How To Create Passive Income With Airbnb
How To Create Passive Income With Airbnb
So, you heard or know people making money with airbnb to pay their mortgage or just to make extra income and you’re interested in giving it a go!
Well, here is how to identify and analyze whether your airbnb opportunity will make you have passive income or not.
Step #1: Make Sure Your Property or Home is Zoned for Short Term Rentals
One of the biggest mistakes I’ve seen are people who have bought a condo in Waikiki, started doing airbnb, and then the board told them to cease and desist, because they do not allow short term rentals.
In 1 instance, a lady I knew sold her condo and then bought condos in a building that allowed airbnb.
In another instance, a different lady is planning on selling her condo as well, or trying to find other people in the condo to join the board with her and allow short term rentals.
Be sure to check with your local laws, or your building rules to make sure it is ok for you to do short term rentals.
Step #2: Calculate Your Return on Investment (ROI)
If you are buying with cash or doing a mortgage, be sure to calculate your return on investment.
In the example I do in the video above, I do the monthly costs of buying a studio in Waikiki, in a building that allows and encourages short term rentals.
The only type of mortgage we can qualify for in this building is a portfolio mortgage, which was a 15 year term, 4.5%, with a 30% down payment. Here is the breakdown of costs for this mortgage:
$150,000 offer to purchase
$45,000 down payment (your investment)
$803.24 mortgage payment
We then added up association/maintenance fees, Transient Taxes and Excise taxes, electricity and internet, property taxes and came up with:
$1,789.10 / month is expenses including mortgage
Then we calculated how much you would need to make the property run without you managing it, hence turning it into passive income.
Estimating costs as:
$500/mo cleaners
$300/mo managers fee (10% of revenues)
So then adding together all of the monthly costs we get:
$2,589.10 /mo Total Expenses
Then we estimated total income as:
$95/night x 25 nights = $2,375/month
So, if we are making less per month than expenses, then this condo cannot generate passive income.
You could run it as a business, in which you are managing and cleaning it. Then it will make you money, but it isn’t passive income, it is active income.
Now, if you decided to buy cash, then it would make passive income.
So Monthly expenses would be $2,589.10 – $803.24 (mortgage payment) = $1,785.86
Income $2,375/month – Expenses $1,785.86 = $589.14/mo income
So ROI for a cash purchase would be
$589.14 x 12 = $7,069.68/year
$7,069.68 / $150,000 = 4.7% Return on Investment
Conclusion
Doing an Airbnb for passive income is definately doable, and it has its advantages.
Advantages
You own a property, and you have control over your business.
Your equity might go up over time.
You might have a ROI that beats inflation
Disadvantages
Your equity might go down over time.
If there is trouble in the tourism sector, you may experience losses until the market recovers.
Your ROI might be lower than inflation
Your money may make a higher return with a different investment
You may need to have a large amount of cash to do an investment though, as the example above shows how a mortgage will make the expenses too high to create passive income.
Do the math and always calculate what would be your ROI, based on the amount of money you have to invest and the loan options that are available to you.
About Mey Duldulao
Back in 2011 I had over $30,000 in credit card and line of credit debt, was living paycheck to paycheck and was stressed out over my lack of success in my financial life.
In April of 2016, I became debt free and had a monthly passive income stream. I quit my job on December 23, 2016, and started doing my dream work of mentoring others on what I did to create the freedom to quit my job.
In 2017 we bought our first condo in Waikiki, and we went on 5 weeks of vacation (including a 7 day cruise to the Mexican Riviera)!!!
I spend most of my time doing what I dreamed of for years, spending my days with my son Jordan and my husband Jomel, enjoying motherhood and being a wife. I also enjoy researching Financial Freedom and sharing what I learn with my clients and on my blog.
If you want to learn more about how I can help take back control of your money and your time, then CLICK HERE, watch the free video and get started!