We have had a HUGE volume of enquiries from folks looking for the best place to invest in Airbnb rental properties. So we are going to give it to you. We analyzed our data and have compiled what the numbers say ‚Äď the best places to buy or rent an Airbnb property in America.
First, we’ll look at the best rental arbitrage opportunities. ¬†Rental arbitrage is the act of renting apartment long-term and then re-renting them on a short-term basis on Airbnb.
The Best Places to Invest in Real Estate as short-term rentals
In this interactive dashboard you can see all of the cities in the US that have at least 10 full-time one-bedroom apartments. We define full-time rentals as those available for rent at least 75% of the year with at least 20 Airbnb bookings during the last 12 months.
Use the slider to view the performance of Airbnb properties in different months or season during the year. ¬†(The data set is from July 2014 to June 2015)
1 Bedroom Apartment Performance on Airbnb
(Double click in the graph to zoom in and around the edges to expand the view, hover over a city to see revenue and occupancy rates.)
The cities that reside above the linear trend line are the cities performing better than average when taking into account average rental cost vs. average Airbnb earnings.¬†While this visualization shows the performance of the average listing, we believe the best comparisons are for those properties performing are at the 90th percentile level. Even accounting for our initial exclusions to the list, many hosts are renting their properties across multiple sites ¬†and that revenue is not picked up here. We also note that most hosts have not fully optimized their listing to maximize their earning potential.
Even then, many cities such as New York and San Francisco, which have such wide disparity in property cost – a one bedroom might rent for $2,000 a month while across town the same size unit might rent for $10,000 – this metric might overstate the premium that can be earned.
Airdna provides profitability analysis for every zip code in the United States with the new Airbnb Investment Explorer tool. ¬†This application allows investors to explore the revenue generated by over 70,000 full time vacation rentals to identify markets that have the highest average returns.
Several cities that may have been previously overlooked by investors jump off the page as great potential investment areas. Charleston, South Carolina appears to be one of these cities with a huge margin, with rentals available for $1,140 and 90th percentile Airbnb income at $4,974, there is profit margin potential of over $3,500¬†each month.¬†Several Hawaiian cities are stand outs with¬†Honolulu¬†and¬†Kailua¬†seeming ripe for investment. A couple of Midwest cities,¬†Kansas City¬†and¬†Cleveland,¬†represent great value plays. Cleveland in particular can generate a 400% return on a 1 bed apartment with as little as a $6,000 initial investment.¬†If we do a simple breakdown of financials, we get this:
|Set Up: Deposit, 1st Months Rent, $4K furnishing||($5,226)|
|Remainder: 11 months rent @ $613 +$100 utilities||($7,843)|
|12 Months Airbnb Revenue @ $2,815||$33,780|
|Potential 1 Year Profit||$20,711|
There may be other operational expenses for managing the rental property throughout the year. Check out our blog post on the best Airbnb property management services for a list of emerging low cost providers.
2 Bedroom Apartment Performance on Airbnb
Many Airbnb investors hold that 2 bedroom rentals offer the best value, so we chose to investigate. Out of the 40,000 full-time rentals analyzed here, only 1,850 units were entire home 2 bed apartment listings. Let‚Äôs see what we found.
Boston, New York, & Santa Monica¬†seem to be the big standouts here, all with average Airbnb revenues of over $6,000 in the month of June, with the 90th percentile properties earnings ranging between $8,000-$10,000. Comparing that to the average rental cost of $3,000-$4,000 that leaves a fat $5,000 potential profit margin in one single month. But, the winter season is harsher to some cities than others. New York for example is a highly seasonal markets. With an average rental income of $6,557 in the months of May and June, it dips down 43% to only $3,836 in the months of January and February. A great understanding of seasonal and even daily demand for rentals in these temperate climate is crucial to maintaining profitability throughout the year.
As would be expected, the sunny skies of Hawaii, California, and Florida peak in performance compared to the other major cities in the winter months. Play with the chart time slider to see how the seasons affect your city. For an in-depth analysis of daily rental demand grab your city intelligence report.
Purchasing a House as an Airbnb Vacation Rental
Although smaller apartment units dominate the Airbnb market, there is growing number of single family homes joining Airbnb each day. ¬†As more and more traditional vacation rentals realize the tremendous opportunity to target a new younger demographic, houses that were once only listed on HomeAway.com and VRBO and now appearing on Airbnb. ¬†For the purpose of this analysis, we will only be including 2-4 bedroom homes as to minimize the effect of housing mix (comparing studio guest houses, to 7 bedroom villas).
This resulted in about 3,000 full-time single family home listings. With over 300,000 advertised properties in the US today this might seem like a tiny sample size. But, it is important to remember that about 40% of those listings are for shared spaces and rooms and less than half of the remaining properties are rented on a full time basis on Airbnb. The below visualization shows¬†average monthly revenues for entire homes only for cities that have at least 10 full time house rentals.
Many residential real estate investors in Airbnb find the cities with lower home cost and above average short-term rental returns the most attractive. The sweet spot seems to be the homes in the cities with a Zillow mid-tier home value index in the $200,000 – $300,000 range. Some of the new cities appearing here are Nashville, Palm Springs, Chicago and Atlanta. ¬†Home prices vary WIDELY based on the exact location of each home in the city, so this analysis should only be used to help you to start narrow your search for a vacation rental property investment. But according to this analysis, it would be possible to pay off a 20% down payment and become cash flow positive in less than one year in these cities.
Covering your Lease by Renting out a Spare Bedroom Room on Airbnb
For those of you looking to use Airbnb as it was originally intended, the story isn’t as pretty. Unlike some articles that have been published¬†that state all or most of your rent can be recouped by renting out a second bedroom, our data shows that it is not possible to come close to covering your rent in any of the major cities. ¬†Our data methodology looks at the actual reservation value of every single reservation accepted over the past year and only looks at private room listing in apartments that have accepted at least one reservation in each month of the year. While there are many people out there that have been covering their rents plus a little extra, on average this does not seem like a good gamble.
Here is a list of the cities that have at least 25 private room full-time rentals over the past year.
|City||Cost of 2bed Apt||Avg Airbnb Revenue||Returns|
|Union City, NJ||$1,400||$1,024||-$376|
So Should you Invest in an Airbnb Rental?
The legislative minefield is real and different in every single city. However many cities are finding ways to make Airbnb legal and the sheer volume of listings shows enforcement is extremely patchy. There are great returns to be had and purchasing our City and Zip Code Premium Reports will provide you with all of the data you need to make the most intelligent investment decision in this sector.
AIRDNA has been collecting data on every single Airbnb listing for over a year now. For the purposes of this analysis we analyzed properties that had at least 20 reservation in the year that had no more than 10 blocked calendar days in each month. This was to filter out part-time and owner occupied rentals from the data set. Out of the over 400,000 listings in the US, we were left with a little over 40,000 full time rentals.
For long term rental data we sourced our data from rentometer.com. ¬† We looked at the rental cost of one and two bedroom apartments in most major markets across the US. The average rental cost for the city is a simple average of all the zip codes within the city and we realize it is often a low estimate of what actual rental costs are in prime tourist locations.
For home values we used the free data provided by Zillow. ¬†Home values provided here are of the Mid-tier home value index and a simple average of every zip code within the city limits.