A huge number of folks write to us wanting to know the best places in the U.S. to invest in an Airbnb property. In this article, we do all the hard work for you. Analyzing data from millions of Airbnb rentals over the United States, we reveal what the numbers say: the best places to rent and buy real estate for Airbnb rental in America. First, we take a look at the best rental arbitrage opportunities. Rental arbitrage is the act of renting an apartment long-term and then re-renting it on a short-term basis on Airbnb.
The Best Places to Invest in a Vacation Rental
The interactive dashboard displays all the cities in the U.S. that have at least 10 full-time one-bedroom apartments. Full-time rentals are defined as properties that are available for rent at least 75% of the year with 20 or more Airbnb bookings in the last 12 months. Use the slider to view the performance of Airbnb properties in different months or season of the year. This dataset is from July 2014 to June 2015.
1 bedroom rental 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 above the trend line are the cities outperforming the rest when comparing average long-term rental cost vs. average Airbnb revenue.
While this visualization shows the performance of the average Airbnb listing, we believe that the best comparisons are properties that are performing at the 90th percentile level. Even accounting for our initial exclusion of part-time listings, many hosts rent their properties on multiple platforms whose revenue is not picked up here. We also note that most hosts don’t fully optimize their listings to maximize their revenue potential by using dynamic pricing.
Even then, this analysis does not highlight the high-performing neighborhoods that reside in many major cities. Many cities such as New York and San Francisco have a wide disparity in property cost – a one bedroom flat might rent for $8,000 a month while a similar sized unit across town goes for $2,000. Want to see the revenue generated by 100,000 Airbnb rentals in every city in the U.S.? AirDNA provides an Airbnb profitability analysis for every zip code in the United States with the new Airbnb Investment Explorer.
Taking into account all of this information, we can clearly see a number of cities traditionally overlooked by investors that jump off the page as great places to invest in an Airbnb property.
Charleston, South Carolina appears to be one of these cities with a huge profit margin. With rentals available for $1,140 per month and 90th percentile Airbnb income at $4,974, you’re looking at a gross profit margin of over $3,500 each month.
Several Hawaiian cities also stand out 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 rental 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 bedroom apartment listings. Let’s see what we found.
Boston, New York, and Santa Monica seem to stand out here, all with average Airbnb revenues of over $6,000 in the month of June, and the 90th percentile properties earnings ranging between $8,000-$10,000. Comparing that to the average rental cost of $3,000-$4,000 leaves a fat $5,000 potential profit margin in one single month.
However, the winter season is harsher to some cities than others. New York, for example, is a highly seasonal market. 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 solid understanding of seasonal (and even daily) demand for rentals in these temperate climates is crucial to maintaining profitability throughout the year.
As would be expected, the sunny skies of Hawaii, California, and Florida compared to the other major cities, peak in performance 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 sign up for MarketMinder or grab a custom report.
Purchasing an Airbnb Vacation Rental
Although smaller apartment units dominate the Airbnb market, there is growing number of single-family homes being uploaded onto Airbnb every day. As more and more traditional vacation rentals realize the tremendous opportunity of targeting a new, younger demographic, houses that were once only listed on HomeAway.com and VRBO are now appearing on Airbnb. For the purpose of this analysis, we will only be including 2-4 bedroom homes to minimize the effect of housing mix (to avoid comparing studio apartments to 7 bedroom villas).
This resulted in about 3,000 full-time single family home listings. With over 300,000 advertised properties in the U.S. 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 full time on Airbnb. The visualization below shows the average monthly revenues for entire homes in cities that have at least 10 full-time rentals.
Airbnb real estate investors consider the most attractive cities to be those with lower house prices and above average short-term rental returns. 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 wildly based on the exact location of each home within a city, so this analysis should only be used to help you start to 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.
Paying Your Rent with 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 that all or most of your rent can be recouped by renting out a second bedroom, our data shows that it is not possible to even 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 listings 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 had 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 Consider an Airbnb Investment Property?
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 specific market 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 in the U.S. since October 2014. For the purposes of this analysis we looked at properties that had at least 20 reservations in the year and 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 over 400,000 listings in the U.S., we were left with a little over 40,000 full-time rentals.
For long-term rental data, we sourced our data from rentometer.com, looking at the rental cost of one and two bedroom apartments in most major markets across the U.S. The average rental cost for the city is a simple average of all the zip codes within the city – 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.