In theory, it’s one of the best business investments that almost anyone could make. I could summarize it easily. You get a mortgage, buy a house, rent it out through Airbnb, pay the mortgage with the renting fees, and in 5-10 years, you’ve got yourself a property worth millions. Yet, the actual Airbnb startup cost would truly show in a good business plan.
So let’s dive into a brief business plan for such a business.
An Airbnb startup cost structure is lucrative.
Why do many people think it’s a good idea? Because it is. You could consider it easy to make money in 5 to 10 years. However, there are many elements that are not taken into consideration. Let’s do some math!
So let’s say you find a property in the center of New York that is being sold for $5 million. It’s an unbelievable catch. So what you do is you go to your bank and ask them for a mortgage of $5 million. Tell them it’s your dream home, and it’s amazing.
Based on your credit score, they would agree and finance the deal. Congratulations, you have yourself a $5 million house. Now you need to pay, say, $40,000 per month. You do not have such funds at the moment. You’re not making $480,000 per year. Even if you are, you wouldn’t want to spend everything you make on your house.
Additionally, you’re not intending actually to live there, so you need to pay rent where you already live.
So what do you do? You rent it out.
You spend $50k in furnishing and renovating it. Then you start renting it out. Let’s say since it’s in the best place in NY; you’re renting it out like this home.
Awesome, you only need to pay $20,000 out of your monthly mortgage for ten years. So the total amount you pay is $2.4m. Then you’re officially the owner of the house.
- First of all, the house is probably worth more than $5m because of depreciation, which is normal. In 1986, a big mac used to cost $1.50
So where’s the catch?
That’s good news, right? Yes. It is. The truth is, if you had kept saving those funds in the bank, they would’ve remained a $2.4m. But now, the house could be worth $10m, for example.
Well, in the above example, the rental cost is quite high. So it might not really be a monthly income of $20,000. But also, your house does not have to cost $5 million. So that cancels that.
Finally, the major problem with the Airbnb startup cost structure is rental consistency. If you know a person who is willing to rent the apartment from you for ten years, even if that’s yourself, then you got yourself a deal.
So true success in this business relies on a couple of things.
Location rental demand
If you chose a property near Cambridge, for example. It’s a smart approach as rental is always an important option for students. Yet, you need to keep it affordable.
If you chose a property in the middle of the desert, you might not be able to rent it or sell it in ten years. Unless it was a desert being populated like Dubai fifteen years ago.
The future of the area
Some regions have become much more expensive in the past ten years, while others didn’t. You must understand and research the area quite well to evaluate whether it will probably be highly valued.
The answer to all of that? Extensive market research is the first step of your business plan.
Airbnb Startup Cost Business Plan
I’ll create a brief overview of the business plan. You’ll probably want to dig deeper later on. However, for a typical business plan that is for this particular business, you will need the following:
Researching the market is crucial for a successful Airbnb startup. The key is to find a property that is not a bad option but also not too expensive, like our example above. To do this, you’ll need to consider factors such as location, local demand for vacation rentals, and competition from other Airbnb properties in the area.
It’s important to remember that the market is constantly changing, so you’ll need to be proactive in keeping up with market trends and adapting your strategy accordingly.
Take your time doing this phase, as it is the most vital, especially before purchasing the property. There is no such thing as too much market research.
Management & Operations
Owning an Airbnb property requires maintenance and management and a person handling rentals. This includes tasks such as cleaning, laundry, and responding to inquiries and bookings from potential guests.
Airbnb reviews are also an important factor to consider, as they can significantly impact the success of your property. You’ll want to ensure you’re providing a high level of customer service and ensuring that your property is well-maintained to ensure positive reviews.
You can either do that yourself or hire someone to do that. In either case, the cost and time spent should be considered. A few bad reviews could ruin your plans.
Having a strong financial model in place for your Airbnb startup is critical. This should include a projected financial model over a ten-year period, considering factors such as devaluation and the inconsistency of rentals.
You’ll also want to include a good margin of error to account for any unexpected expenses or changes in the market. Every dollar should be calculated carefully to ensure the long-term success of your business.
You need to create a cash flow analysis sheet and an income statement. The income statement is the most important. The cash flow analysis will show you whether you might face trouble in paying a mortgage in a certain month. Be as detailed as possible. There will be inaccuracy, but at least there is a plan for it.
Do not forget to create a good risk analysis factor or two here. What if the property does not rent for a year? In that case, what will you do? What about if it does not rent for two years? etc…
The Airbnb startup cost is fully evaluated at this stage.
Sometimes an Airbnb Startup Cost Business Plan needs an expert.
Finally, we’re not people who sell products. I’m a consultant who loves entrepreneurship. I always love to see my clients use my plans to succeed. If you truly need my services and don’t have time to do this yourself, then I’ll write my average operations cost and timeline for such a business plan at the end of this article.
But, if you prefer not to invest in such a thing and have the dedication for it, feel free to shoot me a comment with any questions down below!
Typically, a growth business plan is a document consisting of 20-30 pages that showcase every single detail about your business, including, but not only, product, operations, legal, team, traction, business model, market, and projections. If the financial model is needed, I work with a financial analyst I know to deliver the model as well. But this will come at an extra cost that is to be discussed beforehand.
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People look for business consultants on a daily basis. However, they can’t find the perfect match. I aim to always achieve the perfect sync with my clients.
I’m Anil, an Albusi business consultant. I’ve worked on this website with over 50 clients.
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