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Cash Flow Analysis on Your STR Property. How to Determine How Many Nights Per Month You Need to Rent


Whether you are investing in your first, or fiftieth, short term rental property, you need to know your numbers. There are a ton of things to consider, your ROI (rate on investment), profitability, long term appreciation, taxes and on and on. While all of this information is important and you should know it (more on that later), the question I get most often is: How many nights per month do I need to rent my unit in order to pay all of my expenses, break even.


Luckily, this is very simple to do. Tedious for us creative, non- math brained types, but totally necessary and worth it! First, you need to gather all of you expenses that you pay out each month.



Some of those expenses include:

Mortgage payment

Management Fees

Website/Advertising Fees

Insurance

Property Taxes

Utilities

Home owner association dues

Cleaning Fees

Yard maintenance

Security

Home maintenance/ repairs

Items you provide for renters i.e. coffee, soap, makeup wipes, small gift etc.


When you are starting your first Short Term Rental Property business, you may need to guess or estimate some of these expenses. You will know your mortgage and insurance fees. You should be able to find out average utility bills from the previous owner of the property or other average utility rates from other properties of a similar size in the area. HOA dues will also be readily available. You may need to guess on what your average monthly home maintenance will be and what the costs of providing goods for your property. Cleaning fees, while included here, are often charged to the guest renting the property.


Let’s take a hypothetical property to see how this works.


Property: Dream Fairy Castle on the Hill


Mortgage payment: $2054

Management Fees: self-managed-$0

Website/Advertising Fees: $30

Insurance: $233

Property Taxes: $270

Utilities: Electric: $130

Gas: $60

Phone/ Internet: $80

T.V. (cable, dish or streaming services) $75

Water: $30

Trash/ Recycling: $20

Home owner association dues: $120

Cleaning Fees: These will be paid per stay by the renter.

Yard maintenance: $150

Security: $25

Home maintenance/ repairs: This is a newly renovated property in good condition and is a new acquisition so we will guess and budget $100 per month

Items you provide for renters: $25


Total Expenses Per Month: $3402


For those of you that want to keep it simple, we now want to determine how many nights we need to rent per month to pay these expenses. For those of you that want to do a little more math, keep reading after this part.



Determine your nightly rate. If you have an existing short-term rental, if you charge the same rate, for any night, you don’t need to do any calculations. You already have your number. If you have a short-term rental property and charge more for certain periods, like holidays and spring break, you will need to add up the price for each night that the property was rented and divide by the number of nights rented to determine your average nightly rate.


Example: $250+$250+$300+$150+$125+$125+$200+$200+$175+$150= $1925/10 = $192.50 average nightly rate


To determine how many nights per month on average you need to rent you property:

Average Monthly Expenses/ Average Nightly Rate= #of nights needed to pay expenses


In this example:

$3402/$192.50=

17.67 nights per month


At nearly 18 nights per month, just to break even on your expenses. That seems like a lot just to break even. Let’s take a look, is that feasible in your market?


First determine monthly occupancy rate in percentage:

Nights per month Rented/ Days in Month x 100= Occupancy Rate Percentage

17.67/30=.589 x100 = 58.9%


Next head over to the website AirDNA.co. This site provides data on Short-term rentals by area.

With the free version of this site you can see the average nightly rate and occupancy rate by city or zip code.


In our example, Dream Fairy Castle on the Hill, if we were a property in Blue Ridge, GA the average nightly rate is $309 with an occupancy rate of 61%. On the website we can also see how many bedrooms properties have, minimum occupancy, where the property is listed and rental growth. In Blue Ridge, the median, and most popular rental, has 3 bedrooms. Luckily, we also have three bedrooms and the property is in good shape. To see how we can improve the likelihood that we can not only break even on our Dream Fairy Castle on the Hill, there is one glaring opportunity.


Do you see it? That’s right. We aren’t charging enough on our nightly rate. Let’s run the numbers again at the average nightly rate of $309 that is typical in the area.


Average Monthly Expenses/ Average Nightly Rate= #of nights needed to pay expenses


$3402/$309= 11 nights needed to pay expenses


Already things are starting to look up for our investment property Dream Fairy Castle on the Hill. At 11 nights per month let’s calculate what our Occupancy Rate:


Nights per month Rented/ Days in Month x 100= Occupancy Rate Percentage


11/30=.367 x 100= 36.7%


Let’s assume then, that because we have good photos, are on multiple platforms, keep the place clean and respond to inquiries, we can at least be an average short-term rental in the area. That means that we should have a 61% occupancy rate according to AirDNA.co.


How much money would that be a month?


Days in the month x Occupancy Rate %= Days of Month Rented

Days of Month Rented x Average Nightly Rate= Potential Average Monthly Cash Generated


For our Example Dream Fairy Castle on the Hill:


30x61% (or .61)=18.3

18.3x$309= $5654.70


Things are starting to look better. If we consider our expenses per month, how much additional cash flow would the Dream Fairy Castle on the Hill produce?


Potential Average Monthly Cash Generated- Average Monthly Expenses=Potential Monthly Cash Flow


$5654.70-$3402=$2252.70


This is looking so much better for our investment! Did you notice that I didn’t use words like “profit” “break even” or “Return on Investment”? That is because in this post, we are strictly dealing with a simple cash flow analysis. I am not an accountant or a tax professional. I am an investor and real estate agent looking to help other people understand the day to day cost of their short-term rental investment. In short, don’t come crying if you used this information to make more money on your short-term rental and suddenly owe the IRS some dough. If this information helped you, please share it with other investors that need a simple way to figure out how to break even or more with their short-term rental property.

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