The Math Behind Airbnb Investing

The allure of Airbnb investing is strong: buy a property, list it on Airbnb, and watch the passive income roll in. The reality is more nuanced, and the math matters more than the marketing.

The occupancy assumption trap

Most Airbnb income projections assume 70-80% occupancy. In reality, new listings often start at 40-50% and may take 6-12 months to build up reviews and visibility. Seasonal markets see dramatic swings — a beach property might run 90% in summer and 20% in winter. Your annual average is what matters.

A worked example

Consider a $300,000 property with a $60,000 down payment, financed at 7%. Monthly mortgage: $1,596. Add property taxes ($250), insurance ($150), utilities ($200), maintenance ($250), and supplies ($100). Total monthly costs: approximately $2,546.

At a nightly rate of $150 with a $100 cleaning fee per stay and average 3-night stays: At 50% occupancy (15 nights/month = 5 stays): Revenue = $2,250 + $500 cleaning fees = $2,750. After Airbnb's 3% fee: $2,668. Net income: $122/month. At 65% occupancy (20 nights, ~7 stays): Revenue = $3,000 + $700 = $3,700. After fees: $3,589. Net: $1,043/month. At 80% occupancy (24 nights, 8 stays): Revenue = $3,600 + $800 = $4,400. After fees: $4,268. Net: $1,722/month.

The difference between 50% and 80% occupancy is the difference between barely breaking even and earning a solid return. Be honest with yourself about what occupancy rate is realistic for your market.

Hidden costs most investors miss

Turnover labor (cleaning, restocking, laundry), property management if you're not local (typically 20-25% of revenue), furnishing and decor ($10,000-$30,000 initially), guest damage, regulatory compliance costs, and higher insurance premiums for short-term rentals. These can easily reduce your projected income by 30-40%.