Where Are the Top Markets for Short-Term Rental Investing?

AirDNA found a major shift in its rankings of the most promising locations for investment in short-term vacation rentals.

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Rural markets in areas that require limited air travel now top the rankings of the best places to invest in short-term rentals, according to a new report from AirDNA.

READ ALSO: Top 5 Cities for RevPAR Drop in Home-Sharing

The COVID-19 pandemic and the ensuing economic turmoil is cited as the reason that clients are preferring nonurban and easy-to-get-to locations. But the provider of short-term vacation rental data and analytics emphasizes that returns are still strong, that “there’s still a major discrepancy between home values and the demand for alternative accommodations,” and that “some of the most profitable locations on this year’s list maintain very modest home values.”

Using its proprietary ranking metric and evaluating markets from quite small to substantially larger metros (but not including the largest), AirDNA ranked markets based primarily on three factors:  

  • Rental demand, from annual occupancy and listing growth data;
  • Revenue growth, calculated from year-over-year RevPAR changes;
  • Investability, which compares the cost of homes, using Zillow data, to the average income of full-time short-term rentals on Airbnb and Vrbo.

AirDNA attributes the major changes on this year’s list, including the presence of numerous markets that haven’t appeared before, to multiple factors. Among them are areas with limited air travel. “Rural, drive-to markets are seeing unprecedented demand for short-term rentals,” even as city-centered business travel “has significantly stalled,” according to the report.

Looking at the rankings

As mentioned, the large markets in the report don’t encompass big cities like Boston, Chicago or Seattle. Still, AirDNA says these destinations “have been on the vacation rental investment radar for quite some time.” Each has more than 1,000 active vacation rentals.

Examples among the top 25 include (in incomplete order of ranking) Palm Springs, Calif.; Gatlinburg and Pigeon Forge, Tenn.; St. Augustine and Bradenton Beach, Fla.; Scottsdale and Flagstaff, Ariz.; Las Vegas; Nashville, Tenn.; and Savannah, Ga.

Midsize markets are those with between 100 and 1,000 active vacation rental listings. Many are spread across the Southeast California desert, “nature spots” in Arizona and various states in the Midwest.

Among the top-ranked 25 are Yucca Valley and Joshua Tree, Calif.; Broken Bow, Okla.; Sturgeon Bay, Wis.; Crystal River and Captiva, Fla.; and Grand Marais, Minn.

In the smallest, “up-and-coming” markets, we’re very much out in the weeds. These markets have 25 to 100 active vacation rental properties and are scattered across the Appalachians, Minnesota’s lakes, northern California and upstate New York. Examples include Castro Valley, Calif.; Cherry Log, Ga.; Shenandoah, Va.; and Manistee, Mich.

In further evidence of turmoil in the home-sharing sector, an August report from AirDNA highlighted five cities where daily RevPAR for Airbnb and Vrbo have plummeted, some by almost two-thirds.

Read the full report by AirDNA.

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