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Exploring the Profit Potential of Airbnb in Popular Vacation Destinations

AirBnB, and the vacation home rental business in general, have obviously become stable money makers for the home owners. But in places like Florida, and other high demand vacation areas around the United States, this business model is doing more than providing a stable income, it has become a Cash Cow in terms of profit.

Cash Cows are brands, products, or businesses that are able to control a significant share of the market they are in and have consistently high Return On Investments (ROI). In other words, Cash Cows create substantial income!

Another benefit of a Cash Cow (i.e. AirBnB business model) is that it generally requires little continuing investment to generate the returns. Yes, there is always going to be an initial investment, but once that is done, the Cash Cow does well because it tends to have a significant share of its market ongoing and production of the product is constant.

Just plug it in and let it kick out the cash!

AirBnB Profit Potential Example

Profit Potential In An AirBnB on Boca Grande Island

In 2021, my family moved from Denver, CO to Englewood, FL, a small beach town on the Gulf Coast. This is where we were introduced to Boca Grande Island located right off the coast of Englewood. We found it to be one of the most beautiful places we have ever seen and fell in love with it immediately. Cool thing was...we lived three miles from this paradise!

As my wife and I started hanging out on Boca more and more often, I started to meet people that needed my accounting services where I could help them grow their businesses into more profitable entities.

Two of my Boca Grande clients have properties on the island. That is when I started to understand the profit potential of the AirBnB market in a tropical destination and wow, is it impressive.

One of the big reasons that these Boca properties are creating such cash flow is, not only their beauty, but in 2023, Boca Grande Island was rated the number one small beach town vacation destination in the United States. This, in turn, is driving up the profits for those owning AirBnBs on the island.

How profitable can vacation rental housing be? Below is a summarized cash flow of what a property scenario looks like on Boca Grande that I created for one of my clients. Prepare yourself as the profit growth is outstanding!

In this scenario, the client has two properties on the island. "101" is a home that is already built and resides directly on the beach which has two sections of the property that are rentable.

The other property is a three story building that has a one bedroom, two-two bedrooms, and a bottom floor that will be rented by a business to operate out of it.

There are two segments of cash flow with this example, one being the passive rent income plus the sale of the properties after a seven year period.

Let's first talk about the investment.

To build the building, the estimated cost is $4.4M. To purchase the remaining note on 101, it will require $3.5M of investment. The final part of the investment dollars is the overhaul of the second piece of 101, which is $5M. All in all, total investment is $12.9M. The extra dollars that you see in Yr 1 below are general and administrative costs for the year.

With that investment of cash, the client now has two investment properties on the top rated small beach town in the country!

This is where the revenue starts to become intensely crazy.

Notice in Yr 2 to Yr 6, the AirBnB properties are creating passive rental income of nearly $1M per year. But there are costs to consider also.

Per AirBnB, normal profit margins are between 30-35%. But with the Boca Grande Island model, profit margins would exceed 50%. The reason being is that because of this particular location, rents can be much higher than an average AirBnB on a beach in a less popular vacation haven.

To carry this scenario out, at Yr 7, the client could potentially sell both properties for huge profits. Not only did they capitalize on $6M of rent income, but there is also going to be a pay day on the sale of the properties.

In the luxury home market, appreciation of homes' market values tend to be up at 10% on a year over year basis (normal housing market floats around 5%).

With a return like that, the market value of both properties skyrockets to $52.3M (from $29.5M just seven years prior).

In summary, with a $13.2M investment, the cash back in at the end of seven years is $43.5M which is comprised of the $52.3M in sale proceeds minus paying off the financing vehicles, the client stands to make a $27.2M profit from Yr 1 to Yr 7 ($43.5M minus $16.3M).

That is an incredible $3.9M profit per year or a Return On Investment of 206% ((profit margin $27.2 divided by the initial investment $13.2) times 100).

AirBnB Profit Example

You may be asking how a person can create this type of income in an economy where interest rates are high like they are. Yes, that is true, but those interest rates are affecting the average household. For those that can afford these type of rates, they are not borrowing money to do so, they have the cash which has no interest rate on it.

Luckily, my family still owns a home in Englewood as we just moved back to Colorado after our son was medically discharged from the military. The home is located in Rotonda West which is about 3 miles from Boca! Just with a five bedroom home, average rental rates can top $8K per month in the busy season.

So even on a smaller scale, the profit margin potential is over 200%!

All of this said to say...if you are looking for an area to create passive income, and market value increases, I suggest that you look into this business model.

In the scenario that I have illustrated above, my client had no initial investment other than $100K which shows you how, even if you don't have the capital, there are ways to create a win/win situation for yourself and a partner (bank, investor, etc.).

The profit potential for an AirBnB in a popular vacation destination is one that, if you have the entrepreneurial mindset, and the ability to invest, could create generational income and wealth for decades to come.

Blue Collar CFO


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