Airbnb Rentals Airbnb Cap Rate by City 2022: What Real Estate Investors Should Expect by Nasser Mansur April 11, 2022April 12, 2022 by Nasser Mansur April 11, 2022April 12, 2022 If you’re looking to invest in a short-term rental, the Airbnb cap rate is the most important metric to pay attention to. But what is it exactly? And how do you use it in real estate investing? Table of Contents What Is a Cap Rate? Mashvisor: Find and Analyze Airbnb Markets Top 10 Cities With the Highest Airbnb Cap Rate Bottom Line If you’re new to real estate investing, you might’ve come across the term cap rate, but you’re still unsure what it means exactly. But in order to maximize your profits, you need to pay attention to the said metric. Always remember that you should only put your money in markets where the rental properties’ cap rates are high enough to justify such an investment. In this post, I will tell you everything you need to know about capitalization rate as a metric for measuring a rental property’s return on investment. Additionally, at the end of this article, I will give you a list of the top 10 cities for investing in short-term rentals in the United States based on each market’s Airbnb cap rate. What Is a Cap Rate? Cap rate, which is short for capitalization rate, is the most commonly used metric for measuring the potential success of a rental property investment. It is a metric that tells you the percentage of your property’s value that will be generated from your rental income each year. To calculate it, you will need to know the following: The property’s market value Monthly or annual rental income that the property is expected to generate All one-time and recurring expenses that will incur Using the above values, you can then calculate your net operating income by subtracting the annual expenses from the annual rental income and any other sources of profit related to the property. Afterward, you can use the formula below to calculate the property’s cap rate: Cap Rate = (Net Operating Income / Market Value) x 100% So, for example, if you’re analyzing a rental property that is valued at $500,000, and its expected annual NOI is $20,000, the calculation would be as follows: Cap Rate = (20,000 / 500,000) x 100% = 4% What it means is that the property will generate an annual profit that is equal to 4% of its price. It, in turn, means that it will take 25 years for the property to pay for itself, based on its current rental income and market value. Luckily, you can also use a cap rate calculator to make the process much easier, especially when trying to analyze several properties at once. If you’re looking for a great cap rate calculator to use, look no further than Mashvisor’s tool, as it is the most efficient, especially when it comes to Airbnb rentals. If you’re looking for a great cap rate calculator to use, look no further than Mashvisor’s tool as it is the most efficient, especially when it comes to Airbnb rentals. But what’s the difference between cap rate and cash on cash return? Cash on cash (CoC) return is another popular metric used for analyzing the returns of a rental property. However, unlike the cap rate, the cash on cash return metric relies on the amount of cash you want to invest in the property instead of its market value. It makes CoC return a useful metric to use when you want to use a mortgage to purchase the property. For example, if you want to calculate the CoC for a rental property that costs $100,000, but you want to use a mortgage to pay for 60% of its price, you would only include the $40,000 in your calculation. Calculating the CoC is similar to calculating the cap rate, except you will be using the cash value as stated above. What it tells you is the rate of return that your rental income will generate compared to the amount of cash that you’ve paid for the property. What Is an Airbnb Cap Rate? In the previous section, I talked about cap rate in general, which is used for both traditional and short-term rental properties. But what is the difference between traditional and Airbnb cap rate? Well, the answer is that they’re both calculated the same, and they involve similar steps. The difference, however, is in the results that you can expect from each metric, which are affected by all the usual differences between the two investment strategies. For example, while traditional rentals come with a lower potential for annual profit, their rental rates are more stable and their vacancy rates are generally lower. It results in a lower average cap rate but a far less volatile 5-year and 10-year forecast. On the other hand, Airbnb cap rate can change drastically based on the seasonality, and it’s much harder to predict its long-term value due to the expected volatility. Another thing to remember when calculating the real estate cap rate for an Airbnb rental is that your monthly cap rate can vary greatly from your annual cap rate. An example would be a beach house rental, which will see peak occupancy during the summer season, at which point the rental rate can also be adjusted and increased to match the new demand. The Airbnb cap rate during the said period will be drastically higher than the rest of the year. However, due to the flexibility of short-term rentals and your ability to only rent them out during peak seasons, the lower cap rate during the rest of the year may not be as valuable to you. Related: How to Evaluate an Airbnb Investment What Does Average Airbnb Cap Rate Mean? When it comes to determining what a good cap rate for Airbnb is in a specific market, most real estate investors will use Airbnb comps. Airbnb comps involves comparing a number of short-term rentals in a certain market and identify the average rental rates and median property price in order to calculate the average cap rate of that market. By using the said technique, you should be able to identify properties that are performing above or below average in terms of their rate of return on investment compared to other properties in your chosen location. Similar to when you analyze a single property, Airbnb comps are very dependent on seasonality since short-term rentals mostly attract guests who visit areas during specific seasons of the year. Airbnb comps will tell you what the average Airbnb cap rate is in a certain market, which becomes very useful when you want to compare different markets with one another or when you’re trying to diversify your portfolio. It brings us to our next point regarding what makes for a good cap rate for Airbnb in a market. What Is a Good Cap Rate for Airbnb? When it comes to determining what a good cap rate is in any specific market, the answer varies significantly depending on the market in question. There are numerous aspects that can affect a market’s average cap rate. And generally, a good cap rate would be anything above average compared to its market. It is why it is of utmost importance that you do your market research before committing to any investment decisions. For example, you might be looking at a market where the average cap rate is 3%, which seems low to you. So, you look at a different market and find a property with a cap rate of 6%. You immediately assume that it’s a good cap rate for Airbnb in that market. But upon further investigation, you might find that the average cap rate in that market is actually 6.5%, which means that the property you thought had a good cap rate was, in fact, performing below the market’s average. When it comes to investing in Airbnb USA, you don’t want to be looking at the nationwide cap rate real estate. Instead, you want to look at each rental market at the city or neighborhood levels in order to get the most accurate results. Luckily, there are tools that will help you in a lot of ways. Related: Mashvisor – The Best Airbnb Income Calculator Mashvisor: Find and Analyze Airbnb Markets Mashvisor is a real estate platform that was designed to help real estate investors who want to invest in traditional and Airbnb rental properties. The platform includes several tools to help you analyze each market and find the best-performing rental investment properties in any market in the US. With a major focus on traditional and Airbnb cap rate analytics, Mashvisor eliminates the need to manually obtain data on each property before using a spreadsheet to do comps and reach a conclusion. The Airbnb cap rate calculator that the platform offers is an easy-to-use dynamic tool that allows for a great deal of customization in order to get the most accurate calculations in real-time. If you’re looking for market reports, you can request a spreadsheet report for any market that you want to invest in nationwide. Mashvisor’s cap rate calculator serves as an easy-to-use dynamic tool that offers lots of customization to get the most accurate calculations in real-time. Top 10 Cities With the Highest Airbnb Cap Rate To showcase the power of Mashvisor’s data, I have compiled a list of the top 10 cities in the Airbnb USA market in terms of cap rate by city. In addition to having a high cap rate, the markets on this list are considered affordable and have an above-average number of listings for sale. Without further ado, here are the top 10 cities in the US for investing in Airbnb rental properties with high cap rates: 1. Seguin, TX Number of Listings for Sale: 130 Median Property Price: $388,064 Average Price per Square Foot: $207 Days on Market: 112 Number of Airbnb Listings: 96 Monthly Airbnb Rental Income: $4,585 Airbnb Cash on Cash Return: 7.71% Airbnb Cap Rate: 7.91% Airbnb Daily Rate: $263 Airbnb Occupancy Rate: 52% Walk Score: 67 2. Slidell, LA Number of Listings for Sale: 38 Median Property Price: $406,906 Average Price per Square Foot: $187 Days on Market: 61 Number of Airbnb Listings: 68 Monthly Airbnb Rental Income: $4,441 Airbnb Cash on Cash Return: 7.62% Airbnb Cap Rate: 7.81% Airbnb Daily Rate: $348 Airbnb Occupancy Rate: 54 Walk Score: 69 3. Bristol, TN Number of Listings for Sale: 51 Median Property Price: $264,959 Average Price per Square Foot: $115 Days on Market: 46 Number of Airbnb Listings: 87 Monthly Airbnb Rental Income: $2,725 Airbnb Cash on Cash Return: 7.04% Airbnb Cap Rate: 7.29% Airbnb Daily Rate: $173 Airbnb Occupancy Rate: 49% Walk Score: 78 4. Redford, MI Number of Listings for Sale: 45 Median Property Price: $171,056 Average Price per Square Foot: $139 Days on Market: 69 Number of Airbnb Listings: 56 Monthly Airbnb Rental Income: $2,163 Airbnb Cash on Cash Return: 6.76% Airbnb Cap Rate: 7.09% Airbnb Daily Rate: $155 Airbnb Occupancy Rate: 54% Walk Score: 40 5. Stillwater, OK Number of Listings for Sale: 52 Median Property Price: $285,119 Average Price per Square Foot: $160 Days on Market: 72 Number of Airbnb Listings: 88 Monthly Airbnb Rental Income: $2,639 Airbnb Cash on Cash Return: 6.54% Airbnb Cap Rate: 6.8% Airbnb Daily Rate: $177 Airbnb Occupancy Rate: 51% Walk Score: 86 6. Huntington, WV Number of Listings for Sale: 66 Median Property Price: $281,090 Average Price per Square Foot: $119 Days on Market: 96 Number of Airbnb Listings: 57 Monthly Airbnb Rental Income: $2,491 Airbnb Cash on Cash Return: 6.51% Airbnb Cap Rate: 6.8% Airbnb Daily Rate: $101 Airbnb Occupancy Rate: 60% Walk Score: 48 7. Glendale, AZ Number of Listings for Sale: 110 Median Property Price: $538,900 Average Price per Square Foot: $275 Days on Market: 14 Number of Airbnb Listings: 211 Monthly Airbnb Rental Income: $4,618 Airbnb Cash on Cash Return: 6.61% Airbnb Cap Rate: 6.74% Airbnb Daily Rate: $212 Airbnb Occupancy Rate: 76% Walk Score: 89 8. East Stroudsburg, PA Number of Listings for Sale: 43 Median Property Price: $401,493 Average Price per Square Foot: $167 Days on Market: 96 Number of Airbnb Listings: 359 Monthly Airbnb Rental Income: $4,425 Airbnb Cash on Cash Return: 6.54% Airbnb Cap Rate: 6.7% Airbnb Daily Rate: $303 Airbnb Occupancy Rate: 47% Walk Score: 78 9. Laredo, TX Number of Listings for Sale: 56 Median Property Price: $261,434 Average Price per Square Foot: $141 Days on Market: 64 Number of Airbnb Listings: 64 Monthly Airbnb Rental Income: $2,904 Airbnb Cash on Cash Return: 6.44% Airbnb Cap Rate: 6.67% Airbnb Daily Rate: $118 Airbnb Occupancy Rate: 62% Walk Score: 55 10. Klamath Falls, OR Number of Listings for Sale: 122 Median Property Price: $435,534 Average Price per Square Foot: $218 Days on Market: 136 Number of Airbnb Listings: 116 Monthly Airbnb Rental Income: $3,858 Airbnb Cash on Cash Return: 6.47% Airbnb Cap Rate: 6.64% Airbnb Daily Rate: $225 Airbnb Occupancy Rate: 52% Walk Score: 66 Find a Profitable Airbnb Investment Property Bottom Line If you want to invest in Airbnb and maximize your profit, then the Airbnb cap rate is the metric that you want to be using. The cap rate tells you how profitable your rental property is in terms of its annual rental income compared to its market value. Mashvisor’s cap rate calculator can help you easily run the math on any investment property that is listed for sale. If you want to find your next lucrative investment in a short-term rental, make sure to start using Mashvisor today to beat your competition to the best Airbnb rentals in your market of choice. Sign up for a 7-day free trial of Mashvisor followed by a 15% discount on your quarterly or annual subscription. Start Your Investment Property Search! START FREE TRIAL ArizonaCap RateInvestment Property AnalysisOregonPennsylvaniaTexas 0 FacebookTwitterGoogle +PinterestLinkedin Nasser Mansur Nasser is an experienced content writer with a degree in English Language and Literature. He loves writing about all aspects of the real estate investing business with focus on market and property analysis and the best sources which every real estate investor needs in order to succeed. Previous Post Buy House Palm Springs: Why Investors Should Consider in 2022 Next Post Top 5 Cities for Profitable Short-Term Rentals Related Posts Do These 3 Things to Increase Your Monthly Airbnb Cash Flow Airbnb Property Management: Is It a Must in Short Rental Real Estate Investing? 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