At 2.8% Expected Appreciation, Does Airbnb Still Make Sense?

On The Rise

In January, many experts weighed in with predictions on how the 2020 real estate market would be. The consensus was that the market would see a 2.8% gain over the coming year. While any expectation of home value appreciation is a positive one, 2.8% is also less than in previous years. This lowering of expectations means that there is a market deceleration happening. Now, it is worth noting that in the past eight years, home prices across the US have skyrocketed by 50%, so we should expect to see a slowdown eventually!

One of the significant benefits of renting a home on Airbnb is the fact that you can benefit from financial gains both in capital appreciation and in terms of rent. In other words, you can earn a steady income stream through rent while your home goes up in value. This “double benefit” makes investing in Airbnbs have a significant ROI (as we have discussed in previous posts).

However, with less appreciation potential (or potentially even in the red over the next five years, if we have a recession), it’s logical to wonder if investing in Airbnbs makes sense? Phrased differently, does Airbnb make sense even without capital appreciation?

The short answer to that question is yes. Even without significant home value appreciation (or even with some depreciation), investing in Airbnbs is still an incredibly profitable activity, assuming, of course, you purchase your home in the right area.

Consider the Florida market, for example. There, it’s easy to buy homes that cost $200,000 but rent for $100 to $200 a night. Let’s suppose, hypothetically, that you can take home $100, 20 nights per month with zero effort (using a company like ours will let you do this!). You will earn $2,000 per month, on average, or $24,000 per year.

For the sake of simplicity, let’s assume you purchase this home on a 15 year fixed mortgage with 20% down. You could expect to pay approximately $1,400 a month after accounting for property taxes and home insurance.

Out of the gate, assuming you didn’t need any major repairs on your property, you would be earning $7,200 per year cash flow on a $40,000 investment (18% ROI per year). Additionally, you’d be looking at another $10,000 or so per year on average in home equity.

By the time you pay off your mortgage, you’ll have spent $40,000 in initial capital to make $108,000 profit off of rent each month, and you will own a $200,000 property. Even if that property is now worth $150,000, you’d still be looking at $258,000 combined income and property value off of a $40,000 initial investment. That is a whopping 500% ROI over 15 years. Even if the stock market earns 10% per year, consistently, for those 15 years, you still won’t make as much as owning an Airbnb – even without the value appreciation.

In other words, having property value appreciation is a nice-to-have but not a must-have for an Airbnb to make sense in terms of investing.

Ayvio, a hospitality company, makes investing in Airbnbs easy. We work with partners all over the world to handle marketing, home upgrades, and to transform their homes into world-class destination experiences. We focus on hospitality so you can focus on maximizing your Airbnb income!