As Airbnb and private accommodations have become a firm fixture in the worlds of travel and hospitality, increasing numbers of investors are taking advantage of opportunities presented by the vacation rental real estate market.

AirDNA tracks the daily performance of over 10 million short-term rentals in 80,000 markets globally on Airbnb and HomeAway to produce some of the industry’s most powerful tools used to analyze, optimize and invest in short-term vacation rentals.

Building on our reports from 2015 and 2017, we’ve analyzed average mortgage costs against Airbnb revenue in thousands of cities across the country to put together a series of interactive charts illustrating the latest insights into vacation rental real estate investing.

Where are the best places to invest in a vacation rental?

Slicing and dicing the numbers on a daily basis, we consistently see short-term rental properties that make up to 3x more than traditional long-term rentals, and up to 5x more in certain markets.

Although the temptation might be to buy or lease a property in your local area, or in the closest big city popular with tourists, our analysis reveals that sometimes the most unexpected towns are goldmines of high returns.

Purchasing a Short-Term Rental Property

Aspiring investors often think that they should choose a property in the highest price bracket they can afford to get the best return on investment. However, our Property Purchase chart below proves this approach to be totally wrong, indicating a strong negative correlation between house price and Airbnb gross revenue.

Why? Airbnb investors in cities where house prices are sky-high and competition is fierce – think Los Angeles and New York City – would actually make a negative return on investment of tens of thousands of dollars. It is a similar story for smaller markets, which are often just as expensive, such as Santa Monica, Oakland and Berkeley, CA. Long-term rentals might show an alternative trend, but these markets are currently best avoided by the vacation rental investor.

Alternatively, smaller to medium-sized towns with high occupancy rates are your best bet when choosing where to invest in a vacation rental property. The chart reveals a cluster of towns and cities where house prices sit above the trend line at the $9,000-$12,000 mark: Kissimmee, FL, Las Vegas, NV, and smaller markets such as Fort Walton Beach and Pensacola, FL, and Pigeon Forge, TN. These are safe bets for a first-time investor, boasting low initial costs and up to $44,000 in gross profit for a top property (75th percentile) in a thriving market.

Detroit, MI stands quite literally apart from the crowd with its extraordinary low annual mortgage estimate of $5,000 and high Airbnb rental profit of $29,500. A promising market highlighted last year’s analysis, Joshua Tree, CA still proves to be a smart market with a high ROI, despite now having triple the number of Airbnb properties.

However, the shooting stars of revenue in the buy-to-rent investment model are currently Sevierville and Gatlinburg, TN, whose low annual mortgage estimates coupled with high Airbnb revenue could make investors an average profit of $43,000 and $53,000 per year respectively. And if you have a little more to spend, Palm Springs, CA, Destin and Key West, FL, and Koloa, HI offer very high returns, with Sonoma, CA at the top spot, making investors an average of $73,000 in annual gross profit over the same period.

It is important to remember that this analysis is a city-wide average, and does not differentiate between particularly high- and low-performing neighborhoods. Dive into neighborhood analytics and research the best performing properties in a market with MarketMinder, priced at $19.95 – $99.95 per city for a month’s access.

Subleasing Vacation Rentals

Rental arbitrage analyzes the most profitable markets to rent and sublease a property as a vacation rental on Airbnb or HomeAway. In this case, initial costs are much lower, providing investors with opportunities to make large returns.
Local legislation and contractual agreements on subleasing vary however, so be sure to check before signing a lease.

Most striking is the difference in the trend line from the Property Purchase chart above. The data demonstrates that in general, in contrast to buy-to-rent investing, properties in cities with a higher cost of rent will actually bring in more revenue than cheaper markets.

With rent-to-rent, some large cities including San Francisco and Boston don’t fare as badly, with properties making average returns of $42,000-$43,000 per year, even after expensive rental costs.

It is Hawaii, however, that really shines in the rent-to-rent investment game: Koloa, Lahaina, Kihei, Honolulu, Princeville and Waikoloa all show very high returns against mid-range rental costs, with Koloa exceeding $80,000 in annual gross revenue. Demand for diversity in offerings on the islands could be sparking an interest in vacation rentals as an alternative form of accommodation.

Seasonal areas such as winter sports towns Vail, CO and Mammoth Lakes, CA, and summer resorts Key West and Destin, FL also show high returns on rent-to-rent investment.

The principal takeaway from our Airbnb Rental Arbitrage analysis is that, unlike in the Property Purchase chart, none of these markets make a loss.

Subsidizing Your Rent with Airbnb

What about hosts just looking to subsidize rental costs by listing a spare bedroom as a Private Room on Airbnb?

In some markets, renting out your spare room will just help you to cover the rent. In others, listing your place on Airbnb could pay for your rent, and even turn a profit.

Unsurprisingly, in highly popular cities – Venice, Santa Monica and San Francisco, CA and Cambridge, MA – subletting a room as a vacation rental might soothe the dent in your wallet, but will not offer a significant return from an investment point of view. You would be better off just finding a permanent, long-term tenant.

However, in a surprising number of markets, renting out a Private Room in your place could cover your rental cost altogether. Bundling in the $7,000-$10,000 annual rental cost range, markets such as Detroit, MI, Memphis, TN, Cleveland, OH, Indianapolis, IN, Louisville, KY would make hosts between $2,500-$5,500 in annual profit.

In exceptional markets, such as Sedona, AZ, South Lake Tahoe, CA, and Savannah, GA, even with average annual rental costs of around $15,000 or less, Airbnb hosts can make a gross profit of $8,000-$12,000 by renting out a Private Room on Airbnb.