When evaluating if you should switch your long-term rental into a short-term rental, using data is critical to not make a mistake.
Fortunately, there are low or no-cost tools to help you evaluate if converting a regular rental to an Airbnb or VRBO makes sense.
In the below example I will evaluate if a current For Sale property is worth it to convert in Roswell, GA.
The property address I will evaluate is 290 Windflower Trce, Roswell, GA 30075 and has been on the market for approximately 30 days with a price reduction. Maybe this owner wants to consider if they should convert it to an Airbnb instead of selling.
For my analysis I look at five key data points:
1. Market rent for standard long-term rentals
2. Average monthly revenue for short-term rentals
3. The '3x' rule
4. Census Data
5. Hotel inventory
Finding market rent for standard long term rentals:
What is Rentometer.com?
Rentometer is a website that allows tenants to enter their current rent to determine if what they are currently or considering paying is too expensive.
You can enter a specific address, neighborhood, zip code, or city to evaluate. Be sure to input the correct number of beds and baths and if you are in a downtown area, you'll want to reduce the radius to 1 mile or less to get true comps.
Should you buy the paid version of Rentometer?
Not if you are evaluating a single property.
The paid version gives you more detailed market analysis and batch reporting if you want to analyze multiple properties at once.
The Pro Reports give the underlying data that drives the 'meter' in the 'Rentometer' and you can add your custom logo if you are presenting the reports to tenants or potential owners.
Sign up for a free trial and you'll get 5 free Pro reports without a credit card or having to give your phone #.
Finding average monthly revenue for standard short-term rentals:
What is AirDnA.com?
Airdna is a data aggregator of short-term rental data. They obtain interesting pricing and listing data for short-term rentals including Airbnb and VRBO and then package that data in a way that lets investors analyze.
Should you buy the paid version of Airdna?
Yes, I suggest you do if you are seriously evaluating a market. You can sign up for a market plan ($19-$99/month depending on how dense your market is with short-term rentals) and cancel after your research is completed.
What is the 3x rule?
I usually set a hurdle that a short-term rental needs to clear 3x the standard 'rent roll' (average rent fir long-term rental).
So for a simple example, if Rentometer states the standard rent for a 2BR 1BA is $1,000/month then the short-term rental revenue should at least clear $3,000/month in order to be profitable.
How do lookup Census data for your market:
Most government websites aren't that friendly to use however I find the census website surprisingly helpful.
Go to https://www.census.gov/quickfacts and put in the zip code or city and you can compare major data points to the national averages.
I find looking at population growth, business growth, and average income per capita are great indicators of a strong market.
When using the above research methods here is what I find:
1. Average market rent is $3,250 via Rentometer.com.
IMPORTANT: Adjust the filters to .50 miles or less Entire Home and only filter on the exact number of bedrooms. In this example I'm taking the median because I believe the downtown location warrants it. Another way to accomplish this is to reduce the search radius to less than 0.50 miles and take the average.
2. Average monthly revenue for short-term rental is ~$10k/month.
IMPORTANT: Adjust the filters to 90th percentile, Entire Home, and only filter on the exact number of bedrooms.
3. 3x Rule
The formula is (average monthly short-term revenue)/(average standard monthly rent).
So the calculation would be $10,000/$3,250 = 3.077 = > or equal to 3 for.
This property meets the 3x rule.
4. Census Data
I have to admit this didn't help me much in this search. This is where having local market knowledge really helps. The population growth is actually negative, but I know this to be a result of the City of Roswell restricting new housing, medium-high density housing projects, and a general lack of land available in the downtown area for residential growth.
5. Hotel Data
I did a simple google search for 'Hotels in downtown Roswell, GA' and did a maps search. This is where things are interesting and again, where local knowledge comes into play.
Downtown Roswell, GA is home to a dozen or so wedding venues and a neat little historic downtown area with many bars and restaurants.
So you would think given the tourism and year-round weddings, there would be a lot of hotel options but that's not the case. In fact, there are no hotels in the downtown area near the subject property.
Additional Research that I would conduct to further evaluate:
1. Individual Airbnb and VRBO listings to scope out the competition
2. Read the reviews of short-term rental listings to understand why people are traveling to the area
3. Local regulations for short-term rentals
4. Are there local co-hosts and cleaning crews to assist in the operations?