Owning an Airbnb investment property is, without a doubt, a great way to earn. But, is Airbnb a good investment, given all of the regulations?
Read on to find out more about whether investing in an Airbnb property is still a good idea for you.
Table of Contents
- Why Is Airbnb a Good Investment?
- 6 Factors to Consider When Finding a Good Airbnb Investment
- Find Out If Your Property Would Be a Good Airbnb Investment Using an Airbnb Calculator
- Where Is Airbnb a Good Investment?
Currently, many cities across the US regulate Airbnb rentals in the form of restrictions and limitations on the number of days a property can be rented out.
But don’t let it get you down. There are still many excellent places to invest in Airbnb without needing to worry about regulations, making Airbnb a great real estate investment.
In this article, we will show you why an Airbnb investment is still a good thing. We will also discuss what you should be on the lookout for when hunting down and buying Airbnb properties.
Why Is Airbnb a Good Investment?
As a real estate investment vehicle, Airbnb has changed a lot of investors’ lives. Besides its popularity, Airbnb provides other reasons to entice you into buying rental properties and listing them on the platform.
Steady Short Term Rental Market Growth
Keeping up with market trends is the key to success when it comes to real estate investing. Airbnb rental properties are becoming more and more appealing to vacationers and travelers. It is because they offer several advantages compared to traditional hotel rentals.
Recent data from Statista show that the short term rental market, which includes Airbnb properties, is expected to generate a revenue of $19.39 billion in 2023, with an annual growth rate of 1.49%. If the growth continues, the industry’s projected market volume by 2027 will be a whopping $20.57 billion.
So, is Airbnb still a good investment? The answer is a solid yes.
As Airbnb continues to grow in popularity and attracts more and more guests in a post-pandemic era, buying a vacation rental property seems like a very reasonable investment. Of course, it only applies to locations where Airbnb and other short term rental properties are not heavily regulated.
As an Airbnb investor, you should aim to find an investment property in a prime location that guarantees a high occupancy rate throughout the year.
Potential Higher Rental Income and Better ROI
It is no secret that Airbnb rentals come with a higher potential for profits than traditional long term rentals. Since Airbnb rentals are rented out on a nightly basis, the price per night is much higher than that of a long term rental.
Even when taking into consideration several factors, such as vacancy cost and occupancy rate, your Airbnb investment would potentially make more profit compared to long term rentals. It’ll ensure you get a good return on your investment and help you achieve a steady income stream and a positive cash flow.
When it comes to owning and buying an Airbnb rental property, location is the decision maker of how profitable your investment will be. Airbnb guests value proximity to amenities and attractions. Therefore, when searching for Airbnb property to buy, you should consider the audience you are targeting.
Duality of Use and Greater Flexibility
A major advantage of owning an Airbnb property is that you can use it as your secondary residence, where you can spend your vacations. Part-time real estate investors find it convenient, as they can earn money from a property and still be able to use it whenever they want.
Airbnb allows you to choose which dates your rental property is available, something you cannot do when following a long term rental strategy. Such flexibility allows you to manage your calendar better so you can also attend to other equally important matters, like family, business, and other investments.
6 Factors to Consider When Finding a Good Airbnb Investment
When it comes to buying a short term rental property, always ask yourself what makes for a good Airbnb investment. Different places offer investors different numbers when it comes to Airbnb rentals; some are way better than others.
As an investor, it forms part of your due diligence. Knowing how to identify markets and properties that make rental property investment worthwhile is a skill that can be learned and developed over time. You can start with the following:
Identifying Cities to Invest in
As far as finding and buying Airbnb rentals are concerned, these are some of the things you should consider when looking at a location:
1. Good Tourist Traffic All Year Long
Airbnbs surged in popularity because of tourists and visitors looking for more affordable yet equally cozy alternatives to expensive hotels and resorts. A good Airbnb location, therefore, should get pretty good tourist traffic for most of the year.
As an investor, you should take time to analyze the following before buying any investment property:
- Location’s popularity. Is it a popular go-to destination for tourists or near similar places?
- The amount of foot traffic it gets from tourists annually. How many tourists and visitors does it get on an annual basis?
- Seasonality. Does it receive a high influx of visitors for the most part of the year?
- Desirability. How desirable and attractive is the neighborhood to guests?
2. Outstanding Airbnb Market Performance
In line with the previous point, a good location for an Airbnb rental should be in a market with a proven track record for short term rental properties.
Airbnb stats come into play here. As a real estate investor out to buy a vacation rental property, you need to ensure that a location offers you healthy numbers before you start a rental property business. Here are some of the metrics you need to be mindful of:
- Housing Affordability. This includes property prices, mortgage rates, taxes, and other expenses associated with buying investment properties.
- Number of Listings. A high number of active short term rental listings indicate a healthy demand for rental properties.
- Monthly Rental Income. Ideally, a location should offer at least $2,000 in monthly short term rental income.
- Cash on Cash Return. While a good cash on cash return is 8% to 12%, locations with such rates are hard to come by. A return of anywhere between 2% and 6% is already considered by many to be profitable.
- Cap Rate. Cap rates work similarly with cash on cash return, only it doesn’t factor in financing options when buying a property. The formula takes a property’s potential net operating income and divides it by the property selling price or its fair market value.
- Occupancy Rate. This metric shows you the average number of days vacation rentals are occupied versus the number of days they are actively listed. The higher the occupancy rate, the better the rental income.
3. Airbnb-Friendly Location
While Airbnb properties generally provide a good investment return, not all vacation rental markets guarantee profits for investors, at least not where Airbnb rental properties are highly regulated. Several locations all across the US impose certain restrictions on short term rentals, with some stricter than others.
If you plan to invest in an Airbnb property, pick a location that will give you greater freedom and flexibility as an Airbnb owner and host.
As far as strict STR guidelines are concerned, make sure to do thorough research on local ordinances and regulations for the following cities first before making any decisions. According to a Business Insider article in January 2023, the places are:
- Alamosa, CO
- Aspen, CO
- Atlanta, GA
- Burlington, VT
- Chattanooga, TN
- Coeur d’Alene, ID
- Dallas, TX
- Dauphin Island, AL
- Dillon, CO
- Frisco, CO
- Lexington, KY
- Marco Island, FL
- Oahu, HI
- Palm Springs, CA
- Palo Alto, CA
- Park Township, MI
- Portland, ME
- Red Hook, NY
- Santa Rosa, CA
- Sarasota, FL
- Steamboat Springs, CO
- Tybee Island, GA
- Weehawken, NJ
New York City NY
Airbnb regulations are quite strict in New York City. For example, it is illegal to rent out properties for less than 30 days unless the owner or the permanent tenant is residing in the property at the same time. Hosts are also required to share their hosting and listing data with the city government, which may not sit well with other investors.
San Francisco, CA
Adopting a similar policy as New York, San Francisco Airbnb rentals are only allowed if the hosts are permanent residents in the property. Moreover, you are only allowed to rent out your property for 90 days per year.
Las Vegas, NV
Buying vacation rentals in Las Vegas may not be a fruitful endeavor because of its tough Airbnb regulations. Although short term rentals are legal, the city’s regulations are quite strict. The AB363 bill passed by the state’s legislature requires Airbnb investors to live on the property and register the business. They also need to pay an annual fee of $500 to the city, among others.
Narrowing Down Properties to Invest in
After finding an ideal location for your vacation rental business, you then need to narrow down your search to a handful of potential properties that will give you a good ROI.
Here are some things to look for when buying a vacation rental property:
4. Affordable Property
As we already mentioned a while ago, housing affordability is something that you need to consider when investing in a short term rental property. After the 2022 real estate market’s wild roller coaster ride as far as property prices and mortgage rates go, 2023 looks more promising (and steadier) for investors.
To optimize your return on investment, you should find a property that’s within your budget. However, it doesn’t mean you should look for the cheapest property on the market. Often, properties that are ridiculously undervalued come with lots of baggage in the form of repairs. You may score a deal on the initial purchase but the renovations will kill you.
Train your eye to spot good deals when it comes to homes with good prices that are in good overall condition.
On top of the seller’s asking price, you also need to take into consideration closing costs and other related expenses. You should also factor in property maintenance costs to keep your Airbnb business running smoothly.
In addition, you must also consider if you can afford an all-cash transaction to avoid paying exorbitant mortgage rates. If not, then you should look for lenders and mortgage companies that offer packages that are within your reach. Keep in mind that when you take out a loan, you are tied to your loan for years.
5. High Potential for Financial Rewards
The very reason you’re getting into Airbnb investing is to make a decent profit on your investment, right? Therefore, you should be looking for investment properties that come with excellent income-generating potential.
That being said, when looking for investment properties to buy, you need to look for them in neighborhoods with a good track record for vacation rentals. Additionally, you need to look beyond just the MLS. Some of the best deals can be found off-market so that would be a good place to start. You may also consider looking at foreclosures for more options.
6. Located in a Good Neighborhood
Lastly, make sure that the property you’re buying is found in a good neighborhood. No visitor wants to stay in a vacation rental found in a high-crime or dilapidated neighborhood. Your property must be situated in a nice neighborhood where the economy is healthy and the crime rate is low.
It also need to be easily accessible to public transport and amenities to allow guests to have an easier time exploring the place. Ideally, an Airbnb property should be near tourist attractions or at least have easy access to them.
Find Out If Your Property Would Be a Good Airbnb Investment Using an Airbnb Calculator
The Airbnb profit calculator is your best friend when looking for Airbnb properties for sale. The tool, which is an investment property calculator, can help you evaluate the performance of any listed property.
An Airbnb profit calculator calculates basic real estate metrics that can help you decide if the property is worth investing in. Using analytics and other comparable properties, the tool can predict the Airbnb occupancy rate and rental income, as well as calculate the cap rate, cash on cash return, and cash flow.
Using an Airbnb profit calculator can help you grow your real estate investment business. Thanks to the cash flow analysis provided by the tool, you can easily determine how soon you can grow your real estate business.
The Best Airbnb Calculator in the Market Today
Mashvisor, a real estate online platform, provides one such calculator that’s been helping investors find the best deals in their markets of choice. As a real estate platform, it gives users access to high-quality market data necessary to make the right investment decisions.
Mashvisor’s database is sourced from highly reliable sources like Zillow, Realtor.com, the MLS, and Airbnb, so users get only accurate information all the time. It is regularly updated to ensure that the numbers used for calculations are relevant. It allows for more realistic computations when it comes to ROI projections.
Mashvisor also gives users access to investment tools that allow them to spot the right investment deals that align with their investment goals and needs. Its investment property calculator not only lets you do the math effortlessly but also points you in the right direction for the best investment opportunity.
Get started on your 7-day free trial with Mashvisor today on your way to a thriving real estate investing career and see if Airbnb is a good investment in your location of choice.
Where Is Airbnb a Good Investment?
Using Mashvisor’s Airbnb profit calculator, we found the five best cities for Airbnb investment where operating a short term rental is legal and quite profitable.
If you’re an investor looking to buy vacation rental properties, here is a list of ideal locations for investors who wish to start an Airbnb business. We used the following criteria to filter Mashvisor’s February 2023 database:
- Each location must have at least 100 active listings on the short term rental market
- Each location must have no more than $1,000,000 in median property price
- Each location should have a minimum monthly rental income of $2,000
- Each location should have a cash on cash return of 2% and above
- Each location must have an occupancy rate of no less than 50%
Based on Mashvisor’s data, here are the five best locations for short term rentals today, ranked from those with the highest to the lowest cash on cash returns:
1. Northlake, IL
- Median Property Price: $315,829
- Average Price per Square Foot: $216
- Days on Market: 107
- Number of Short Term Rental Listings: 116
- Monthly Short Term Rental Income: $4,151
- Short Term Cash on Cash Return: 7.94%
- Short Term Cap Rate: 8.08%
- Short Term Daily Rate: $169
- Short Term Occupancy Rate: 54%
- Walk Score: 33
2. Bellwood, IL
- Median Property Price: $250,612
- Average Price per Square Foot: $218
- Days on Market: 87
- Number of Short Term Rental Listings: 173
- Monthly Short Term Rental Income: $3,809
- Short Term Cash on Cash Return: 7.92%
- Short Term Cap Rate: 8.07%
- Short Term Daily Rate: $164
- Short Term Occupancy Rate: 62%
- Walk Score: 83
3. Columbia Heights, MN
- Median Property Price: $297,238
- Average Price per Square Foot: $151
- Days on Market: 47
- Number of Short Term Rental Listings: 317
- Monthly Short Term Rental Income: $3,761
- Short Term Cash on Cash Return: 7.92%
- Short Term Cap Rate: 8.06%
- Short Term Daily Rate: $160
- Short Term Occupancy Rate: 58%
- Walk Score: 82
4. Bridgeton, MO
- Median Property Price: $272,978
- Average Price per Square Foot: $151
- Days on Market: 46
- Number of Short Term Rental Listings: 120
- Monthly Short Term Rental Income: $3,330
- Short Term Cash on Cash Return: 7.60%
- Short Term Cap Rate: 7.74%
- Short Term Daily Rate: $154
- Short Term Occupancy Rate: 58%
- Walk Score: 3
5. Rileyville, VA
- Median Property Price: $332,031
- Average Price per Square Foot: $192
- Days on Market: 15
- Number of Short Term Rental Listings: 153
- Monthly Short Term Rental Income: $3,733
- Short Term Cash on Cash Return: 7.57%
- Short Term Cap Rate: 7.69%
- Short Term Daily Rate: $235
- Short Term Occupancy Rate: 55%
- Walk Score: 10
Look for and analyze good Airbnb investment properties in the most profitable areas near you or any location of your choice with Mashvisor today.
The Bottom Line
To end, investing in Airbnb properties is a very lucrative venture for real estate investors. People are excited to travel after being stuck at home for nearly two years in a pandemic. The demand for Airbnb rentals continues to skyrocket. If you do it right, you can not only help meet such demand but also take home a pretty penny in the process.
The question now is not “Is Airbnb a good investment?” Rather, what you should be asking now is where to invest in Airbnb properties and how to get started!
If you’re serious about getting into Airbnb investing, we highly recommend using Mashvisor to find short term rentals with a high return on investment now. As a real estate website, it will give you access to highly relevant information and accurate market data needed to make a realistic rental property analysis.
Mashvisor’s tools can also help you locate the right investment property that lines up with your goals and needs as an investor. It has helped change the lives of thousands of investors. Perhaps it’s time to let it change yours.
Learn about how Mashvisor can help you find the best deals on good Airbnb investment properties in the most profitable markets by scheduling a demo now.