Tim Hubbard explains how bedroom count usually matters more than total square footage for short-term rental revenue. He shows how to use market data (AirDNA, Airbnb, Vrbo, local zip-code comparisons) to compare average daily rates (ADR) and occupancy for different bedroom counts, and recommends simple payback calculations to decide whether to add a bedroom (construction or other solutions). He also describes lower-cost ways to increase sleeping capacity (sleeper sofas, partitioning, detachable guest units/combined listings) and emphasizes operational and disclosure considerations.
What is the ideal size for your Airbnb for your short term rental? How many bedrooms should it have? Should you add another bedroom? Is that worth it? That's what we're going to talk about this week. There are ways to find this out. Make sure we're not overspending, to make sure we're earning maximum revenue. Stay tuned. Welcome to Short Term Rental Riches. We'll discuss investing in real estate, but with a specific focus on short term rentals. Quick, actionable items to acquire, manage and scale your portfolio. I'm your host, Tim Hubbard.
Welcome back to the Short Term Rental Richness Podcast. I'm happy you're here again. We're talking a little bit more this week about analyzing our short term rentals, analyzing our Airbnb to know if they are earning top dollar, if they're the correct size, if they have the right number of bedrooms. This is pretty relevant to me right now because I'm working on this new construction project down here, Medellin. Excited to be starting that we're going through architectural plans right now. And because we're building from the ground up, well, we have the option to build studios. One bedroom, two bedroom, three bedroom, four, five bedrooms. And it's important that we know which size and which bedroom count makes the most amount of money. And that comes down to an estimated occupancy and an estimated average daily rate. And that changes in every market based on the property size. So let's just dive right into it here. The first thing is, is that contrary to popular belief where, you know, size always matters, it doesn't actually matter as much with short term rentals. And what am I talking about? We can have a one bedroom that's 250 square feet, or we can have a one bedroom that's 800 square feet, but that is still a one bedroom apartment, right? It's or a house or whatever it happens to be, and it's still very likely only going to sleep two people. So do you think that it's going to make a whole bunch more money because it has a little extra space? Probably not, at least in my experience, because I have properties with, you know, one bedroom properties, for example, that are across the board. I have two bedroom properties that are different sizes and I have larger properties that are different sizes but still have the same amount of bedrooms in them. So at least in my personal experience, I can tell you that the actual size does not quite matter as much, but the number of bedrooms does. And that can really bump your revenue if you happen to be in that fine spot in your market that has higher demand for a certain type of bedroom size. So the idea for this podcast came along not just because I'm happened to be doing this right now on my own construction project, but I had a call with a friend recently who said, I'm considering adding another bedroom to this home. It's going to cost me about $100,000, but I think it might be worth it. And so we dug into the numbers a little bit and this is pretty easy to do. Remember again, there's lots of data out there. Now you can use airdna Co. You can look directly on the listing sites like airbnb or vrbo, pull up neighboring properties near where yours is or where your potential property is and see what they're charging. So I recommend that you at least compare with a few different data sources to make sure that you're not catching some strange outlier. But assuming you have good data and you're pulling the averages, it's pretty easy to see what a two bedroom charges, average daily rate and what their average occupancy is versus a three bedroom, for example. That's something that we can easily see with these data sources. And now if the three bedroom rent happens to be twice as much as the two bedroom rent and you can acquire one of those properties for pretty much the same cost, well, then I would definitely acquire the three bedroom property right now. How do we decide if we already have that two bedroom property? We want to add that third bedroom. Let's say it does cost $100,000. How do we make this decision to determine whether that's worth it? Well, what you're going to want to do is just simply calculate the estimated occupancy of the three bedroom versus the two and the estimated average daily rate of the three bedroom versus versus two and take the difference over a year, for example. And let's say the three bedrooms earning $30,000 more per year and it's going to cost you $100,000. Well then you're going to get that money back in about three years. Again, remember that these are estimates, right? So we got to make sure we're managing our property really well because management and reviews can really make or break your short term rental. But assuming we're taking averages and assuming you're doing a good job and at managing, then that's a pretty good return. But remember, we also have to account for the time that it might take for that addition. Let's say you bought that property and you spent six months doing that addition you got to calculate that time where you're actually not making any money, right? So with those things considered, hopefully that gives you a little insight in how you can determine what is the best bedroom mix for, for your short term rental or for your Airbnb in your particular market. Now remember, you want to look a little further than that, right? Some markets are really big, so you want to actually look in your neighborhood. I recommend your zip code. So let's say you have that two bedroom and you ran your data and you found out that, oh my gosh, I can earn way more money if this was a three bedroom. Well, there's ways to add another bedroom without actually doing the construction. So I want to talk about a couple of those ways that you might be able to get that third bedroom in there without spending that a hundred thousand dollars or whatever it costs you. Now one way is if you have a sleeper sofa, you can add that in, but make sure that you are setting the right expectations, right? If that sleeper sofa is not in another bedroom, then you can't call it a bedroom. But sometimes, you know, I have some older properties that have, they used to have a lot of rooms, right? So a living room, for example, maybe you can add some French doors or maybe you can add some doors to separate that space off so that it actually does become a bedroom. Well, then you already have that space. You can now call it a bedroom and you can earn that additional income. We don't necessarily need a closet to call a room a bedroom with Airbnb or a short term rental. Right? We do when we're talking about traditional real estate. Most time we can't sell a three bedroom home if that third bedroom doesn't have a closet. But with Airbnb and with short term rentals, like of times our guests don't even need a lot of closet space. Sometimes we can just put up a small.
Clothes rack in the corner or a small shelf from Ikea or whatever it happens to be, just to hold a few things, a little dresser, but it doesn't have to be a full blown closet. So that's one thing that I would consider. If your property happens to have a space where you can technically close it off and call it another bedroom, that's great, but let's say you can't do that, but you can still add that third bed. Well, we're not going to be changing the size of our property, right? But you're probably going to be able to at least get more income knowing that the demand in your market is much higher for that three bedroom than is for a two bedroom. Just make sure that you disclose everything properly. Make sure that your housekeepers know that you have another bed that's going to need linens and that is one other operational piece, you know, because sometimes people might not rent that property wanting that third bed and in which case you wouldn't want to leave it open with linens on it. So a little more operations there, but a pretty good way to add more income if you see that the demand is there. All right, I want to leave you with one last thing you can do to be able to list that property as a three bedroom when maybe it's not actually a third bedroom. And this goes back to an episode I actually did a While ago, episode 111, on combined listings or linked listings. So let's say you've got that two bedroom home, but it also has a little detached guest house, right? That's a studio or a one bedroom, if it's a studio and it's the only studio in the space. And you can call that another bedroom. That could be a combined listing where on Airbnb you combine both listings. So guests have the option to rent the two bedroom and guests have the option to rent the studio separately or together. So you actually have a third listing which would allow someone to book both them at the same time, allowing you to earn that higher three bedroom average daily rate versus the two bedroom. But also get your property a little more diversity, right? You're, you're going to be open to more guests. So remember, with short term rentals, size doesn't always matter. The bedroom count is what's more important. And there are ways to add more bedrooms that you don't really have the option with with traditional real estate. So see if your bedroom count is ideal in your short term rental. Do a little bit of research. If it's not, see if you have a way to add another bedroom there. And also keep that in mind when you are doing your scouting for new properties in the future because it's really, really important. That example I gave you of my friend who wanted to spend the extra $100,000 for that third bedroom addition. The average daily rates in that city, for example, in that zip code were almost $200 more per night than they were for the two bedroom. It went from $250 to, to $450 as an average. So there can be a lot of opportunity. Make sure that your property is set up right and that you're looking for the right properties going forward in the future. Hope that gave you a little bit of insight and as always, I hope you have a wonderful week and we'll talk to you soon.
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