great rest of your day and I will see you in the next video.