Thinking about buying rental property to use as a short-term rental, but feeling unsure about where to start? It’s not just about finding a great location—successful investors dig deeper. Discover how to evaluate markets, analyze potential properties, and build a solid financial plan to make your investment a success.

5 Things Investors Must Do Before Buying Rental Property to Airbnb

Take a strategic approach by focusing on more than just property listings—understanding market dynamics and your investment goals is the key to success.

Analyze markets and submarkets to uncover hidden opportunities and ensure your rental property will thrive in its specific location.

Refine your financials to account for all costs and create a realistic plan that aligns with your investment strategy before making the purchase.

You want to buy a rental property as a short-term rental investment and you've found a property that seems perfect. The location is great, the price fits your budget, and you can already picture happy guests leaving glowing reviews. But before you get carried away, there’s a lot to consider—more than just the numbers. Is this property the right fit for your investment goals? Will it perform well in the market? What should you be thinking about before buying rental property?

Many real estate investors, whether they’re buying their first property or their fifth, face these same questions. 

Before buying rental property, it’s essential to take a step back and approach it with an investor mindset. In this guide, we’ll cover the key things you need to do first, from understanding the market to evaluating specific properties. You’ll learn how to think critically about your investment, identify the right opportunities, and set yourself up for success before opening your pocketbook. 

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1. Clarify Your Investment Goals for Buying Rental Property

It’s easy to get excited when you spot a property with great potential—a cozy cabin or a sleek city apartment that you can already imagine turning into a profitable short-term rental. But before diving into individual listings and crunching numbers, it’s crucial to step back and think about your overall investment strategy.

Are you aiming for steady passive income and cash flow, or is your goal long-term property appreciation? Your strategy will influence which metrics are most important as you evaluate properties—including whether you're considering turning your own primary residence into a short-term rental.

Before focusing on specific properties, think about what makes an area attractive to short-term renters. Is it near tourist hotspots, business districts, or unique local attractions? Seasonality is also key—some properties perform well year-round, while others may peak in summer or winter and struggle in off-seasons. Can you attract different types of guests to fill gaps and keep occupancy steady throughout the year?  For more information on short-term rental investment strategies, check out our Guide to Airbnb Investing.

Once you’ve clarified your goals and understand the bigger market dynamics, you’ll be in a much stronger position to evaluate individual properties (which we’ll get to later in this article, so not to worry!). So, while it's tempting to dive straight into the details of a specific listing, thinking through market factors first will set you up for long-term success.

Successful real estate investors know that a property's potential isn't determined in isolation. While individual metrics are essential, understanding the broader short-term real estate market context can make or break your investment. 

AirDNA divides the country into markets, which then fall under six market types based on geographic characteristics—such as proximity to the coast, mountains, or urban centers. Each market type presents unique opportunities and challenges for rental property owners. Before buying a rental property, you’ll want to understand how each market aligns with your investment goals.

Coastal markets are often some of the most desirable locations for short-term rentals, drawing in beachgoers, retirees, and vacationers year-round. However, these areas are highly seasonal and come with their own set of challenges. Investors in coastal areas need to weigh the high potential revenue with the associated risks and costs.

High ADR potential: Coastal areas, especially during summer, can command high average daily rates.

Seasonal fluctuations: These markets tend to peak in warmer months, with potential revenue dips in off-seasons.

Higher acquisition and maintenance costs: Desirable locations drive up prices, and properties may need extra weather-proofing (hurricane windows, flood insurance).

Off-season opportunities: Target different demographics like retirees or remote workers to maintain occupancy during the slower months.

Mountain and lake markets are perfect for nature-loving travelers, offering activities like skiing, hiking, and water sports. These areas are highly seasonal, often peaking during the winter for ski resorts or summer for lake destinations. Investors in these markets need to account for both peak season earnings and the off-season potential.

Peak seasonality: Strong winter demand for ski resorts and summer demand for lakes.

Amenity investments: Guests expect features like hot tubs, fire pits, or boat docks, which can raise the property’s appeal but also maintenance costs.

Year-round potential: With effective marketing (e.g., for fall foliage or spring hiking), you can attract visitors in all seasons.

Unique expenses: Be prepared for costs like snow removal or dock upkeep.

Urban markets are bustling year-round with business travelers, tourists, and event-goers. These markets offer consistent demand but often come with higher acquisition costs and increased competition. Success in urban areas may depend on standing out from the crowd with strategic pricing, amenities, and niche targeting.

Year-round occupancy: Business travelers, tourists, and event-goers fuel consistent demand.

High competition: Popular neighborhoods can be oversaturated with short-term rentals, so strategic pricing and standout amenities are crucial.

Higher acquisition costs: Properties in prime urban areas tend to come with higher price tags.

Regulatory risks: Cities often have stricter regulations on short-term rentals, so make sure to review local laws before investing.

Suburban markets, while often overlooked, provide excellent opportunities for investors seeking stable, long-term occupancy and lower competition. With families, groups, and business travelers looking for more space and quiet, suburban properties can deliver solid, year-round performance.

Stable, long-term occupancy: Suburban properties often attract families or business travelers looking for more space and quiet.

Lower acquisition costs: Compared to urban centers, suburban homes can be more affordable, offering a higher ROI.

Larger properties: More space can appeal to groups, but it may also require guests to have cars, which limits some demographics.

Less competition: Many investors overlook suburban areas, which can offer untapped potential in the short-term rental market.

Mid-sized cities are balanced markets with a mix of business and leisure travelers. They typically offer more affordable entry points than major metros while still providing solid demand. These markets are often more stable than rural or coastal areas, without the extreme seasonality.

Balanced opportunities: These markets often have a mix of leisure and business travelers, providing steady demand without the extreme peaks of larger cities or rural areas.

Affordable acquisition costs: While generally more expensive than rural markets, mid-sized cities often present lower entry costs than major metros.

Emerging neighborhoods: Watch for up-and-coming areas that offer growth opportunities and potential price appreciation.

Small cities and rural areas offer unique opportunities for investors looking for niche markets. While demand can be seasonal, the lower property prices and higher ROI potential make these areas attractive. Investors can capitalize on niche trends like eco-tourism or farm stays to drive demand.

Lower entry prices, higher ROI potential: These markets often have lower property acquisition costs, making them appealing for new investors.

Niche market potential: From eco-tourism to farm stays, rural areas offer unique opportunities to tap into niche traveler preferences.

Seasonality: Demand may be more volatile, with higher seasonality based on local events or attractions.

Higher amenity costs: Properties in rural areas might require more investment in amenities like barns or outdoor recreation facilities to stand out.

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Submarkets—specific neighborhoods or smaller geographic areas within a larger market—can have a significant impact on a property's performance. Think of a market as a pie, and submarkets as the slices—each with its own unique flavor profile that can dramatically influence your return on investment.

Submarket analysis allows you to uncover hidden gems or avoid potential pitfalls that might not be apparent when looking at overall market data. For instance, while a city’s average occupancy rate might seem mediocre, certain neighborhoods may be consistently outperforming others. This can translate into thousands of dollars in additional revenue each year.

Submarkets also have distinct guest demographics, pricing dynamics, and seasonal trends, all of which can greatly affect your property’s success. By considering submarket data, you can tailor your investment to the specific characteristics of a neighborhood, potentially giving you a significant edge over competitors who only focus on broader market trends.

Gain insights into the revenue and occupancy trends in your market.

4. Use AirDNA to Evaluate Specific Properties

At this point, you might have a few specific properties in mind. This is where the rubber meets the road - it's time to look at the numbers for each potential investment.

One of our most popular tools for vacation rental property investors is our revenue calculator, Rentalizer™. Simply type in an address, and you’ll see a snapshot of what the property could earn as a short-term rental. For example, if you’re looking at a property in Denver, Rentalizer™ provides projections based on the performance of comparable properties within a 10-mile (15-kilometer) radius.

But that’s just the starting point. To make a well-informed decision before buying a rental property, you need to dive deeper into the data.

Here’s where the insights start. Let’s break down what these metrics mean for your investment:

Projected Annual Revenue: This shows expected earnings over the next year, assuming full availability. Compare it to your goals and see how it stacks up against long-term rentals in the area.

Occupancy Rate: This indicates how often the property is likely to be booked. Watch for seasonal fluctuations, as they can affect your overall income.

Average Daily Rate (ADR): This is the average nightly rate you can charge. Compare it to market expectations. Are there opportunities to raise rates through strategic upgrades or marketing?

Remember, these numbers are averages across all listings in the area. Your property might perform better—or worse. The goal is to figure out where your property falls on the performance curve.

Identify and Refine Comparable Properties

When considering buying a rental property, you need to compare apples to apples. Just as you wouldn't compare the price and quality of a Red Delicious apple to a Valencia orange, you shouldn't compare a beachfront condo to a suburban house, even if they're in the same city. They're fundamentally different properties that will attract different guests and command different rates.

Rentalizer automatically selects comparable properties based on location, bedrooms, bathrooms, and guest capacity. However, you’ll want to review these to make sure they really are comparable to the property you’ve selected. Scroll to the bottom of the page to see these comps in detail, and make sure they match your property’s size, amenities, and proximity to local attractions.

If they don’t, it’s time to start filtering your results. 

Use filters to refine your comparisons so you can get an accurate picture of your property’s investment potential. Here are some of our filtering options: 

Property Type and Size: Match the number of bedrooms and bathrooms.

Guest Capacity: Adjust based on how many guests your property can accommodate.

Price Tiers: AirDNA categorizes properties as Luxury, Upscale, Mid-range, or Budget based on ADR. Choose the tier that aligns with your property.

Amenities: Filter for key features like pools, parking, or other enhancements you're considering.

By narrowing your comparables with filters, you’ll get a much clearer picture of your property’s potential. For example, you might go from 14,000 initial properties down to 133 truly comparable listings, giving you more accurate insights for your investment decision.

Remember, it’s about quality over quantity. A smaller, well-matched set of comparables will provide better insights than a large, broad sample.

As you apply filters, track how key metrics may shift:

A higher ADR after filtering for a pool? That feature may be worth investing in.

A drop in occupancy for larger properties? Smaller units might perform better in your area.

A significant change in revenue based on price tier? This can help you optimize your property's positioning.

Once you’ve analyzed the property data, it’s important to zoom back out and revisit the bigger picture—your overall market strategy. To do this, access valuable market-level insights by clicking the "Next: View Insights For This Property's Market" button.

This broader view of the market can help you understand how larger factors—such as seasonality, competition, and local trends—can influence your investment strategy. Balancing both individual property metrics and market-level data will give you the full perspective you need to make a confident investment decision.

Now that you’ve analyzed market dynamics and assessed potential properties, it’s time to make your financial plan—this is the final, crucial step before committing to a purchase. While projected revenue, occupancy rates, and average daily rates (ADR) give you a sense of the property’s income potential, it’s essential to factor in all costs to ensure the investment meets your financial goals.

Account for Operating Expenses
Beyond the initial purchase price, make sure to budget for ongoing expenses like property management fees, utilities, insurance, and routine maintenance. For properties in coastal or mountain areas, account for higher maintenance due to weather conditions, and don’t forget season-specific expenses, such as snow removal or storm-proofing.

Plan for Periods of Vacancy
Even in high-demand markets, there will be periods of lower occupancy, especially in seasonal locations. Make sure your financial plan accounts for off-season months and vacancies. This will help you maintain cash flow throughout the year and avoid relying solely on peak season profits.

Budget for Property Improvements
If the data suggests adding certain amenities (like a pool, hot tub, or upgraded furnishings) could boost occupancy or ADR, make sure to budget for these enhancements. These upfront investments can significantly improve your property’s performance, but they need to be weighed against your expected returns.

Factor in Taxes and Local Fees
Don’t overlook property taxes and short-term rental regulations that may include fees or permits, especially in urban areas. Ensure you’re aware of any local tax obligations or compliance costs that could impact your overall profitability.

By refining your financials with a full understanding of both income potential and operating costs, you’ll have a clear picture of whether the property aligns with your investment strategy. 

At this point, you’re probably feeling ready to take the plunge and buy that rental property. With a solid financial plan, a deep understanding of the market, and all the right data in hand, you’re set up for success. You’ve done the research, made informed decisions, and now it’s time to move forward and turn your investment dreams into reality. Good luck—you’ve got this!

Use Smart Rates™ to optimize your pricing strategy.

Buying rental property for an Airbnb? Learn how to evaluate markets, analyze properties, and build a smart financial plan.

5 Things Investors Must Do Before Buying Rental Property to Airbnb

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