A Guide to Investing in Short-Term Rental Properties with Ease

With short-term rental properties emerging as the top real estate strategy, investors want to know how to find profitable Airbnb opportunities.

Table of Contents

1. Step 1: Choosing the Right Location
2. Step 2: Working Out the Short Term Rental Laws and Regulations
3. Step 3: Finding the Perfect Investment Property
4. Step 4: Accounting for All Rental Expenses
5. Step 5: Calculating Airbnb Rental Income and ROI
6. Step 6: Preparing for Guests and Listing Your Short Term Rental
7. Step 7: Managing Your Vacation Rental Property
8. Step 8: Using Technology

Since the establishment of the Airbnb platform, the short term rental industry has experienced a real boom. In the past few years, vacation rental properties have become a popular alternative for tourists looking for temporary lodging. Demand from guests has turned them into a great way to invest in real estate, both for new and experienced investors.

The benefits of owning an Airbnb property are multiple for hosts. The main ones include flexibility, tax deductions, and higher rental income and return. In most cases, investors are able to make more money from short term rentals than their traditional long-term counterparts.

While there is plenty of money to be made from investing in Airbnb, real estate investors need to understand what they’re getting into before jumping in. Like any other investment, vacation rentals come with a few drawbacks. The major ones are legal restrictions and regulations, more demanding property management, increased marketing efforts, and higher vacancy.

We’ve put together this step-by-step guide to teach you how to make good short term rental property investments, even as a beginner. We also show you how the Mashvisor real estate investing app can help you each step of the way.

Step 1: Choosing the Right Location

One thing that doesn’t change in real estate investing, regardless of your investment strategy, is the importance of location. Some locations are favorable for traditional rentals, while others yield higher profits for short-term rental properties. It’s your responsibility to study and analyze the real estate market to determine which rental strategy is optimal.

Qualitative Analysis

To find the best places to buy Airbnb properties, investors look at certain general factors like the area’s desirability, including the number of visitors and tourist and business attractions. Locations with plenty of tourist areas and entertainment options, such as beaches, mountains, national parks, resorts, and museums, are typically the first choice for Airbnb investors.

These are popular locations where many guests look for vacation rental homes. Due to the high demand, hosts will benefit from good Airbnb occupancy rates and daily rates, the two main factors behind Airbnb revenue.

Quantitative Analysis

Next, before buying a vacation home rental, you also need to look at more quantifiable indicators. Specifically, you should check the investment potential of your selected areas. You need to look at things like home prices, closing fees, furnishing costs, nightly rates, occupancy rates, rental expenses, property tax, insurance, etc.

All these numbers will determine whether you will be able to generate positive cash flow and good return on investment from your short term rental property. New York, for example, is home to lots of tourist attractions, making it one of the 10 most visited cities worldwide. But because it’s too expensive, Airbnb investors won’t get a good enough rate of return.

Eventually, all the above factors will come together to determine crucial metrics like cash flow, cash on cash return, and cap rate. You need to include estimates of the said metrics in your city-level real estate market analysis.

Since conducting Airbnb market research on multiple cities is a ton of work, you can check out the best short term rental markets for 2023. The ranking of the said top Airbnb locations is based on nationwide real estate and rental data from various trustworthy sources, obtained and analyzed by Mashvisor.

What is Mashvisor?

In brief, Mashvisor is a real estate data analytics platform that helps investors find the best markets and properties for investing in both long-term and short term rentals. We’ll discuss the specific features and functionalities available on our website throughout the rest of the article.

Neighborhood Analysis

Whatever your city of choice for investing in short-term rental properties is, you’ll still need to find a profitable neighborhood. Neighborhoods are just as important as cities when selecting the best location for buying a real estate investment property. It is because real estate markets are highly regional, and results differ majorly from one street to the next.

The Mashvisor Airbnb analytics platform can help you out in this regard as well. Our real estate heatmap tool allows you to check and compare the viability of Airbnb investments in different neighborhoods in the same city. The color-coded map highlights the highest and lowest values for each of the following metrics:

• Listing price
• Rental income
• Occupancy rate
• Cash on cash return

To find areas in your city of choice that boast affordable home prices along with above-average short term rental income and ROI, start your 7-day free trial now.

After identifying a few locations with strong investment potential, you can deepen your local short term rental market analysis with the Mashvisor neighborhood analysis pages. Through this feature, the Mashvisor platform provides investors with all the important vacation rental data they need to be confident that a particular neighborhood is the right choice.

Importantly, this level of analysis is available for every neighborhood in every city in the US housing market as long as it has active listings for sale. The data includes median property price, average Airbnb income, cash on cash return, occupancy rate, and more.

Step 2: Working Out the Short Term Rental Laws and Regulations

Selecting the best place for your Airbnb investment property does not end with finding a market that promises a high return. The next step is to ensure that non-owner-occupied short term rentals are legal and are not subject to major restrictions at the state, county, or city level.

Amid the explosive growth of the vacation rental industry, many US local governments started imposing various laws and restrictions in order to regulate the further spread of rentals. The regulations are intended to retain housing affordability and protect the safety, calm, and well-being of local communities.

Some cities, especially in the California real estate market, completely banned non-owner-occupied vacation rentals, which means that the strategy is inapplicable to investors. Others introduced strict regulations regarding prohibited and allowed neighborhoods, licenses and permits, safety requirements, maximum occupancy/night, etc.

In addition, most US cities require vacation rental hosts to pay state and local sales tax and city lodging/hotel occupancy tax. Some markets impose other taxes, too, to allow local economies to benefit from the spread of Airbnb rentals.

Airbnb Legal Research

What this means for short term rental property investors is that once they’ve chosen a few potential areas, they need to check the local Airbnb laws and restrictions. In most cases, the state, county, and city government websites are the best source of information in this regard.

In your short term rental legal research, make sure to look out for things like:

• Where within the city you can operate a vacation rental business: residentially vs. commercially designated zones
• Allowed property types: Single-family homes vs. multifamily homes vs. condos vs. apartments
• What permits and licenses are needed
• What safety requirements are expected
• How many guests you can host at a time
• For how many days per year you can rent out
• What taxes you need to collect and remit

It’s also worth going through recent news in local newspapers and other media outlets to see if there’s been a discussion about the impact of vacation rentals on the local market. It is usually a good indicator of whether you brace for new laws and restrictions in the near future or you can expect your selected market to remain an Airbnb-friendly city.

The last thing you want as a short term rental investor is to start an Airbnb business now only to have to shut it down in a few months because of newly introduced legal measures.

As a general guideline, cities in the Arizona real estate market and the Texas real estate market tend to favor Airbnb hosts and allow this investment strategy without many restrictions. Florida housing market predictions are also favorable in this regard. Furthermore, you can check out this list of US cities with the least Airbnb legal issues as a starting point.

Step 3: Finding the Perfect Investment Property

Finding profitable short-term rental properties requires the same amount of due diligence required to find profitable traditional rentals. Once you’re confident in your location, the next step is to decide what type of vacation rental property to buy. Common types include condos, single-family homes, and multifamily properties.

Each type of investment property comes with different features that attract short-term guests. So, study the pros and cons of each type to see which one best fits your goals and criteria. Moreover, the preferred type of vacation rental property also changes from one market to another, so you should consider location in your decision.

Meanwhile, keep in mind that condos, apartments, and other properties regulated by HOAs might face restrictions pertaining to running an Airbnb business on their premises.

If you plan to buy a short term rental within an HOA, make sure to check out the association’s rules before purchasing. Even if your HOA does not explicitly prohibit short term rentals, it’s a good idea to get their agreement—preferably in a written form—before purchasing a housing unit there.

To locate the best Airbnb for sale for your specific needs and aspirations, you need to find several active listings in the area that meet your requirements. Real estate investors should then analyze these properties to find the one with the best investment potential.

It includes figuring out the purchase price, nightly rent, potential rental income, and the Airbnb occupancy rate of the different short-term rental properties and comparing them.

Traditional Search for Properties for Sale

In the past, investors used to look for properties for sale in local newspapers or industry magazines, from agents and brokers or within their network, and while driving for dollars. While some of the said methods remain valid today, investors can access even better resources, such as: 

• Investment property websites
• Online marketplaces
• House hunting apps
• Real estate forums
• Social media
• Digital ads

The main disadvantage of such more and less conventional ways of finding investment properties for sale is that they don’t offer enough data analytics to make an informed decision. Investors still need to use various other sources to complement their rental property search and analysis to ensure positive results.

But there is an even easier way to find short-term rental properties for sale that match your exact criteria.

What is it?

The Mashvisor real estate investing app.

Rental Investment Property Search With Mashvisor

The Mashvisor platform provides two real estate investment tools that help future Airbnb hosts find good opportunities, making it one of the best websites for rental investors.

One of the easiest and most convenient ways for you to find the perfect Airbnb rental in any city across the US is Mashvisor’s Property Finder tool. Using a number of filters, you can set your preferred criteria.

Immediately, the Mashvisor Property Finder will give you a list of properties that meet your criteria and offer the highest cash on cash return when rented out on a short-term basis. With the tool, real estate investors turn their property search from three months into just 15 minutes!

The second tool you can use to locate the best vacation rental properties for sale is the Mashvisor investment property search engine. The tool provides even more filters than the rental property finder to make your search as precise as possible.

The search criteria include the following:

• Market: State, city, neighborhood, street address, or zip code
• Property price
• Financing method: cash vs. mortgage
• Short term rental cash on cash return
• Short term rental cap rate
• Number of bedrooms
• Number of bathrooms
• Short term rental income
• Year built
• Property size
• Property type

As soon as you’ve set up your preferences for any or all of the above investment metrics, you will get access to a comprehensive list of all MLS listings for sale that match your criteria. You can sort the list in order of the Mashvisor Score, price, rental income, or ROI.

To start searching for the most profitable short term rentals for sale in any US market now, sign up for a 7-day free trial of Mashvisor.

Step 4: Accounting for All Rental Expenses

A vacation rental property can be a great investment and an enjoyable place to relax at the same time as it pairs up as a second home. However, don’t forget about the costs associated with ownership before you start investing in Airbnb properties.

Keep in mind that there are one-time startup costs and recurring monthly expenses. Moreover, both expenditure groups vary from place to place and from property to property.

The expenses that you will need to cover to obtain your property and get it ready for listing include the following:

• The purchase price or down payment, depending on your financing option
• Closing costs
• Fixes and repairs
• Furniture and appliances
• Smart home and security systems

The recurring short term rental costs that you’ll be responsible for include the following:

• Airbnb service fee of 3% of the booking price
• Marketing and advertising
• Property tax
• Hotel/lodging taxes
• Rental income tax
• Insurance
• HOA fees
• Utilities
• Management fees
• Property maintenance and repairs

Additionally, there are other unexpected yet potential expenses that must be considered. For example, what if your guest is injured in the rental? What if you’re victimized by theft? What if you can’t rent it out right away or see prolonged vacancies? Can you afford that? Make sure to account for all potential issues before buying an investment property to rent out on Airbnb.

Short-term rental properties usually generate higher rental yields than long-term rentals. However, the above-listed rental expenses can quickly add up and eat into your profits. Therefore, estimating all these costs before investing is important to get a feel of how much your investment property can make in terms of cash flow and rate of return.

Calculating Short Term Rental Costs With Mashvisor

The good news for vacation rental investors is that the Mashvisor real estate investment analysis tools provide estimates of all major startup and recurring costs. They are based on local rates and the expenses that comparable short term rentals in the same market incur.

In addition, all cost estimates are customizable so that you can tailor them to your specific situation if you expect lower or higher expenses than the market averages. You can also add other costs not included in the preset values. Any adjustments you make will be immediately reflected in the detailed investment property analysis to be discussed shortly.

Step 5: Calculating Airbnb Rental Income and ROI

As a real estate investor, you want to buy a vacation home rental that you’ll not only enjoy but one that also makes financial sense. So, after you find a potential property and estimate all your rental expenses, you should perform an investment property analysis to make sure it’ll be profitable.

A short term rental should make positive cash flow so you can afford it even when it’s vacant. To evaluate it, you need to decide how much you’ll need to earn in order for the Airbnb investment to be profitable. Then, look at the vacancy rates in the area in addition to short-term rents and compare them to your monthly rental expenses.

By using the right Airbnb calculator, you can find out if the investment property has a positive cash flow by simply deducting the monthly rental expenses from the monthly rental income.

Traditional Short Term Rental Data Collection and Analysis

Traditionally, the best source of all required data has been conducting comparative real estate market analysis in order to find real estate and rental comps.

Real estate comps refer to properties similar to the one you’d like to buy, located in the same neighborhood, that have been recently sold. You can use their sales price to determine the fair market value of your investment property.

Rental comps, on the other hand, comprise actual Airbnb rentals in the area that are similar to the property you plan to invest in. They must be of the same type and size and feature the same amenities. Their daily rates are a good benchmark for how much you can charge per night. Their occupancy rate, rental income, and ROI are good indicators of what to expect.

However, the conventional process takes a lot of time and effort as it requires weeks or even months of manually collecting data, entering it into spreadsheets, and doing calculations.

So what is the best way to analyze the investment potential of short-term rental properties in 2023?

The answer is, once again, Mashvisor.

Vacation Rental Data Analytics from Mashvisor

To obtain reliable and comprehensive data for the analysis of your potential short term rental, an excellent source to check out is Mashvisor. While many websites like AirDNA and AllTheRooms provide some Airbnb data, Mashvisor offers not only short term rental data but also detailed analysis. The analysis covers both neighborhoods and properties.

The data on our Airbnb analysis platform comes from a number of trusted sources, including the MLS, Airbnb.com, and public records. In addition, our Data Team checks the accuracy of our machine-learning algorithms by regularly comparing the results with the performance of actual Airbnb hosts in different markets.

The Mashvisor investment property calculator provides all the rental property analysis that you need right away. All estimates are based on the performance of Airbnb rental comps in your market of choice.

The numbers in the short term rental analysis include the following:

• Property price
• One-time startup costs broken down per item
• Monthly recurring expenses broken down per item
• Airbnb occupancy rate
• Cash flow
• Cash on cash return
• Cap rate

Similar to the costs, all other numbers can be customized and adjusted in our calculator to reflect your specific short term rental investment situation. The Mashvisor rental property calculator will recompute all remaining metrics to show how any change affects your cash flow and profitability.

Step 6: Preparing for Guests and Listing Your Short Term Rental

Buying an Airbnb property and listing it online is not enough to get bookings. Remember, tourists and vacationers choose to stay in short-term rental properties not only because they’re cheaper than hotels but also because they come with a homey feel.

Getting a Property Guest-Ready

You need to decorate and furnish your vacation rental nicely, in line with trends in the local market. You should make sure to provide guests with anything they may need during their stay, such as Wi-Fi, clean towels, kitchen supplies, coffee, tea, and other essentials.

Moreover, in recent years, Airbnb is noticing an increased demand for experiences, not simply rentals. It means that you’re more likely to optimize your Airbnb occupancy rate and daily rate if you provide an experience. It can be something as simple as samples of local cuisine or providing a list of local attractions and events with enough relevant information.

Creating a Short Term Rental Listing

Once your investment property is ready, it’s time to list it and market it to vacationers. When it comes to Airbnb and other short term rental marketplaces, presentation is everything. Your goal is to make your property’s listing appealing enough to stand out from the competition.

The featured image is the driving factor that will push people to view your listing. So, the first thing to do is take high-quality photos to showcase your vacation home rental. It will give you a higher host ranking which, in turn, provides a greater likelihood of guests selecting your property over another.

Following the photos, we recommend reviewing the current competitive listings in the market and noting how they are presented for rent. Ultimately, you want a high guest rating and positive, 5-star Airbnb reviews.

To achieve them, work on making your listing description accurate, detailed, and complete and highlighting what makes your Airbnb rental unique. Moreover, it’s also important to outline the amenities and features of your space. Soon enough, you’ll get bookings from guests looking for exactly what your vacation home rental offers.

If you opt for hiring a short term rental property management company, many of them provide optimized listings and professional property photos as part of their services.

Step 7: Managing Your Vacation Rental Property

The last step of investing in short-term rental properties is, of course, managing your investment. There are two ways to do this: You either do it yourself or hire a professional property management company to do it for you.

Managing an Airbnb rental is different from renting out a traditional investment property. There are additional requirements like cleaning the property, organizing how guests will access the property, and other management needs that are not typically required from a landlord.

If you’re going to manage the property yourself, you must hire operational services like cleaning services, maintenance, and exterior landscaping care. You’ll also need a smart home system to let service staff and guests into the property. All the expenses must be factored into your short term rental property analysis.

Alternatively, you can hire a vacation rental management company to take care of the operational services for you. Many prefer such an option as it makes the investment a passive one, i.e., you’ll be making money in real estate without doing any work in return.

Typically, property management fees for short-term rental properties range from 25% to 50% of rental income, with 28% being the average. So, make sure you can afford the fee before hiring professional property management.

Step 8: Using Technology

The last thing we need to mention is not really a step but something that you should consider throughout the process of investing in short-term rental properties. We’re referring to the importance of technology in all steps, from researching and analyzing markets, searching for and evaluating properties, to listing and managing your rental.

In recent years, we’ve seen a real boom in real estate tech companies and products that aim to make the investment journey not only smoother and easier but also more profitable. While not all PropTech websites offer real value, some—like Mashvisor—are worth the cost as they gather big data from reliable sources and analyze it with the help of AI.

Ready to Start Investing in Short-Term Rental Properties?

The potential to make money in real estate from short-term rental properties is huge, given the endless Airbnb investors and success stories you can find online. The best news for newbies is that you don’t need to be very knowledgeable about real estate investing to be a successful Airbnb investor. Recent tech advancements are opening up opportunities for everyone.

As long as you follow our guide and take one step at a time, you’re guaranteed to generate positive cash flow and good return on investment. The key is to base your decisions on solid data and analysis and to get access to the top short term rental tools and apps.

Mashvisor can help you all the steps of the way. With a subscription to our real estate software, you can find the best neighborhoods for your budget and expected ROI. You can look for top-performing vacation rentals for sale and analyze their exact investment potential. You can also find comparable Airbnb rentals in the area for ideas on how to list and market them.

To start your search for the best short-term rental properties in the city of your choice, sign up for a 7-day free trial now!