If you’re like most portfolio managers, traditional real estate is a comfort zone for you. Why wouldn’t it be? 

Traditional real estate has reliably brought in an average annualized return of 10.3%, which is right on pace with the stock market. That alone would make any fund manager hesitant to redirect even a small fraction of their fund from tried-and-true traditional real estate to vacation rentals.

Yet, in this case, the opportunity cost of not investing is steep—especially because the returns are probably more reliable than you realize. 

Here’s how vacation rentals stack up to traditional real estate, according to the data. 

Vacation Rental Demand Has Consistently Trended Upward

Let’s state the obvious: COVID-19 was a turbulent time for vacation rentals. But our data shows it was also a blip on the Airbnb demand radar. When you remove the outlier that was pandemic travel, the trend is clear: the number of nights stayed in short-term rentals has steadily increased since Airbnb’s inception in 2008. 

As of December 2022, demand for Airbnbs increased by 19.8% year over year (YOY). That wasn’t an outlier, either.

12.9 million guests stayed in Airbnbs during February 2023. On face value, that’s the lowest short-term rental (STR) demand has been since February 2022. But it’s still an increase of 17.9% YOY. Travelers also booked 18.3 million nights during the month, which also represents a YOY rise of 14.9%.

Vacation Rentals Out-Earn Traditional Long-Term Rentals

Most investors want to maximize returns. While it may seem like STRs are the volatile stocks to long-term rental’s reliable bonds, that actually isn’t the case. 

On average, vacation rentals earn 61% more than long-term rentals. This is due, in large part, to the fact that it only takes a matter of days or weeks for short-term rentals to earn the same amount that a long-term rental earns in a month.  

Apartments in New Orleans, for example, rent for $1,236, but short-term rentals in the same market clear that revenue in an average of 5.2 days, adding up to an average of $4,238 in monthly STR revenue. Move east to Savannah, Georgia, and this performance still rings true—Airbnbs generated $4,920 in monthly revenue compared to the city’s effective monthly rent of $1,492. 

Even if your Airbnb does sit vacant a few days out of the month, you’ll likely still earn more than if you rented it out long-term—especially if you choose your markets wisely. 

Vacation Rentals Have More Dynamic Pricing

Part of the beauty of long-term rentals is their consistency. Month in, month out, you know how much you’ll make. While there is security in that consistency, there’s also a missed opportunity: dynamic pricing, especially in vacation rentals’ peak season. 

For example, Airbnbs on Alaska’s Kenai Peninsula averaged $262 per night with an 80% occupancy rate during peak season. This adds up to $6,288 per month in STR income. Compare that to the average long-term rental rate of $1,338. Which would you rather invest in? 

This bears out even after peak season comes to a close. At the average long-term rental rate, you’d earn $16,056 per year, but our data shows that Airbnbs on the Kenai Peninsula earn an average of $44,000 per year, despite the fact that occupancy rates do decline come winter.

You might want your own home to have that lived-in feeling. But keeping your real estate in pristine condition reduces maintenance costs—something that can add to your earnings over time. Airbnbs are much more likely to give you that. 

STRs are lived in significantly less than long-term rentals. That means they’re less vulnerable to daily wear-and-tear and the impact of bad tenants. They’re also professionally cleaned on a regular basis, and any potentially costly fixes are usually caught early on. 

Less money spent on repairs creates more value for your investors’ portfolios. 

Long-term rentals don’t work everywhere. If you’re set on investing in properties with long-term potential, you’re limited to metropolitan areas and suburbs that are both in demand and can sustain high rental rates. But investing only in those places leaves your fund susceptible to market fluctuations. 

With STRs, you can diversify beyond what’s possible in traditional real estate. Airbnbs can thrive where long-term rentals don’t, like large cities or popular tourist destinations. Even if the long-term rental returns are low, Airbnb returns are often booming.

For all these reasons, market diversification is probably something your investors are looking for. Airbnbs are both a strategic and revenue-driving way to satisfy that ask.

Use Data to Diversify Your Real Estate Investments

When it comes to Airbnb investing, fortune does favor the brave. There may not be a need to shift your entire portfolio to Airbnb. But what if you invested even 10% of your fund in vacation rentals? 

Greater returns, dynamic pricing, and unique markets are all on the table. What’s more, all the numbers we mentioned above are just averages. If you invest well, your fund could see even better performance than what we’ve listed above. 

As you’re analyzing your vacation rental profitability, put the full power of AirDNA behind you. Our data intelligence gives you the confidence you need to get out of your investing comfort zone and into the valuable vacation rental market.

Vacation Rentals vs. Traditional Real Estate: A Data-Driven Analysis | AirDNA

Check out AirDNA's guide on how vacation rentals stack up to traditional real estate, according to the data.

Vacation Rentals vs. Traditional Real Estate: A Data-Driven Analysis | AirDNA

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