You talked yourself into starting a Vacation Rental (Airbnb) business.
There’s one critical due diligence that you need to do before you pull the trigger:
At the end of the article, you’ll be able to answer these burning questions confidently:
- How to identify your competitors.
- How to gear yourself up to standards and beyond.
- How to set your price right.
- Comparing Airbnb income to a standard one-year tenancy.
- Making the decision & pulling the trigger.
I did these exact steps five years ago before I started my Airbnb business.
This method works well for high competition areas like Bukit Bintang or KLCC, but to make things harder, I will be using an area that is far away from the city and with no tourist attractions.
I will be using my friend’s brand new 3-bedroom apartment in Beranang, Semenyih for this case study:
Let’s get started:
Knowing What’s in Your Area
Let’s get realistic with your expectations. What is the area known for?
If it’s located in busy areas like Bukit Bintang or KLCC, you can expect a steady income all year round.
If it’s near natural attractions (waterfall, river, jungle track, etc.), it might not be fully occupied all the time, but you can cash in during the weekends and school holidays to make up for it.
You can expect a predictable income if your property is located near high traffic events such as hospitals, stadiums and event spaces:
But if your property is in somewhat of a kampung or underdeveloped area with no real tourist attractions or much traffic, you can expect only occasional weekend traffic from family events in need of a place to stay.
My friend’s apartment from my initial impression is unfortunately in the latter group (for now, as the place is new).
Checking the Competition
Is competition bad for you? The answer is no. Competition means there’s a healthy demand for your business.
However, you don’t want to set up shop where there’s too much competition, and you don’t want to start where you’re the first one to go in either.
You need the right amount of competition to thrive and not starve.
Using my friend’s property as an example, It makes sense to compare yourself with other similar 3-bedroom properties in your immediate area.
Go to Airbnb.com and search for your area. In this case, ‘Beranang‘ (keep this window open):
As you can see above, there are only eight listings for the area of ‘Beranang.’
Demand seems low, and there isn’t much reason for people to be staying over here.
Not a good start, but it’s not the end of the world, let’s investigate further:
From Google Map’s satellite view, you can see that the area is barren and new. No wonder there’s no reason for anybody to come here (for now).
Simfoni Apartment is on the top right of that map (shown with an arrow):
A quick pan around the general area shows that there are 2 other apartments nearby that look similar in type and size:
- Apartment Karisma
- Harmoni Apartment
Right off the bat, not only will you be competing with other units in Simfoni Apartment itself, but you’ll be competing with 2 other similar apartments that are right next to each other.
This cluster of 3 high-density apartments will be your immediate competitors, and therefore what you should be focusing as of now:
Within the cluster, there are four competitors. But we’ll ignore the RM510 a night one because that owner is delusional and has no reviews.
So that leaves us with 3 competitors. We will be looking at these attributes in each of your competitors:
- Photo qualities
- Interior Decoration
- Unique Selling Point
Let’s start with the first one:
My first impression of this listing is that the photos are amazing. Clean and crisp. Apparently, the host is a professional photographer, and the result checks out:
The general theme of modern minimalist shouts out at me. This will attract the younger family group.
Description: This property is the same 3-bedroom setup and accommodates a max of 5 guests.
Price: The price per night is RM167 a night. This will give you a ballpark of how much you’ll be charging.
Listing’s Unique Selling Point: Showroom like Interior Design & Comprehensive Media Entertainment.
In a world of commodities, this host made the right move by going the extra mile in providing home-like entertainment for his guests:
These simple additions, along with superb photos, sets him apart from the rest.
Online reviews: The host crushed his online reviews (5 out of 5 stars).
The multicultural clientele shows that his listing is appealing to everyone:
Conclusion for Competitor #1:
This listing is a top performer. Great online reviews, crisp pictures, a modern theme, and full suite of entertainment are hard to beat.
Personally, I would use this listing as the benchmark to beat.
Collecting data: Jot down all these data into an Excel spreadsheet. Here’s what it looks it’ll look like:
We’re going to collect enough data for other competitors in the cluster. Let’s move on to the next competitor:
Alright, here’s what the second contender looks like:
Photos: My first impression is that it’s just OK. Not as amazing as the first listing.
Theme & ID: Nothing wrong with it, but it’s not my personal taste. However, this type of ID might resonate well with a specific group of people.
Description: Same as competitor #1, it’s a three bedroom unit that can fit five people.
Pricing is RM160 a night, which is RM10 more expensive than competitor #1.
Unique Selling Point (USP): Unfortunately, from my point of view, this listing seems to have no clear, unique selling point.
The host provides WiFi but no Netflix or Chromecast. This might turn some people off, especially if they’re coming with small children.
Online Reviews: Despite her shortcoming in the USP department, she seems to be killing it in the reviews:
Conclusion for competitor #2: I think she is lacking a bit in her USP and does not have as good of an entertainment package as competitor #1.
Her pricing is also RM10 a night more expensive. No Netflix and an interior that is not as modern as competitor #1.
But all seems to be well for her, as can be seen in her excellent online reviews.
This shows that just because you don’t like a particular style, it doesn’t mean that others share the same taste as you.
Collecting data for competitor #2:
Keep keying in the data in your spreadsheet:
Let’s look at the last competitor in our small cluster:
Photos: Some photos are good, but not great. Some images are clearly low effort that could be significantly improved.
There are also too many redundant photos that can be optimized and trimmed down. But I like the living room photos. It reminds me of a friend’s house.
Theme & ID: This ID is not as pretty as competitor #1, but honestly, this property oozes ‘homey’ & comfortable to me. It looks legitimately like somebody’s home. To some people, that’s exactly what they want.
Description: Same as other competitors, three bedrooms, but it can fit ten people. That’s double the capacity of her competitors.
Minor criticism: She named her apartment ‘Sprawling Green Eco Majestic.’ I find the use of the word ‘Sprawling’ a little weird as this is the definition:
Pricing of RM207 per night is the most expensive in the cluster. Still, considering that it can fit double the occupancy, the cost per head is significantly lower, and thus more value for money.
Unique Selling Point (USP): This host is a Super Host status. What that means is that she has been hosting for a while. Most of her reviews are five stars or very near. This gives some potential guests the confidence that the place is run professionally.
The fact that the same sized space can fit double the occupancy can also be considered it’s USP.
This listing is the homiest of the bunch with an Android box and a rice cooker, which might be useful for a big family of 10.
Online Reviews: Great online reviews:
Conclusion for competitor #3: For a big family looking for an affordable place with all the comforts of home, this listing checks all the right boxes.
Photos could be optimized better though.
Collecting data for competitor #3:
Conclusion From Competitor Analysis
The more competitors you have, the more data you have to analyze.
In our case, you only have three qualified competitors in this analysis. Here’s what you’ve learned from each one of them:
- Good, inviting photos are critical
- WiFi is non-negotiable
- People nowadays are accustomed to Netflix or a TV box
- Excellent reviews are a must, considering all of your competitors are above 4.5 stars out of 5.
- The healthy amount of reviews for each competitor is reassuring of the size of the market.
- Your place needs to be able to accommodate a minimum of 5 people.
- If you want to stand out, do something that no one else is doing. How about including live indoor plants?
Now, let’s take a look at pricing:
How to Price Yourself Right
You need to set your price right. Set too high, nobody will book your place. Set your price too low and you’ll invite low-quality people that’ll likely to trash your place up.
In this section, we will be using our collected data to find the right pricing.
Competitors 1 & 2 have an occupancy of 5 people which I think is just nice for a 3 bedroom apartment.
Competitor #3 set her occupancy to 10 people. I will eliminate her listing in our pricing strategy.
I’d only take the average price of competitor #1 & #2 because I don’t want to have more than 5 people staying in my property:
The average of these 2 is RM 163.5:
This gives you a ballpark of how much you should charge. If you’re new, you can lower your prices slightly to get some people in. Let’s say RM 159 a night.
After a few people booked and make sure they leave you a nice review, you can slowly increase your prices to the average, around RM 165 a night.
How to Estimate Your Earnings
How I estimated my earnings back in the day was to look at my competitor’s future calendars. Here’s a random listing (not related to our cluster):
See the blocked off dates? Those are booked nights in the month.
Multiply the number of booked nights with the price per night to get your estimated earnings.
Unfortunately for our case, all of our competitor’s calendars were clean (no future bookings), this is due to:
- The place is too new.
- As of this writing, Malaysia & the whole world is experiencing lockdown due to the Covid-19 pandemic. This is very unfortunate as everyone is canceling future travel plans and not making new ones.
So what can you do to estimate your earnings if you can’t see any booking data from other people?
I’d make a very conservative assumption not to keep my hopes too high:
- People only book over the weekend
- There are eight days of weekends in a typical month, and I’d assume my house is only booked five nights in a month.
So if my nightly price is RM 159 x 5 nights a month, I’d make around RM 954 a month. Not much, right?
But considering my friend’s mortgage is RM 1,400 a month, this will cover 68% of her mortgage. Remember that this is conservative, there is potential to earn higher.
The number of reviews that the other listings have shown that there’s surprisingly a healthy demand in this area.
The average market price rent will be around RM 700 to 800 a month.
This is where you have to decide if this running an Airbnb is worth it for you or not:
Making an Early Decision, Yes or No
Now that you can see the numbers, it’ll be easy for you to make an informed decision.
If you are an Airbnb investor and am looking for a place to set up shop, I’d skip this property and find somewhere else that is more established with better traffic.
But, if you bought this property like my friend did and contemplating whether you should run an Airbnb or rent it out with a standard 1-year tenancy, here’s what I think:
The difference in profit for running an Airbnb vs. standard tenancy is negligible. I think renting it out with a 1-year lease makes more sense.
But before I do that, I’d try renting an Airbnb for a min of 2 months to validate my idea. Who knows? Maybe you’ll end up making more money than projected.
Wrapping it All Up
Nobody has a crystal ball to predict a business’s future. You’ll never know until you try it.
That is why it is essential to back up your business decision with research and data.
So far, you know how to:
- How to identify your competitors
- How to gear yourself up to standard and beyond
- How to set your price right
- Comparing Airbnb income to a normal tenancy
- Making the decision
Please comment and share this article to whoever you think is contemplating to run an Airbnb for their property 🙂
Here are some other articles that are related:
What to expect when you’re running an Airbnb business.
Step-by-step Accounting for Airbnb Business
How I Started an Airbnb Business from Scratch