Millennials (ages 23 to 38 in 2019) are the driving force behind many trends in the real estate market, including those in the vacation rental industry. This generation is increasingly spending money on travel, vacations, and accommodation. Research also shows that millennials would much rather spend money on traveling than buying a house. This opens doors of investment opportunities for anyone thinking of buying a rental property and, if you’re investing in short-term rentals, millennials are the generation to target.
Since millennials are the future of travel, it’s important to be aware of the different trends they’re creating in the vacation rental industry. More than ever before, experts are now seeing a shift from conventional travel accommodations (like hotels) toward vacation rental services (like Airbnb and VRBO). Keep reading to learn more about how millennials are shaping the vacation rental industry in 2019 and what it means for you as a real estate investor.
Traveling Is Important to Millennials
According to population projections from the U.S. Census Bureau, millennials are expected to become the largest living adult generation in the country. Data shows that the millennial population will hit 73 million while the baby boomer population will only be at 72 million in 2019. This growing population will definitely have an impact on the vacation rental industry as millennials now represent the majority of the traveling community. As a result, accommodations must be adapted in order to appeal to this demographic.
In addition, as more millennials are entering the job market and earning disposable income, trends show that they’re more likely to spend it on travel and vacation. Sure, families and other groups still need places to stay when they vacation, but the percentage of the market that millennials comprise only keeps getting bigger and bigger. If you’re a real estate investor interested in owning a vacation home rental investment, our tip is to invest in the top travel destinations for millennials. In these locations, your rental property will have a high occupancy rate, and thus, will generate a decent rental income for a good ROI.
Related: Best Places to Invest in Real Estate: Follow the Millennials
Millennials Are Passionate Users of Airbnb
Although the short-term rental site, Airbnb, launched just over a decade ago, it has already witnessed incredible success and continues to grow every year. In fact, Forbes estimates that Airbnb is now worth at least $38 billion! There are several factors for the site’s growth, one which is its popularity among millennial travelers.
According to the “Airbnb and The Rise of Millennial Travel” report, conducted by GfK Market Research Company together with Airbnb, 60% of all guests who have ever booked on Airbnb are millennials. The report also estimates that millennials and younger generations will account for 75% of all consumers and travelers by 2025. For real estate investors, this shows that the vacation rental industry will keep growing and, thus, Airbnb rentals will continue to have high demand. So, why not buy now and enjoy the profits in the long run?
Use our Property Finder to find lucrative Airbnb investment properties that match your criteria in a matter of minutes!
Airbnb itself is also shaping its customers’ perception about the vacation rental industry and where to stay when they travel. For example, about 35% of millennials surveyed for the report believe that hotels may offer better services for higher rates, but would still choose Airbnb’s lower-cost services. As a matter of fact, data from Slice Intelligence (an e-commerce analytics company) shows that Airbnb guests spend 26% less than hotel guests per night on accommodations. Savings in major cities in the US real estate market can be even higher.
This is another reason why Airbnb rentals will continue to have high demand from millennials. That also explains why many property investors find that being involved in the vacation rental industry is a profitable investment and a great way to make money in real estate.
Millennials Look for New Experiences
Wondering why Airbnb is so popular among millennial travelers? The reason is simply that it offers them the unique, local travel experiences that they seek. Millennials don’t want to feel like intruders when they travel. Instead, they enjoy immersing themselves in other cultures and behaving as locals. This can be hard to do from an isolated hotel room which lacks the character of a vacation home rental in the heart of the city. According to the above-mentioned “Airbnb and The Rise of Millennial Travel” report, the vast majority of millennials polled in the US say that:
- It’s important that their accommodations offer opportunities to experience the local culture
- They’re looking for more adventures when they travel
- It’s more important for them to discover hidden local places than to visit major tourist attractions
On top of that, studies have shown that millennial travelers in the US look for alternative lodging options in the vacation rental industry. RVs, yurts, and nature lodges have all experienced an increase in bookings last year as they also add to the overall traveler experience. Our research shows that demand for these types of short-term rental properties will keep growing in 2019.
To learn more about what to expect as a real estate investor of an Airbnb short-term rental property, read: What Will 2019 Look Like for Airbnb Real Estate Investing?
Top Destinations for Millennials in the Vacation Rental Industry
As mentioned, Airbnb hosts and property investors should follow millennials and rent out to these short-term guests in the cities they travel to. This allows them to enjoy a high Airbnb occupancy rate, high rental income, and a good ROI. So where are these cities?
HomeToGo, a search engine for vacation rentals, has released a study which reveals the top 50 cities for millennials to visit in the United States in 2019. The study claims that US millennials travel domestically more frequently (81%) than internationally (19%). The majority of the top cities are in California, Florida, and Texas, in addition to a few in Michigan and Tennessee. The ranking is based on factors like Instagrammability, availability of experiences, dynamic nightlife, airline affordability, affordability of accommodations, and affordable food and drink.
After taking a look at these top cities, we used Mashvisor’s Investment Property Calculator to make a list of the ones that offer the most profitable investment opportunities for real estate investors in the vacation rental industry. To look for the best Airbnb investments in your city of choice in the US housing market, click here.
- Median Property Price: $347,191
- Airbnb Rental Income: $2,344
- Airbnb Occupancy Rate: 52%
- Cash on Cash Return: 2%
- Median Property Price: $553,840
- Airbnb Rental Income: $2,897
- Airbnb Occupancy Rate: 56%
- Cash on Cash Return: 3%
- Median Property Price: $414,462
- Airbnb Rental Income: $3,531
- Airbnb Occupancy Rate: 57%
- Cash on Cash Return: 5%
San Diego, CA
- Median Property Price: $796,852
- Airbnb Rental Income: $3,518
- Airbnb Occupancy Rate: 58%
- Cash on Cash Return: 2%
- Median Property Price: $149,779
- Airbnb Rental Income: $1,941
- Airbnb Occupancy Rate: 55%
- Cash on Cash Return: 3%
To discover our picks of the most profitable cities to invest in Airbnb rentals based on Mashvisor’s data and predictive analytics, read: 8 Best Cities for Airbnb Investment in 2019
Tips for Vacation Home Rental Real Estate Investors
#1 Keep Airbnb Regulations in Mind
Unfortunately, regulations are an issue regardless of what demographic you cater to. As the vacation rental industry continues to grow, regulation in some of Airbnb’s top cities is the biggest challenge for hosts. Some forbid real estate investors from buying properties to rent out on Airbnb claiming this is reducing housing stock that could be offered to residents and is making housing unaffordable. Other cities allow Airbnb for property investors but they have strict regulations regarding permits and taxes, which can affect your bottom line. This is why you must always research Airbnb laws and regulations in your city of choice before investing.
#2 Focus on the Traveler Experience
Since millennial travelers are seeking new experiences, another good tip for Airbnb real estate investors owning vacation rentals is to try to offer that. When you show potential guests that your Airbnb offers something that others in the area don’t, they’ll be more attracted to book yours. Also, ensure that every guest that steps through your door has a positive and memorable experience. For example, photography workshops, local cooking classes, crafts, and cocktail tastings are some of the biggest attractions for millennial Airbnb guests.
#3 Use the Airbnb Profit Calculator
Every real estate investor should have the tools that help in making smart decisions. For those investing in the vacation rental industry, the Airbnb profit calculator is a must! This tool will help you in a number of ways, including:
- Analyzing the housing market to assure that Airbnb rentals actually make a good ROI based on metrics like the cap rate, cash on cash return, cash flow, and Airbnb occupancy rate
- Accessing real estate comps to compare different properties and decide which one will make the most profitable vacation home rental
- Analyzing the rental property itself to estimate its profitability based on the above metrics
- Calculating the different expenses of the rental property to ensure setting the right rental rate so you don’t end up with negative cash flow
With all these features, the Airbnb Profit Calculator makes you confident that you’re choosing the optimal rental strategy to make money from real estate investing. Wondering where can you get one to be on top in the vacation rental industry? Right here on Mashvisor, of course! Start out your 14-day free trial with Mashvisor now to give it a try.
The Bottom Line
These are the main trends we’re seeing in how millennials are shaping the vacation rental industry. It’s important to keep these trends in mind before jumping in the short-term rental market to ensure making a smart investment. Still, many investors believe that thanks to the millennial generation, renting out on Airbnb will remain a lucrative investment in the US housing market in 2019 and beyond.