For more than a decade, short-term home rental websites such as Airbnb, HomeAway, and VRBO have helped everyday Americans squeeze some serious cash out of their homes—whether families renting out empty bedrooms or investors offering up multiple properties in prime tourist neighborhoods, leasable by the night. Easy-peasy! But those carefree good times may be coming to an end.
The motto of Silicon Valley may be to move fast and break things—but sooner or later the bureaucrats catch up. That’s the current reality for the short-term rental industry, now weathering an unprecedented storm of restrictive new regulations from city councils across the country.
Tensions between unregulated rentals and cities have been simmering for years, spurred by pissed-off neighbors and pushback from landlords and hotel operators. Now they’re boiling over.
This year Las Vegas and Washington, DC, will phase out full-home rentals on sites like Airbnb with no owner present, which make up more than 70% of their current markets. New Orleans enacted legislation in January that will push these units out of historic residential neighborhoods. And a number of smaller cities are anticipated to follow their lead.
So does this mean the days of big profits from Airbnb rentals are over? No! But during this time of change, Airbnb hosts need to do their homework. They need to know their local laws, including what’s coming down the pike; they need to ensure they’re investing their nest eggs in markets where demand and appreciation are likely to remain strong.
If Airbnb is in your plans, do the math before purchasing a home. Look at how much you could get for a traditional, long-term rental if legislation comes into town and makes that necessary. Make sure it isn’t a saturated market. Look at the daily rates of competitors and see if you can match or beat them.
For now, the short-term rental business is still going gangbusters: 97% growth in America’s 100 largest cities over the past three years. That’s more than 360,000 active rentals! Time will tell whether that number drops precipitately with the new restrictions often enforced with steep fines that can surpass $10,000 a day.
To find the top places to own an Airbnb-type rental, we pulled data for those 100 largest cities. We used February data from AirDNA, a real estate data company that collects data on more than 10 million Airbnb and HomeAway rentals. We looked at the following criteria* to create our ranking:
• Average short-term rental daily rate, monthly revenue, and occupancy rate
• Rental demand score for each market
• Average Airbnb host rating
• Three-year increase in short-term rentals
• Per capita number of short-term rentals
• Monthly average short-term rental income as a ratio of a monthly mortgage payment**
• Median list price (the lower, the better)
• One-year home appreciation
Here are the Top 10 most profitable cities to own vacation rental properties in the United States…
1. Scottsdale, AZ
Median list price: $685,100
Average daily rate: $301
Occupancy rate: 81%
Active rentals: 5,178
Why are rentals here so popular? Just outside of Phoenix, Scottsdale is a hotbed for American corporate elites looking for a weekend getaway full of mountain biking, golf, and hiking. And while cities across the country are creating tighter rules and outlawing Airbnb rentals altogether, Arizona has gone in the other direction—it signed a law in 2016 that prevents cities in the state from banning short-term rentals. That legal protection combined with vacation rental demand makes Scottsdale the perfect place for investors. Another reason for the Scottsdale Airbnb boom: 15 Major League Baseball teams, including the Chicago Cubs and Los Angeles Dodgers, come to this town for spring training every year. These coaches, players, and their families often prefer renting an entire Scottsdale home on Airbnb versus being holed up in a hotel room for two months. And there are plenty of fans eager to rub shoulders with their favorite stars in a low-key setting. Other well-off vacationers can stay in sprawling, five-bedroom homes with gyms and outdoor patios for $999 per night. Meanwhile, snowbirds of more modest means can opt for three-bedroom homes with private pools. The budget-minded can score a relative bargain here when prices drop in the summer.
2. Orlando, FL
Median list price: $300,100
Average daily rate: $193
Occupancy rate: 86%
Active rentals: 6,902
You already know all about Orlando’s main appeal for vacationers: theme parks, baby! But the Wild West era of short-term rentals has come to an end. New city ordinances went into effect in July requiring hosts to get licensed, pay a fee, and only rent out bedrooms in homes they live in. This means no out-of-state investors, and that’s a sea change for this tourist mecca. But it’s helping locals who just want to rent out a room or two. Despite the regulations, folks can still make good money listing their extra bedrooms. And they don’t have to live in a fancy home to do so. A private room with a queen bed can go for $30 to $100 per night.
3. New Orleans, LA
Median list price: $350,100
Average daily rate: $230
Occupancy rate: 78%
Active rentals: 8,962
Vacationers looking for the authentic NOLA experience have traditionally stayed in Airbnb rentals in prime historic neighborhoods. Over time that caused home values to soar as investors bought up available properties—and priced out many residents. After much hand-wringing, a full ban on Airbnb rentals in the tourist-heavy Garden District and French Quarter areas went into effect in January, as did restrictions in certain residential neighborhoods. But rentals are still allowed in the Central Business District and other commercial sections. While these law changes are sure to hurt many investors, they’re creating opportunities for others. And half of the units in the large, multifamily homes that New Orleans is known for can still be rented out.
4. Miami, FL
Median list price: $440,100
Average daily rate: $204
Occupancy rate: 82%
Active rentals: 10,024
The luxury, high-rise, oceanfront condos in Miami Beach are prime short-term rentals. But before becoming a host here, you’ll need to make sure you’re following the new regulations very carefully. Last fall, the city banned vacation rentals in residential neighborhoods outside the core Miami Beach downtown communities. Fines for breaking these rules can top $20,000. It’s gotten so serious that city officials are kicking guests out of rentals they’ve already checked into. Airbnb has filed a lawsuit against the city for the changes. But those who follow the letter of the law can make some real money renting out their rooms and homes. Condo rentals can easily top $200 a night. A two-bedroom condo in a tower with a spa, fitness center, full-time concierge service, and redwood sauna listed for $345 per night.
5. Honolulu, HI
Median list price: $720,100
Average daily rate: $178
Occupancy rate: 80%
Active rentals: 7,216
It’s perfectly legal to provide vacationers with a place to stay in Polynesian paradise—for now. But the Honolulu City Council moved forward a bill that would dramatically tighten the reins on vacation rentals. These rule changes would lock out big investors, and create a steep fine of more than $10,000 for nonlicensed units. So it might be best to wait out the legislation before making the plunge here unless folks are renting out spare rooms in their primary residences. “Finding affordable housing has long been a significant challenge for Hawaii’s residents. Over the past decade, it has risen to crisis proportions,” the Hawaii Appleseed Center for Law and Economic Justice wrote in a 2018 report. “The growth of the vacation rental industry in recent years is exacerbating these problems.” Despite the future challenges, Honolulu remains a popular place for hosts. There’s so much competition that one-bedroom units in ocean-side towers are renting for a very reasonable $100 a night. But even with the lower rates, owners can still make a tidy profit as the steady stream of tourists ensures the rentals are never vacant for long. That explains why the average monthly revenue tops $3,300.
6. Nashville, TN
Median list price: $385,000
Average daily rate: $247
Occupancy rate: 74%
Active rentals: 6,965
As Music City has become to bachelorette parties what Las Vegas is to bachelor parties, Nashville’s short-term rental market has taken off. But the free-for-all days are over. Last year the city began requiring mandatory permits for hosts, collecting hotel taxes, and cracking down on entire homes without the owner on-site being rented in residential areas. But it hasn’t dampened demand. Pricey Nashville hotels, which are charging upward of $1,000 per night during the NFL draft later this month, are creating an opportunity for lower-priced rentals, he says. Places in walkable neighborhoods close to downtown are the most popular with guests, including in places like Germantown and Salemtown. Here a one-bedroom unit can go for about $130 per night.
7. Santa Ana, CA
Median list price: $650,000
Average daily rate: $181
Occupancy rate: 83%
Active rentals: 305
Santa Ana’s short-term rental market has gotten a boost from the nearby city of Anaheim, home to Disneyland, which recently passed highly restrictive new rules on rentals. So Santa Ana, which doesn’t even require permits for homes listed on sites like Airbnb, got the guests! Santa Ana had an Airbnb ban earlier in the decade, but lifted it in 2015. Since then investors and everyday homeowners have flooded the market. Many are renting out rooms in private homes for about $50 nightly; entire homes can top $400 a night if they’re big enough to accommodate large groups or families.
8. Tulsa, OK
Median list price: $220,000
Average daily rate: $97
Occupancy rate: 75%
Active rentals: 451
When folks dream of their ideal vacation destinations, Tulsa doesn’t usually spring to mind. But the number of short-term rentals here is exploding, up almost 300% over the past three years. And demand is so high that the market might need even more rentals to meet it. Sure, the city has some 140 parks and is home to the Philbrook Museum of Art. But its biggest draw may be its affordable home prices—it’s the cheapest market on our list. So the investors are swooping in and helping to push up prices, which are up 21% over the past three years. That rapid growth hasn’t gone unnoticed. The Tulsa Metropolitan Area Planning Commission recommended earlier this month that the city require licenses for properties rented out for less than 30 days. But the city is still a good deal for travelers. Entire one-bedroom apartments downtown can be found for under $50 a night, while there are plenty of houses going for under $100 a night.
9. Austin, TX
Median list price: $545,100
Average daily rate: $245
Occupancy rate: 71%
Active rentals: 10,825
There are about a zillion reasons to visit Austin. Visitors come for music, media, and film festival South by Southwest, a Texas Longhorns football game, or paddle boarding down the Colorado River. And they’re all looking for places to crash. Most condos won’t allow homes to be rented out to temporary guests, so the market is mostly made up of entire single-family homes or just a bedroom in a home. The city requires hosts to pay $500 for 12-month licenses. A two-bedroom artist retreat is listed for under $100 a night in East Austin, an up-and-coming neighborhood.
10. Tucson, AZ
Median list price: $392,100
Average daily rate: $133
Occupancy rate: 90%
Active rentals: 3,124
The cherry on top to owning a home listed on a site like Airbnb or HomeAway is when your property shoots up in value. Among the places we ranked, Tucson had the highest price appreciation, up 9% year over year. Visitors come to Tucson for the hiking, mountain biking, or the perfect Instagram shot in Saguaro National Park, named after the iconic cactus. These visitors are usually snagging up entire homes, which make up more than 80% of the vacation rental market here. Accommodations include this 900-square-foot cottage at the foothills of the Tucson Mountains, which rents for around $150 a night. And while investors fret over law changes in cities across the country, short-term rental owners can breathe a sigh of relief here. The state of Arizona has a law on the books preventing cities from banning short-term rentals.
Arizona is a hot bed for real estate investors buying properties for vacation rental purposes. Our team specializes in helping Canadians buy and manage these properties. Learn more about real estate investing in vacation rental properties in Arizona and contact us to learn how to get started…