Introduction: Investing In Your Airbnb
On a recent phone consultation call, the host asked me: “There are so many things that I can spend money on. Where can I spend money and get the highest return on investment? Where does it make sense to spend the limited dollars I have?”
What a rockstar question!
If you follow me on Instagram, you know that sometimes I highlight lazy questions like “how can I increase my rank on Airbnb?” These lazy questions don’t warrant a response. But a rockstar question warrants an entire blog post!
First, let’s define Airbnb ROI or Return on Investment. Basically, it’s a measurement of how much profit you will make from an expense.
Really, all expenses related to a revenue-producing asset (like your Airbnb) can be considered an investment (and not an expense). But for the purpose of this article, I am speaking of only the things that will improve the guest experience and/or the night rate you can charge.
The highest Airbnb ROI upgrades you can make will result in the largest increases to your nightly and occupancy rates.
If you spend $500 on an upgrade and earn $900 from that upgrade, your return on investment is $400.
An Airbnb ROI Example
Let’s say you decided to spend $500 on turning a bed in one of your bedrooms into a bunk bed. This means a few things to you:
- increases your nightly rate by allowing an additional guest
- increases your variable costs due to an additional guest (water usage, extra towels for shower, etc.)
Ideally, you made some assumptions and calculations related to this Investment to decide whether or not it would net a positive ROI.
This blog post isn’t going to focus on the myriad of assumptions, calculations, and strategies you could use to come to a reasonable estimate. However, I will touch on this important topic.
Let’s assume you realized that many families book your listing and ask for an air mattress. Your assumptions lead you to believe that with an extra bed you could:
- charge an extra $25 per night
- increase your occupancy by 6%
Let’s assume your average occupancy is 70% or 255 booked nights per year.
At 76% occupancy, you will book an additional 22 nights each year (365 days * 6%). If we multiply 22 extra nights by $25 per night, you will earn $547 related to the addition of the bunk bed in the first year.
As to whether or not this is a good investment…you guessed it, some assumptions are to be made 🙂
You might be asking how the host got to these numbers (6% increase in occupancy and $25 extra per night)?
First, he did market research using Airbnb or a tool like Airdna. Then, he saw the prices that his competition was charging with 6 beds (let’s assume our host had 5 beds before the addition of the bunk bed) and the occupancy they were getting. Finally, he compared that to his existing Airbnb operation and made some educated assumptions to arrive at specific numbers.
I’m going to discuss eight upgrades you can make to your Airbnb listing which could increase your overall ROI.
Exterior Design Or Landscaping
If you have any outdoor space and it’s not functional, this is probably going to be the biggest bang for your buck. Below we’ll talk about adding extra rooms, but you’d first want to work with what you already have.
If you have outdoor space that is not useable, the first step is to make it useable. That could be mowing the lawn, pulling weeds, or adding some furniture. That adds to the appeal and functionality of your Airbnb listing.
If you have outdoor space that is already being used, you could upgrade it with some professional landscaping.
Don’t forget to take professional photos and upload them to your Airbnb listing.
This is an overlooked Airbnb hosting strategy probably because it can be expensive. But a nicely interior designed Airbnb listing wins at every price point.
If your budget doesn’t allow for a full interior design, start with one of the highly utilized rooms like the kitchen, living room, bathroom, or bedroom.
Doing just one room will give you an excellent cover photo, a very important part of your Airbnb success.
Adding Beds For High Airbnb ROI
This one is obvious, but it may not make sense for every host for a couple of reasons.
Adding an extra bed adds an extra guest. The more guests, the louder it is. If it’s possible that by adding an extra bed, you will piss off your neighbors, it’s not a good idea.
You can always pre-emptively counteract parties and loud noise with NoiseAware, a noise monitoring device for your Airbnb.
However, if you are in an area that seems to have demand for an extra bed, this could be a very high ROI Airbnb upgrade.
Replace Outdated Appliances
I used to manage an Airbnb in a highly sought-after location with so much potential, but the host would not make any of my suggested Airbnb ROI upgrades.
For example, the shower was old and moldy even after a deep clean. I’d get a complaint one of every three guests about the look of the shower or that the handle made it hard to get hot water. As the host would not upgrade, I had to constantly pretend that it’s the first time I’m hearing of this issue and that I’ll get it looked at after the guest checks out.
The home also had a nice backyard with a view, but a ratty-old hammock, uncomfortable outdoor furniture, and mud instead of grass.
Aesthetics: Paint and Flooring
It’s amazing what a fresh coat of paint can do to your property value. Now you know why homes for sale always get fresh paint. It delivers a return on investment. New paint instantly makes your Airbnb feel newer.
New flooring accomplishes the same thing. It’s best to do this in combination with interior or exterior design upgrades.
Include Additional Amenities
Remember our landscaped backyard? What about adding a hot tub? Or a BBQ? Trampoline? Hammock? Bicycle? Electric scooter? The options are endless.
Or maybe you notice the average length of stay in your area is 15 days, but your average is only 5 days. Maybe adding a laundry machine will have you welcoming more long-term Airbnb guests?
It doesn’t even have to be anything physical. How about an HBO or Netflix subscription?
Want to maximize your Airbnb revenue? Start by adding amenities: Netflix, beach stuff, firepit, La-Z-Boy, high-end cooking utensils, etc. Click To Tweet
Upgrade To Higher-End Amenities
Everyone wants to charge the most and be the best, but few think about the details.
Are you trying to cater to a high-end Airbnb guest, but providing Costco shampoo and conditioner?
Do you have a nice kitchen, but missing some nice avocado oil and pink Himalayan salt? How about a cheese grater or strainer?
Are your towels the fluffiest and softest you could find, or are you opting for the cheaper alternative?
Do you have one of those tiny rusted out showerheads or a large one dispensing copious amounts of warm water?
Apply this to anything in your home from the TV to the coffee maker to linens on your bed.
Add Another ‘Space’
Do you lock up a room? How much extra could you make by allowing its usage?
Do you have an expansive backyard or deck area? How about installing a hammock?
The host who inspired this blog post had an extra side room that he didn’t know what to do with. It was a room, but not a ‘Space’.
We decided that turning it into a game room would make the most sense as he mostly welcomes families and groups of friends or couples. He’ll add a card table, an arcade game, some board games and he’s even got a new cover photo!
Creating More Rooms
You can always add on to your home. This is the highest cost, but also has the highest potential for return and increase resale value.
Based on my research, the simple act of adding a bathroom, dining room, bedroom, or office could net you an extra $20,000+ each year.
Think about that: a 2 bedroom, 2 bathroom earning $20,000 more than a 2 bedroom, 1 bathroom home down the street. Would you consider it?
I’m currently considering a 2,300 square foot, 1-bedroom apartment in Medellin, Colombia for purchase. Upon resale, I would turn it into a 2-bedroom and estimate I could earn an extra $56,000. That’s not counting the increased daily rent from a 2-bedroom. High cost as the interior would need to be reworked, but these investments net the highest ROI.
Conclusion: Airbnb Return On Investment
To be honest, I’m satisfied enough that you’re even asking this question. It’s the right mindset.
I hope I’ve got your creative juices going. What do you think will be your next high Airbnb ROI upgrade? Tell me in the comments.
Anything that will increase your pool of FPGs has the potential to be a great investment decision. Don’t’ forget about simply making your space child or pet friendly, or catering to business travelers.