How to setup a rental business ROI calculation

So, you are looking to create an estimate of your future income with holiday rental properties and stumbled across our ROI calculator.

In this article you will read a step by step guide on how to set up the ROI calculator and get an overview on how to read the data that you will get out of it.

⚠️ Our calculator is a tool that can help you get an idea of how much income you could get in the future but it does not in any way represent a guarantee! Kitn Estates have no responsibility over how you use this tool and the decisions that you will eventually take.

How the calculator works

Our holiday rental ROI calculator works in two phases:

1, Add the inputs. You will have to fill in the blanks starting by the first one (investment amount)and progressively complete all of them.

In some fields like "investment amount" and "nightly rate" for example, you will input numbers. In others you are required to use the sliders in order to set the values of the inputs (example: investment duration).

You have full control on all of the inputs at all times and you can always go back and change the parameters if you like so. The results will update automatically as soon as the input data of the ROI calculator has changed.

2, Read the outputs. After you done with inputs you will be able to read the outputs such as:

• Total rental income
• Monthly rental income
• Property valuation after a set amount of time
• Net property valuation (calculated by adding taxes)
• Performance score
• Investment summary and final ROI

1. Investment amount and time horizon

Fill the first field with the price of the property you are now considering or your available investment funds for your holiday rental business to reveal the next step.

Our market of reference is located in Bali where we help our investor to set up their holiday rental businesses.

We suggest a minimum investment of 100-150.000$ USD for this specific market, but the calculator can work for any other rental property market in the world.

For rental enterprises here in Bali, we often advise our investors a holding period of something between 5 to 10 years, depending on our investors time horizon, after which they put the rental property back into the market to be sold.

This is a very subjective choice and your strategy will be unique to you and your style.

In a real life scenario, you can hold onto your Balinese holiday rental business property until your contract for the right to use the land (leasehold) expires (typically 25 years) or you decide to sub-lease your property it to someone else.

To learn more about how to create a rental business in Bali read here.

2. Rental variables

To determine the value ($) you can derive from your Bali holiday rental business, you have to estimate how much you will be charging per night in your rental property.

The estimated nightly rate is the amount you plan to bill guests for a typical stay in your property.

The location, local attractions, design, and general look&feel of your holiday rental business all play a significant role in determining the nightly rate.

Use common sense when setting up this metric and keep it well proportionate with your investment amount and the time horizon of your investment.

ideally you want to get to your ROI as fast as possible before even considering selling your property in order to extract the maximum possible value from your rental property.

If you have no idea on how to rationally set this metric, consider learning how to do a competitive analysis on Airbnb or any similar platform to find your competitors and understand their pricing system as well as getting insights of their strengths and weaknesses.