Types of Debt Financing

Types of Debt Financing

Types of Debt Financing

There are different types of debt financing for businesses. Financing for small businesses can become a challenging process as many startups lack cash flow, credit history, or don’t have assets. Luckily there are lenders out there that can help startups bridge the gap to meet customer purchase orders or pay their employees. In this blog, we will discuss the different types of debt financing.

Cash Flow-Based Loans

Cash Flow Based Loans allow businesses to receive financing based on the historical cash flow and the projected future cash flow analysis. So, companies use generated cash flow to pay their loan. Cash flow-based loans are best suited for companies with positive margins that generate high month-over-month sales but do not have assets to use as collateral. For example, this type of loan is suitable for service companies.

  • One of the cash-flow-based financings is Merchant Cash Advances. This loan is mainly used by businesses that could not qualify for other business loans. The payback is bounded to the revenues, which secure the company when it suffers from low incomes. However, the disadvantage of this loan is that sometimes APR for this loan can reach even 100%, which makes it one of the most expensive loan types.
  • SBA is another type of loan for small businesses that may meet specific qualifications like solid financials and good credit history. Certain SBA loans are best suited for companies that have been doing business for a few years. SBA loan amounts can reach up to $5 million and usually have an APR from 7% to 25%.

Pro tip: Read about Business Valuation – Startup Tandem

Asset-based lending

Asset-based lending is a prevalent way of receiving financing for startups at an early stage. An early-stage startup cannot provide sufficient cash flow or assets to approve the loan. In this case, the company can use land, building, equipment, accounts receivable, customer purchase orders, inventory, or other assets for financing.

The main difference between asset-based and cash-flow-based loans is that the risk for the lender is high due to the little liquidity of the assets. The loan is riskier than others; therefore, the amount to be received will be less than what the assets are worth. The interest rate will still depend on the asset used and the asset’s generating cash flow. Also, other variables, such as credit history and business operation period, affect the interest rate. The most common asset-based borrowers are early-stage startups to more mature small businesses with physical assets to use as collateral with poor cash flow.

  • One of the options for this form of loan is Equipment financing. Business owners receive enough money to purchase the equipment and pay the loan at a 4% to 40% interest rate. It typically does not require a high credit score.
  • Another popular asset-based loan type is Invoice Financing. Businesses use it to cover payroll, rent, and other operating expenses. For the lender, the unpaid invoices act as collateral for the advance. It can cover up to 100% of the invoice value charging around a 3% processing fee. 
  • Some lenders will be able to finance against a percentage of customer purchase orders and a percentage of open accounts receivable. The formula to calculate this availability will be influenced by many factors: how fast the accounts receivable is collected and the number of open POs.

Pro Tip: Read about Choosing The Right Investment During High Inflation | Startup Tandem

Types of loans that are offered to small businesses.

Different types of startup loans vary by industry, loan purpose, and loan structure. Let’s explore some of the financing options that are the most suitable for startups and that we have worked with before:

  • PayPal Working Capital is a loan with a flexible payment system bound to sales settled with PayPal. It is a good finance option for e-commerce businesses.
    • PayPal Working Capital charges one affordable fixed fee and the payout is deducted as a percentage of PayPal sales. For example, the business can select the payment of 30% from the sales. This is a form of finance against your cash flow or revenue stream mentioned above. 
  • Shopify Capital is another financing offered for e-commerce companies. It works similarly to PayPal financing. The remittance rate is charged daily as a percentage of the daily sales until the loan amount is remitted. Total owed amounts consist of two numbers: fixed borrowing cost (the fee) and the loan amount. The loan term has 60 days.
  • Flexport capital allows access to cash to cover supply chain or inventory purchase costs. This loan has extended payment terms for up to 120 days and can advance up to 80% of commercial invoices. 100% of the loan can be used to pay for customs duties. Flexport Capital pays suppliers directly with no additional fees to the borrower.
  • Clearco offers to fund marketing and inventory spending for e-commerce businesses. Loans varies from $10,000 up to $20 million. Clearco offers revenue-based financing, and the payments are made when the business generates sales.   
  • Circle-up is a lending option that provides flexible capital for CPG businesses. Companies can use them to purchase inventory or increase marketing dollars. Circle Up offers both cash-flow-based loans and asset-based loans. They use open customer purchase orders and/or accounts receivable to determine the availability of funding. This type of loan is an asset based as mentioned above. 

Pro Tip: Read about Will My Business Survive The Current Economy? (startuptandem.com)

How to pick the right loan for your business?

The main criteria while choosing the loans typically are:

  • The purpose of borrowing money.
  • Qualifications for the loan.
  • Financing form.
  • Payment terms.
  • Annual Percentage Rate (APR).

APR gives the actual costs associated with the loan, which considers fees and payments. There are many loan payment calculators that businesses can use to estimate loan APR, but the general calculating formula for APR is:

APR = ((Fees+Interest/ Principal/ N) x 365 ) x 100

Where interest is the total interest paid over the loan life, the principal is the loan amount, and N is the number of days in the loan term.

Pro tip:  Visit Loans (sba.gov)

How can Startup Tandem CFO help?

Startup Tandem CFO helps startup owners understand their working capital needs and creates an analysis of possible solutions to choose the best suitable option. We will look at your current cash burn, develop a plan to help you meet your customer demands, scale the business or even pay your employees.  We have worked with many debt lenders that can help you obtain the cash needed for your business plans. contact us to know more!

 

 

Business Valuation

Business Valuation

What Is Business Valuation?

Business valuation is essential when a company wants to sell a portion or all of the business, merge with another company, or acquire another. It is a process of determining all aspects of the business, from its current worth to projected growth, revenue, debt, and other crucial areas, by applying objective measures. Usually, an investor or a potential buyer evaluates the company’s value by looking at its business valuation outcome.

Why is it important?

A proper valuation is crucial to ensure the company is headed in the right direction and mitigate the risk of underselling a business. It gives a detailed overview of the business’s health and sustainability in the long run. Choosing the suitable valuation method is vital as each entity has a unique business model, which will help precisely interpret the business value.

The valuation methods

A valuation usually includes the company’s capital structure, a thorough analysis of the management, future earnings prospects, and the current value of its assets. The method used in valuation could vary among analysts, evaluators, industries, and even the size of a company. The primary or common approach is reviewing the financial statements, using discounted cash flow method, or making a similar business comparison. Below are six standard forms of business valuation which widely used across industries:

  1. Market Capitalization: This method is the most straightforward and fastest. It is derived by multiplying the company’s per-share price by the outstanding number of shares. The result will show the current market cap size of the company. Most of the time, this number is compared with previous years to analyze how much the company has grown in its value, and it might give a rough projection of future growth potential.
  2. Times Revenue: Under times revenue, a series of revenue generated over a certain period is applied to the associated industry multiplier, which will also depend on the current economic situation. The industry multiplier plays a significant role in determining the value of the business within the same industry.
  3. Earnings Multiplier: This method will create better value for a company than the time’s revenue model. It is because the profits earned by the company are more reliable as it is based on the financial success of the company. A company that decides to acquire another entity usually prefers to use this method because it closely reflects the financial soundness of the business.
  4. Discounted Cash Flows: DCF use projected cash flows in the future, which are adjusted to calculate the company’s present value. The current inflation rate is an important factor when using this valuation option. Usually, a company presently low on cash flows but expecting more business activities in the future might benefit from this method.
  5. Book Value This is one of the quickest techniques to evaluate a company. It is done by simply subtracting the total liabilities from the total assets. These numbers can be found on the balance sheet of a company.
  6. Liquidation Value This means how much a company is worth if it liquidates its business and pays off its current liabilities. Getting a positive net asset value is favorable, especially if the company wishes to sell the business in its entirety.

Pro tip: Read about What is an IPO? – Startup Tandem

How could a startup company benefit from having one in place? And what is the best valuation method?

A startup entity is almost always low in cash flows and probably has little to no revenue during the initial stage of the business. So, if a startup wishes to sell its business or participate in M&A, it has to show a reasonable business valuation to attract investors and partnerships. Out of the six methods above, I think the best way to evaluate the company is by using DCF. As mentioned before, this model creates fictitious future cash flow values based on the business projection, which is done using the basis of current plans and patterns of operations. A comparison with a similar company will give a better picture of the company’s growth and sustainability in the future. Analyzing the expected future cash flows will provide a clearer picture of the company’s present value.
Having a valuation in place will also help the business owner navigate the business better while considering the factors leading to its value

How can a startup increase its valuation?

When a valuation is created by using any of the methods best suited to the nature of the business, it is more likely to effectively address the areas of a financial statement that need to boost. Identifying these elements will hugely impact the business processes and enable the company to run efficiently for better valuation in the future. Some of the common ways a company could increase its value are as follows:

  1. To have a thorough and defensive growth plan: A business especially in the early stage will benefit from creating a vigorous and defensive growth plan for the next couple of years or more. This can be done by stating monthly projected growth, supported with facts and figures. Usually, this information will pique investors’ interest and help the business move in the desired direction.
  2. Build a robust management team: For the sustainability of a company. A new entity must form a strong management team who can drive the company’s profitability and activities while holding on to the principal foundations of the company. This will add value and create a positive perception of the outlook of the overall management
  3. Lead sources and revenue diversification A company should diversify its revenue and business lead sources to stay competitive and create barriers for competitors to take over the market. It usually can be done by having multiple market segments targeted, and business lead resources rather than heavily relying on a single avenue. Product and service diversification could open doors to a broader network of trade.
  4. Create patents on intellectual properties This is common for a company with unique and distinctive products or services. Patenting the brand, image, or technology will reward the company in the long run and automatically increase its valuation. Investing in the upkeep and advancement of these intellectual properties will benefit the company and enable it to grow with the market progression. For example, Apple’s technology is unique and stands distinctive amongst its competitors, thus making them strong and nearly impossible to copy due to its patented properties.

Pro Tip: Read more about choosing the best exit strategy for your business – Startup Tandem

In Conclusion

To better understand the value of a business, choosing a suitable valuation model is essential. A company can have one in place to reference and compare with previous performance. The underlying information should be precise and thorough to achieve the best result, especially from the financial statement. Potential investors will first want to know the company’s worth and projected growth before deciding on investing or acquiring it. Besides that, it also helps when filing business taxes, as the IRS requires a company to show its current fair-to-market value.

How can Startup Tandem Advisory help?

Here at Startup Tandem Advisory, we will be able to assist you in advising and choosing the right way to perform a valuation. Firstly, we will study the industry and create appropriate benchmarks to compare a company with its competitors. Our advisory process includes research, analysis, and recommendations for what needs to be done and how. Secondly, we will be able to identify the areas to improve the financial statement and gather enough information to execute a business valuation accordingly. If needed, we will provide ongoing advisory services on growing and sustaining the current business operation to create higher sustainability, especially during market uncertainty like we are experiencing now. Visit www.startuptandem.com for more information, and we will be happy to support you. 

Reference(s)

  1. https://www.investopedia.com/terms/b/business-valuation.asp
  2. https://www.classvipartners.com/blog-article/7-things-you-can-do-to-increase-your-companys-value/
How does the fall of mortgage lenders affect customers?

How does the fall of mortgage lenders affect customers?

Mortgage Lenders are Going Out of Business! How Does This Affect the Real Estate Industry?

This year we have seen rising interest rates and possibly another hike by the end of the year. The inflation rate has also been increasing rapidly, which leads the Fed to increase the interest rate to curb the rising inflation. As of August 2022, the 30 years US mortgage rate is above 6%, and the inflation rate as of June 2022 is 9.1%. This spike poorly affects the consumer’s spending power. Many businesses folded and directly increased the unemployment rates.

Why are mortgage lenders going out of business?

Recently there was news on some lenders who filed for bankruptcy and made margin calls. Most of these lenders are non-banks. They are independent lenders who offer risky loans, which a bank will frequently decline. The mortgage they provide is not government-backed, thus making it impossible for them to stay afloat in the current economic condition. 

Due to high-interest rates, many lenders failed to gather new loans, thus making it nearly impossible to acquire new investors. Usually, lenders will constantly collect new loans and bundle them with bonds to make them attractive to investors, so when there are no new loan activities, lenders are forced to obtain a line of credit to pay the interest due to existing investors. Lenders who actively collaborate with government-backed agencies like Fannie Mae and Freddie Mac are less likely to suffer. Usually, the lenders who work with these agencies offer less risky home mortgages. Major banks are also seeing some shrinkage in the mortgage business, leading to many layoffs to cut down expenses.

According to Bloomberg News, Wells Fargo is reducing their home loan business, and this trend will also be seen in other major banks. Unlike banks, independent lenders don’t have emergency funds to sustain their business. They usually rely on short-term credit lines, which depend on mortgage prices. So, when they are stuck with bad assets, they are forced to make the margin call and potentially fold their business. 

When a lender goes bankrupt, as a part of the bankruptcy proceedings, existing customers will continue to make mortgage payments to a new lender to which the business has been sold. The terms and interest rates might vary according to the new entity’s mortgage program. 

Pro tip: Read about Cashing in on crisis and utilizing space – Startup Tandem

How does this affect customers who are seeking a mortgage loan?

Individuals seeking a mortgage loan now face many issues in securing the desired loan amount at an affordable price. Due to decreasing lenders in the market, options are very limited, thus making it a seller’s market. It simply means that customers are left with choices that might not be favorable. A little under three years ago, a 30-year mortgage loan rate was below 3%, which doubled in the current years. 

Someone who could afford a $500k worth of loan three years prior could only be qualified for $250k or less now with the same level of income. The real estate market has been negatively affected and it has been a seller’s market due to low inventories. Property prices have skyrocketed in the last few years. A single-family home which used to be in the lower 300k price has now increased to the high of 500k, thus making it impossible for most home buyers to own a house. Even building a house is not an option as the prices of the materials have soared from lumber to concrete and everything else which is needed to construct a house.

Many small-time home builders or contractors are losing their business or finding it hard to make it thru the current condition, so there is also a decrease in the manpower available in the home construction field. Many potential home buyers are left with the choice of waiting until everything simmers down shortly, possibly extending or opting for rental homes.

Based on my experience, selling and owning a home in the current inflated economy has been lengthy. Finding an affordable rental has been like a race whereby you must act fast before it goes off the market in a matter of minutes. Many experts are projecting a slow recovery in the real estate market and expect it to stabilize by the end of 2023.

Pro tip:  Read about Real Estate Outlook 2022 – Startup Tandem

What can potential home buyers do now?

The right decision is to wait till the market stabilizes. The next option will be considered an affordable way to construct a home, like a barn dominium home. Building these types of dwellings costs way less than a stick build home. As we can see in the market, many are taking advantage of the soaring property prices and liquidating their homes for a higher value. They then purchase a motor home, move into a rental property, and sit on the excess equity until it is right to buy the desired house. Whoever has purchased a home with high-interest rates or planning to do might look into refinancing the mortgage when the rates go down to lock in a lower monthly payment with possible equity on the property.

Pro tip: Read about https://www.startuptandem.com/tax-benefits-of-real-estate/

Conclusion

To wrap it up, businesses and people at large are affected by the rising interest rates and inflation. It is a chain reaction where no one is spared from the impact. Small-time lenders are going out of business, and people are losing their affordability to own a home. This scenario is negatively affecting the real estate industry. It is a waiting game for the market to slow down and anticipate the Fed to reduce the interest rate, which is forecasted to begin sometime next year. The economy has been affected by several events, starting with the pandemic and geo-political issues, which have snowballed in the current years. It has been proven in the past years that the market will anticipate positive changes right after the mid-term election, as some of the uncertainties will be addressed. Being well-informed about current events is essential to weigh all the possible decisions for a better outcome.

How can Startup Tandem help you?

We here at Startup Tandem will be able to provide you with informative advice and recommendations based on your personal and business goals. We have a Finra-licensed professional who could provide consultations on the capital markets and other financial areas of a business that needs expansion, growth, or merely structuring the investment plan to achieve the desired business goals. Please visit Finance and Business Advisory | Startup Tandem.  

Reference(s) 

  1. https://www.bloomberg.com/news/articles/2022-08-19/mortgage-lenders-are-starting-to-go-broke-as-loan-volumes-plunge
  2. https://tradingeconomics.com/united-states/inflation-cpi
Choose the best exit strategy for your business

Choose the best exit strategy for your business

How to choose the best exit strategy for your business?

Every entrepreneur has one target in mind when starting their business, to grow and to be profitable in the long run. Many entrepreneurs start a business to multiply its and other stakeholders’ investment. It has been more common lately to see a company go thru an IPO or acquisition as an exit strategy. This blog will discuss how to choose the best exit strategy for your business.

As discussed in our blog, starting a successful business in an inflated economy, you have the opportunity to create innovative products or services to solve a problem that arises during hardship times. As an entrepreneur, you have the power to influence and change the current ecosystem by building a great startup. So why think about an exit?

How to choose the best exit strategy

Reasons why an exit strategy is needed

Many factors can contribute to an exit:

  • The business has been running at a loss for a while now
  • Legal reasons such as massive lawsuits
  • The demise of the owner (usually sole proprietorship)
  • Merger & Acquisition looks appealing
  • IPO to multiply investors’ money

What makes an exit a bad strategy?

A lousy exit usually involves poor strategy adaption. When a business owner decides to halt the business, choosing the right exit strategy is vital. Poor strategy management may cause financial losses and even steer the business brand away from its values. Business owners can choose the suitable method based on the business needs; every element of the strategy implementation is essential for a smooth exit process and optimizing business outcomes.

Most common exit strategies

There are a few exit strategies that we will discuss here. The most common ones are:

  1. Transferring the business to another family member or a neutral person
  2. Merger and Acquisition
  3. Business liquidation
  4. Bankruptcy filing
  5. Selling the company to a partner or an interested investor
  6. IPO (Initial Public Offering)

Exit Strategy 1: Transfer the business to a family member

Why choose this exit strategy?

As a business owner if you decide to retire, one of the most common ways to exit the business is by transferring to a family member. Business owners like this exit strategy as they are able to keep the business with family and pass it on from generation to generations to come.

Factors to consider when exiting this way.

It is prevalent to inherit a business from a family member. Usually, this type of business is more mature and established in the economy. The transferee should evaluate some factors before beginning the transfer. First of all, the soundness of the acquiring party. It is crucial to ensure the new owner has the mental and financial ability to take over the business and sustain its values and profitability. It can often become a challenge for both parties to have the same business practices mindset. Both parties should try to reach a common ground where the transfer can be done smoothly while ensuring the legal aspect of the transfer has been taken care of.

Exit strategy 2: Mergers & Acquisitions (M&A)

Why choose this exit strategy?

This M&A strategy is most common among startups and business owners. It can be a preferred strategy as the owner can set their terms, continue to hold control, and influence the price of the acquisition. 

Factors to consider when exiting this way.

There are two outcomes from this type of transaction: either businesses merge and maintain equal interest and holdings, or the acquiring party becomes the major stakeholder of the merged entities. When the latter happens, the appointed CEO will be from the acquiring side, and significant changes can be made to the structure and processes of the other company. This strategy requires internal and external expertise to complete each transaction area and weigh the outcome of such activity. Some of the crucial part that will decide whether to continue with the strategy is the projected profitability, the size of the debt, and any ongoing legal issues that might fail the purpose of the M&A transaction. More on this topic soon!

Exit strategy 3: Business Liquidation

Why choose this exit strategy?

Business owners are ready to liquidate their business and move to the next venture. This may sound very appealing to a business owner if the passion for the business is lost. If the entrepreneur does not have any family members or partners to sell the business to, then liquidating the business is the preferred stategy to exit.

Factors to consider with this exit strategy.

It may sound simple and easy, but it is critical to inspect and ensure you create a proper checklist for each business area. Liquidating a business translates to permanently shutting down the business, so it is essential to ensure the business values and brands stay positive in the market and that such a decision will be profitable. Business owners often seek external services to help analyze and compile the necessary data to adapt the exit strategy successfully.

Exit Strategy 4: Bankruptcy Filing

Why choose this exit strategy?

Almost all business owner tries to avoid this type of exit. Filing for bankruptcy often relates to the inability to sustain the business profitably while the level of unpaid debt is snowballing. To avoid being sued or the possibility of losing not only business but personal assets, many owners’ resorts to this avenue. It takes a thorough process to qualify for the filing.

Factors to consider with this exit strategy.

Business owners should weigh the outcome and the consequences so that it will appear beneficial for choosing this exit strategy. We recommend seeking professional services to advise and assist in consolidating the business for filing purposes. 

Exit Strategy 5: Selling the business to a partner or investor.

Why choose this exit strategy?

The exit strategy above is pervasive, especially among startups and small businesses. For example, many small entrepreneurs create business pages on social media such as Facebook to market their products and services. In time, the pages might have gathered a large number of followers, which might pique others’ interest in buying over the page with the acquired followers. It is easy for an interested investor to market their business with an established page with more significant followers by just changing the page’s name and other details while maintaining visitors’ traffic. 

Factors to consider with this exit strategy.

Suppose business owners wish to sell their business, especially the ones with established brands. In that case, they should carefully review the circumstances and potential loss of future profit by analyzing the company’s value at the time of the sale.

Sometimes, it will include a royalty income in the sale agreement. There are many angles to be looked into before effecting any deal to achieve the best outcome. 

Exit Strategy 6: Initial Public Offering (IPO)

Why choose this exit strategy?

An Initial Public Offering (IPO) is also a desirable exit strategy for entrepreneurs and investors. This exit strategy can substantially multiply the investment of private investors and business owners, making it very desirable.

Factors to consider with this exit strategy

Many factors can affect an IPO, such as market conditions can influence how profitable this exit strategy can be. Other reasons companies go for IPO include brand strength, liquidity, company success, and improved market valuation. We will write more on this strategy next week.

How can Startup Tandem help you?

As a business owner, you should partner up with a team that can help you choose the best exit strategy for your business and support you in the process that comes with it. All of these exit strategies need finance advisory and legal support.

The advisory team at Startup Tandem is available to help you prepare your company to achieve the desired exit. Startup Tandem advisory can help you value your company by using the discounted cash flow or LBO model and provide advice on any transaction to achieve the best exit possible for you and your investors.

Startup Tandem has developed a network of businesses and individuals that come together to help startups and small businesses. Reach out if you need referrals or if you need to discuss any of these exit strategies more in depth.

Tax Benefits of Real Estate

Tax Benefits of Real Estate

Owning real estate is far more than just having a property that spits out monthly profits, it is rather the tax advantages to owning property that make it unique to almost any other investment option out there. 

Owning real estate is far more than just having a property that spits out monthly profits, it is rather the tax advantages to owning property that make it unique to almost any other investment option out there. 

The way cash can be generated through property should not solely focus on the monthly rental income, because profit can be calculated in so many other ways. An investor can make money each month through rent, but on paper be operating at a loss – canceling out any tax obligation of owning said property.

Mortgage Interest Write Off

One of the more favored tax benefits from real estate investors. Imagine having a $500,000 mortgage and a property and you pay 4% interest per year, which amounts to paying $20,000 in annual interest. 

You can take that interest and write it against either your own taxable income on a primary residence or against any rental income you receive. If you apply this to a principal residence capped at the first $750,00 of a mortgage or if you have a rental property it makes no difference if you have a $200,000 mortgage or $5,000,000 mortgage – because that’s an expense against your rental income.

How to Save

By using the $500,000 example, let’s say you are grossing $50,000 per year in rent. Then subtract $20,000 interest paid and the revised gross amount on that property would now be $30,000 per year.

This effectively lowers the mortgage interest amount that you would usually be taxed at.

So let’s say on a primary residence you’re paying $20,000 per year in mortgage interest and you’re in a 25% tax bracket. That means you can deduct that $20k off of your income and essentially save around $5,000 in taxes if you’re in a 25% tax bracket.

This means effectively what you’re paying instead of 4% is around 3% per year because it’s classed as a write-off. This is a huge advantage of owning real estate and then leveraging your money on top.

Smart Investing

Leveraging your money in real estate is one of the unique reasons why real estate is such a solid investment long term. This way of leveraging is much different to margin and stock trading with high risks and exposure. It almost always makes sense to leverage money in real estate if you can get a long-term loan at a low-interest rate.

Start planning a better future by saving on taxes and building a real estate portfolio.

Please reach out to us at Startup Tandem with any questions you may have. We look forward to hearing from you.

Cashing in on crisis and utilizing space

Cashing in on crisis and utilizing space

Cashing In On Crisis And Utilizing Space

Whether it be commercial, residential or industrial, there’s always money to be made in real estate investing.

If we take a snapshot look at Seattle, the average house price in the year 2000 was $176,300. Millennium speculators will now be sitting pretty on any investment worth more than 5 times that much, with the average price setting back prospective buyers $915,340 – or a cool million when considering agent fees, taxes, Uhauls etcetera.

Getting A Solid ROI On An Investment

So how does a Seattleite seek a solid ROI on a million bucks? Attracting travelers to rent out your property is a sure-fire way of generating a passive income and there is no more popular platform than vacation rental giant, Airbnb. The site provides a simple, clean and concise way of linking your property with anyone globally and at a time and date of your choosing. 

real estate outlook 2022

Airbnb Listings Have Been Super Profitable In Recent Years

Last year, Airbnb listings generated a massive $48.9 billion in gross revenue for the company and its hosts, an increase of 76.6% from 2020 when gross revenue sat at 27.7% billion. During the global pandemic coupled with travel restrictions, consumer needs changed, catapulting the company to dizzying new heights.

With travel costs now further increasing due to inflation and rising fuel costs, many Americans are opting for cheaper staycation trips and if you are lucky enough to live in a location with beautiful surroundings such as Seattle, you can expect to make a pretty penny in peak seasons and weekends. Renters can also enjoy the flexibility of being a host or renting out the full property. So if you are a single homeowner, clear out the clutter in that spare bed and create a cozy space for weary travelers to rest. There is no obligation to feed your guests, but the smell of freshly baked cookies wafting through your home will be sure to add an extra point to your feedback score.

PRO TIP: Read this blog post on the Startup Tandem blog about finding an accountant in Santa Monica CA! It will help you decide on whether or not your startup needs a bookkeeper!

What Are You Waiting For?

So what are you waiting for? Get your design hat on and make profitable use of spare space and start your side gig today, all from home.

With interest rates being so volatile, it will be interesting to see what happens in the real estate market for the second half of 2022.

Business tip: On a rental using Airbnb, short term rentals can give you two or three times that amount your monthly mortgage is. Variable factors that can affect are depending on the location and the season. As a tax benefit, if you rent your home for 14 days out of the month you don’t have to pay state or federal taxes.

PRO TIP: Contact Startup Tandem if you want help with anything financial! We offer a range of service packages and can help with everything from bookkeeping to Fractional CFOs.