Where to Invest in Real Estate for Airbnb Rental Income

Renting out on Airbnb has emerged as the most dominant form of short term rentals in the US and worldwide in recent years. While there are many reasons why Airbnb investing has become a premier rental strategy, there’s no doubt that one thing has motivated real estate investors: high Airbnb rental income.

Airbnb rental income is typically higher than that of traditional long-term rentals. The combination of nightly rates and flexible pricing is what gives Airbnb rental income an upper hand compared to rental income from traditional rentals. However, the most significant influences on Airbnb rental income, such as location and occupancy rate, are what make certain areas more profitable than others for Airbnb investing. So, as of after the first half of 2018, which areas are the best places to buy an investment property for Airbnb rental income? According to Mashvisor’s data from its heatmap analysis and Airbnb profit calculator, the top 15 cities for Airbnb rental income are:

Top 15 Cities for Airbnb Rental Income

1. Key West, Florida – $8,026

2. Sonoma, California – $7,523

3. Mill Valley, California – $5,444

4. Kaneohe, Hawaii – $5,207

5. Cambridge, Massachusetts – $4,325

6. San Francisco, California – $3,840

7. Santa Barbara, California – $3,744

8. Menlo Park, California – $3,603

9. Charlottesville, Virginia – $3,596

10. Boston, Massachusetts – $3,417

11. San Rafael, California – $3,384

12. Mountain View, California – $3,352

13. Miami Beach, Florida – $3,271

14. Palo Alto, California – $3,253

15. Brookhaven, Georgia – $3,226

The biggest takeaway from the list is that these cities are indeed very profitable for Airbnb rentals. Each city has a monthly average Airbnb rental income of over $3,200. While these are great cities for high Airbnb rental income, they are statistically not the most profitable cities for renting out on Airbnb. Here are the 14 best cities for Airbnb return on investment, based on Mashvisor’s real estate market analysis data:

Top 14 Cities for Airbnb Return on Investment

1. Key West, Florida – 5.94%

2. Sonoma, California – 5.22%

3. Beaufort, South Carolina – 4.22%

4. Dubuque, Iowa – 4%

5. Montgomery, Alabama – 3.72%

6. College Station, Texas – 2.96%

7. Ypsilanti, Michigan – 2.9%

8. Tuscaloosa, Alabama – 2.88%

9. Gainesville, Florida – 2.79%

10. Taos, New Mexico – 2.76%

11. North Miami, Florida – 2.58%

12. Lansing, Michigan – 2.57%

13. Bryan, Texas – 2.52%

14. Blacksburg, Virginia – 2.51%

Factors Influencing Airbnb Profitability

It’s clear from Mashvisor’s data that high Airbnb rental income does not equal high Airbnb return on investment. Only 2 of the 15 cities with high Airbnb rental income were present in the list of the cities with the highest Airbnb return on investment. This does not mean, however, that investing in the best locations for Airbnb rental income will not yield high cap rate and cash on cash return. It’s still encouraged to invest in high Airbnb income locations, but real estate investors must be mindful of the factors influencing Airbnb profitability to maximize returns.

• Location

The biggest factor affecting the returns of short term rentals, and long-term rentals for that matter, is location. The location of Airbnb rentals acts as a foundation that plays a huge role in virtually every aspect of Airbnb profitability. Everything from Airbnb rental income, as seen in the earlier list, to the number of Airbnb guests available is impacted by location.

Want to learn more about how location affects return on investment for Airbnb and traditional rentals? Read this blog: “Location, Location, Location: What Makes for the Best Place to Invest in Real Estate?”!

• Occupancy Rate

As just mentioned, many factors of short term rental profitability stem from location. The second factor on this list, occupancy rate, follows this trend. A property’s occupancy rate is the amount of time a property is occupied during the year. As logic would have it, high occupancy rates lead to high Airbnb rental income, which often leads to high Airbnb return on investment. Occupancy rates of Airbnb income properties are also significantly affected by Airbnb guest reviews. Better reviews result in higher occupancies. It’s in the best interest of an Airbnb host to provide positive experiences for their guests. For more on understanding Airbnb occupancy rate and its relation to Airbnb rental income, be sure to read this blog: “What Kind of Airbnb Occupancy Rate Can You Expect?”!

• Property Management

Property management is the most active part of earning high returns. Even with high rental income, poor investment property management will not generate much cap rate and cash on cash return for a real estate investor. Property management is a must for any rental strategy, but it is particularly vital for Airbnb rentals. Short term rentals have higher tenant turnover than long-term rentals, and thus need to be ready for leasing faster. Properly handling rental property management, whether through professional property management or self-management, will ensure an Airbnb host with high and consistent Airbnb rental income.

• Seasonality

The time of year also influences the amount of rental income Airbnb rentals can generate. Some states, like Florida and California, provide excellent opportunities for summer vacation rentals. Others, like Colorado, offer enticing ski resorts. The business of vacation rentals, like Airbnb rentals, is almost entirely dependent on seasons. It’s one of the most essential things to consider when buying short term rentals (for more on other things to consider when purchasing, read this: “Four Things to Consider Before Purchasing an Airbnb Investment Property”!). Be sure to find out the best season for your area and use it to maximize your Airbnb rental income.

• Legal Issues

Legal issues can cripple income generating assets, and Airbnb rentals are no different. Some cities have stringent laws that can reduce Airbnb rental income through multiple licenses or insanely high tax rates. It’s best for real estate investors to avoid such locations. Doing otherwise can, and likely will, jeopardize the amount of Airbnb rental income that could be earned.

Final Words

Airbnb rental income is one of the main attractors to the Airbnb business. Some locations, based on Mashvisor’s data, have a very high average rental income. Airbnb rental income alone does not guarantee profitability, however. Real estate investors must take five factors into account in order to maximize Airbnb return on investment.

Want to own an Airbnb investment property with high Airbnb rental income and return on investment? Click here to start looking for the best investment properties in your city or neighborhood of choice with Mashvisor!