Airbnb, or short-term rentals, is becoming a more and more popular rental strategyin real estate investing. In many cases, Airbnb is significantly more profitable than traditional renting. Thus, if you are a real estate investor or are planning to become one, you should definitely think about Airbnb investment. And the first thing you need to know is the best cities for Airbnb investment.
What Does Best Cities for Airbnb Investment Mean?
Well, the main reason for which people invest in real estate it to make money out of their income properties and get rich. That’s why when we say “best cities for Airbnb investment”, we mean the most profitable cities for purchasing and renting out a property Airbnb-style. To measure profitability, we look at the average cash on cash (CoC) return which Airbnb properties are able to generate in these cities. In this article, we focus on US cities with a population above half a million people.
Which Are the 6 Best Cities for Airbnb Investment?
Following is a list with the most profitable large cities for Airbnb investment. All the data are derived from Mashvisor’s investment property calculator and are based on actual figures from these cities, which make them highly reliable. So, let’s see which the best cities for Airbnb investment are based on CoC return:
1. Oklahoma City, OK
- CoC Return: 15.7%
- Cap Rate: 21.8%
- Rental Income: $1,750
- Occupancy Rate: 48.9%
- Median Property Price: $89,900
Oklahoma City, the first in our list of best cities for Airbnb investment, offers an excellent CoC return, and the capitalization (cap) rate – another measure of profitability – is also great. One of the chief reasons for this high profitability is the low median property price. However, if you decide to go for an Airbnb investment property in Oklahoma City, you should be aware of the fact that the City Council requires a public hearing and a $2,700 permit in order to grant permission for short-term rentals. These requirements threaten to cause complications and to increase costs for Airbnb hosts, but it seems that they are not very well enforced at the moment.
2. Memphis, TN
- CoC Return: 10.2%
- Cap Rate: 15.2%
- Rental Income: $2,210
- Occupancy Rate: 46.7%
- Median Property Price: $189,100
The second in our list of best cities for Airbnb investment is Memphis, the Birthplace of Rock ‘n’ Roll and the Home of the Blues. Memphis emerged as one of the hot real estate markets of 2016, and this is likely to continue in the coming years. This city is significantly more profitable for Airbnb investment properties than for traditional income properties with excellent CoC return and cap rate, too. Although more expensive than Oklahoma City, the median property price in Memphis is also very reasonable compared to other big cities in the US.
3. Nashville, TN
- CoC Return: 9.7%
- Cap Rate: 13.6%
- Rental Income: $3,240
- Occupancy Rate: 56.8%
- Median Property Price: $376,100
Number 3 in our ranking of best cities for Airbnb investment is Nashville. Even though Nashville’s real estate market is considered a secondary one similar to San Diego, Austin, Portland, San Antonio, Memphis, and Minneapolis, it offers really good opportunities when it comes to Airbnb rental properties. Actually, Nashville has been one of the most progressive cities when it comes to providing the needed infrastructure for Airbnb, at least until last year. In 2015 the Metropolitan Council issued new Airbnb legislation which restricted the maximum number of homes listed at Airbnb to 3% within any neighborhood and limited the number of guests who can stay in a property. However, two Airbnb hosts – P.J. and Rachel Anderson – filed a lawsuit through the Beacon Center of Tennessee against the Metro Council, which they won and which ruled that the new restrictions are unconstitutional. If you are thinking about an Airbnb income property in Nashville, you will be happy to know that a recent report by RoomScore highlighted Nashville as one of the best cities for Airbnb investment due to the availability of a modern infrastructure fully covering short-term rentals.
4. Las Vegas, NV
- CoC Return: 8.6%
- Cap Rate: 12.8%
- Rental Income: $2,070
- Occupancy Rate: 28.5%
- Median Property Price: $225,400
Las Vegas is another one of the best cities for Airbnb investment based on data from Mashvisor’s investment property calculator. Las Vegas is a top touristic destination within the US, which makes it an excellent location for Airbnb rental properties. Property prices are reasonable, while both the CoC return and the cap rate are very good. With regards to Airbnb legislation, Las Vegas requires all Airbnb hosts to obtain a short-term residential rental permit from the Business Licensing Division of the Planning Department in addition to a business license. Moreover, they have to pay transient lodging tax. Las Vegas remains a top city for Airbnb despite these requirements.
5. Indianapolis, IN
- CoC Return: 8.3%
- Cap Rate: 12.6%
- Rental Income: $1,950
- Occupancy Rate: 41.7%
- Median Property Price: $234,300
Indianapolis follows Las Vegas very closely in our ranking of best cities for Airbnb investment, with very similar profitability and property prices. The Airbnb occupancy rate in Indianapolis indeed is much higher than in Las Vegas, which is an important factor when you decide whether to go for Airbnb in a certain city or not. When it comes to legislation, the RoomScore report calls Indianapolis one of the silent cities because it doesn’t have any specific city laws which either allow or prohibit Airbnb.
6. Columbus, OH
- CoC Return: 8.2%
- Cap Rate: 13.4%
- Rental Income: $2,160
- Occupancy Rate: 49.0%
- Median Property Price: $248,300
If you still haven’t found our preferred place for Airbnb rental properties, think about Columbus, the last in our list of the best cities for Airbnb investment. All indicators are really good based on data from Mashvisor. Similar to Indianapolis, Columbus is a silent city according to RoomScore, which makes it an excellent opportunity for Airbnb investment.
If you are in real estate investing, you must be thinking whether Airbnb or traditional rental properties are better for you. While the traditional rental strategy has some advantages, Airbnb is quickly picking up and despite opposition from hotel lobbies and from concerned citizens, it is here to stay for a long time. Thus, make sure to get your Airbnb investment property soon. If you believe that one of our best cities for Airbnb investment is the right place for you, don’t forget to check out Mashvisor for figures on the neighborhoods within each city and on actual properties.