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Management Essay: Fermi Problem

Essay Instructions:

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Essay Sample Content Preview:

University
Fermi Problem
Student’s Name
Date
Professor’s Name
Program of Study
Fermi Problem
Airbnb occupancy rate is one of the critical determining factors for a successful rental property business. Therefore, real estate owners must understand the occupancy rate formula to operate their businesses without setbacks. According to Volgger, Pforr, Stawinoga, Taplin, and Mathews (2018, p.16), the Airbnb occupancy rate is the overall percentage of days that guests occupy on an annual basis. All investors wish to have their real estate business occupied throughout the year to avoid any loss of income. Therefore, the Airbnb occupancy rate formula is critical in calculating the number of days that real estate property should be occupied every year. In the case study, a client wants to utilize company acquisition to diversify his portfolio.
The client owns thirty residential properties across the neighborhoods of Bundoora, Kingsbury, and West Heidelberg, which are located adjacent to the La Trobe University and campus of Bundoora. In the case study, the properties have several units comprising of two bedrooms, four-bedroom townhouses, and other houses that serve the market in providing student accommodation. Therefore, revenue projection is likely to extend for a year and determine if or not the residential properties should be under Airbnb (Volgger et al. 2018, p. 318). Just as aforementioned, customers can have a chance of booking for oversight lodging through the use of Airbnb marketplace. One of the unique aspects of real estate investment is that it exceeds the performance of the stock in significant ways since they are less volatile.
Market Research
According to a marketplace report, the average price of accommodation in Melbourne is $855438. The inner-east city attracts a higher price at an average of $1,340,000. Notably, the average rent is $525 weekly, with the rent of the two-bedroom houses being $628 every week. Independent youths and maturing established independence are the main factors that influence the lifestyle of the suburb. Melbourne is located near universities, and most of the occupants enjoy the convenience of city life for either work or lectures. Over the years, the pricing of houses has increased tremendously. For the case study, the proximity of the town to universities and a clear view of the city is likely to increase the overall demand for the accommodation. Considerably, the independent youths seek for accommodation for five days in every week. For that reason, the properties’ efficiency will be as follows:
5/7 * 100 = 71.43%
For that reason, the efficiency of the agent with the responsibility of managing the property is 90%.
One of the ways of ensuring that Airbnb operates smoothly and to cover for products and service costs is to formulate fee charges during booking. As such, individual home host imposes a shared host fee and guest. Although the hosting fee is 3%, it can increase for Airbnb based on the strict cancellation policy. On the flip side, the total charges for guest service is less than 14.2% from the available subtotal booking, which entails cleaning charges and guest fees while excluding Airbnb fees and excluding taxes if applicable. However, the charges might vary based on the displays. Airbnb can collect VAT, thus increasing the value of service fees. The structure of the charges is in a way that the hospitality sector and other related businesses influence the fees that guests incur. Total fees range from 14%-20% in the categories of the businesses in the hospitality industry and hotels. As such, the manager can make relevant decisions on whether or not to have host only fee or shared guest.
A 20% service fee is charged on the hosts and calculated based on experience price. As such, it can be calculated from the host payout. However, hosts in nonprofit partnerships can have a waiver on their fees. Since VAT is charged on above host service and guest fees, service fees can have charged as applicable. Sheppard and Udell (2016, p. 43) argue that the earnings from Airbnb will attract 30-40% for taxation. However, the amount might vary according to total income received and income tax deductions from other sources of income. Therefore, the rent of the room can result in taxation perks and create income taxation. A tenant can claim expenses and depreciation considering the percentage rent charges of the house that is just about to be rent out (Shaw 2018, p. 27). Airbnb will have numerous advantages such as, internet costs, cost of equipment, interest on the mortgage, water charges, and furnishings. Airbnb hosts can hav...
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