Are the best short-term rental markets also the most successful for hotels? This is a question that many aspiring real estate investors might be asking themselves. Platforms like Airbnb and VRBO have revolutionized how travelers find accommodations, opening doors for property owners to earn income that can be comparable to that of successful hotels, at least in terms of profit margin. In this guide, we explore the best short-term rental markets for 2024, offering a data-driven and practical approach to maximize your investment.
What are short-term rental markets?
Short-term rental markets refer to regions or cities where property owners can lease accommodations for brief periods, catering to vacationers, business travelers, or those in need of temporary housing. Thanks to premium nightly rates and dynamic pricing models, these properties often provide higher returns than traditional long-term rentals.
Short-term rental trends for 2023-2024
The STR market is influenced by economic conditions, consumer preferences, and regulatory shifts. Key trends for 2023-2024 include:
- Rural and suburban hotspots: Travelers increasingly seek destinations with outdoor activities, resulting in a boom for markets near national parks or scenic locations.
- Business-friendly cities: Urban areas with strong economies and business tourism, such as Phoenix and Miami, remain lucrative despite stricter regulations.
- Sustainable tourism focus: Eco-conscious travelers are prioritizing properties that align with sustainable practices, creating new opportunities for eco-friendly STR investments.
Why invest in short-term rentals?
Short-term rentals (STRs) have emerged as a solid investment option in the real estate world, thanks to the rapid growth of platforms like Airbnb and VRBO. These properties cater to a wide range of travelers, including vacationers, business professionals, and remote workers. It can´t be emphasized enough that remote work has completely changed the game regarding demographic changes in different areas of the US, where people are moving to places that would have otherwise been considered implausible or too far out. The appeal of short-term rentals lies in their ability to generate high returns, adapt to market trends, and offer both financial and personal benefits to investors.
Unlike traditional long-term rentals, STRs allow owners to capitalize on higher nightly rates and dynamic pricing strategies, which can result in greater income potential. They offer a unique opportunity to diversify an investment portfolio, especially as the travel and tourism industry continues to recover and evolve post-pandemic.
For investors looking to maximize profitability, STRs offer flexibility, adaptability, and significant tax advantages. With the right approach, they can serve as a powerful tool for wealth creation while catering to the growing demand for personalized travel experiences.
- Higher income potential: Nightly rates can significantly outpace monthly rents charged for long-term leases. For example, properties in Gatlinburg, TN, can achieve 15% ROI due to consistent tourist demand.
- Flexibility: STR properties can double as personal vacation homes, offering dual-use value.
- Market adaptability: With tools like AirDNA, investors can monitor trends and adjust pricing to maximize profits during peak seasons.
- Tax advantages: STR owners can use cost segregation studies to reduce their taxable income, making their investments even more profitable.
Challenges of short-term rentals
While STRs are profitable, they are not without challenges. It’s essential to navigate these effectively:
| Challenge | Why it´s a problem | Solution |
|---|---|---|
| Regulatory hurdles | Cities like San Diego and New York have strict rules limiting STR operations. Owners may need permits, adhere to occupancy limits, or pay additional taxes. | Research local laws before investing and work with legal experts to ensure compliance. |
| Seasonal fluctuations | Tourist-heavy areas often experience demand spikes during certain months, followed by slower periods. | Use dynamic pricing tools like AirDNA to adjust rates and optimize income. |
| Operational complexities | STRs require regular maintenance, guest communication, and cleaning services. These demands can overwhelm individual owners. | Hire a property manager or use platforms like TurnoverBnB to streamline operations. |
Comparing the best STR Markets
When it comes to short-term rental investments, some markets shine brighter than others. The ROI, occupancy rates, and regulatory environments vary widely from coastal hotspots to scenic mountain escapes. Many places will paint a complex picture of opportunity and risk. Take Florida, for example, the most visited state in the United States. On the one hand, Florida always has visitors, so demand for rentals has historically been quite strong. On the other hand, the difficulty to insure properties in Florida due to natural disasters can make it a risky venture.
Insights into top markets:
- Miami, FL: A year-round tourist hub with high ADR, making it ideal for luxury STRs.
- Gatlinburg, TN: Proximity to the Great Smoky Mountains ensures consistent demand, especially for larger properties catering to families.
- Phoenix, AZ: A strong economy and seasonal appeal for snowbirds drive demand despite stricter regulations.
- San Diego, CA: Offers lucrative opportunities for beachside rentals, though regulatory hurdles require careful planning.
- Smoky Mountains, TN: A booming market with fewer restrictions and strong appeal to outdoor enthusiasts.
How to identify the best short-term rental markets
Investing in short-term rental (STR) properties is an excellent opportunity to build wealth, but not every market is created equal. The profitability of an STR heavily depends on selecting the right location—one with a high return on investment (ROI), strong occupancy rates, and favorable market conditions. However, finding such a market requires careful analysis and planning.
With an increasing number of platforms and tools at your disposal, such as AirDNA, investors have access to detailed data that can guide decision-making. But it’s not just about the numbers—understanding local regulations, estimating operational costs, and accounting for seasonal trends are equally critical to maximizing profitability.
Below is a step-by-step guide to help you navigate the process of identifying the best short-term rental markets, from analyzing data to preparing for hidden expenses and demand fluctuations. With the right approach, you can pinpoint the most lucrative locations while avoiding common pitfalls.
Step 1: Analyze market data
Tools like AirDNA offer valuable insights, including projected revenue, occupancy rates, and ADR trends. Use these to identify high-performing markets.
Step 2: Assess regulations
Not all markets are investor-friendly. Research local laws to avoid potential restrictions that could limit income or increase operational costs.
Step 3: Calculate earnings potential
- Estimate weekly or monthly revenue using AirDNA’s calculator.
- Consider factors like cleaning fees, management costs, and taxes when calculating profitability.
Step 4: Plan for expenses
- Initial costs: Purchase price, furnishing, and renovations.
- Ongoing costs: Maintenance, utilities, platform fees (e.g., Airbnb’s 3% host fee).
Step 5: Monitor seasonal trends
Occupancy rates and ADR can vary dramatically throughout the year. Adjust pricing to capitalize on peak seasons while remaining competitive during slower months.
“Properties near airports, major highways, or public transit tend to attract more bookings. Proximity to key infrastructure can also future-proof your investment against market fluctuations.” Sir Michael, real estate expert and the owner of RentUrgent.
Emerging US markets for 2024
While established short-term rental (STR) markets like Miami, Gatlinburg, and San Diego continue to perform well, emerging markets are becoming increasingly attractive to savvy investors. These locations offer untapped potential, often with lower property costs, fewer regulations, and growing demand for unique travel experiences. In 2024, mid-sized cities and developing tourist destinations are expected to shine, presenting excellent opportunities for investors looking to diversify their portfolios.
Midwest gems
The Midwest is often overlooked in favor of coastal hotspots, but markets like Kansas City, MO, and St. Louis, MO, are becoming investment goldmines. These cities combine affordability with strong local economies and growing tourism sectors.
- Kansas City is drawing attention with its vibrant arts scene, world-class barbecue, and the growing popularity of events like the NFL Draft, which it hosted in 2023. Taylor Swift can also be seen here regularly.
- St. Louis benefits from its rich history, iconic Gateway Arch, and an expanding food and beverage scene. These markets also tend to have fewer regulations compared to larger metropolitan areas, making them ideal for new investors.
Secondary vacation destinations
As travelers increasingly seek quieter, more personalized experiences, lesser-known vacation spots are gaining traction. These locations often boast high ROI potential with fewer competitors and relaxed regulations:
- Beach towns off the beaten path: Destinations like Galveston, TX, and Destin, FL, are perfect examples. These areas attract tourists seeking coastal retreats without the crowds of Miami or Los Angeles.
- Mountain escapes: Smaller mountain retreats such as Bozeman, MT, and Helen, GA, offer scenic beauty and outdoor activities, drawing in adventure seekers and nature lovers.
- Historic small towns: Places like Fredericksburg, TX, and Asheville, NC, blend charm, history, and unique experiences, making them favorites among short-term rental guests.
As James Wang, Co-Founder and CEO at REAi Inc., explains:
“Quite a few factors determine a good rental market to invest in for 2024 and 2025. Some top-growing areas with limited hotel or lodging facilities, like Midtown Atlanta, NYC, DC, SF, Boston, etc., offer opportunities for both business and personal rental purposes. For some, a rental place for a week, a few months, or longer, providing a “live-like-a-local” experience, is preferable to staying in a hotel. Additionally, hot vacation destinations like Savannah, GA; Tampa, FL; Charleston, SC; Myrtle Beach, SC; and La Jolla, CA are also appealing. Investors should consider local regulations on short-term rentals, as some cities and counties may impose restrictions (such as on Airbnb). Seasonality is another factor; it’s often better to invest in a rental property that attracts year-round visitors rather than one limited to a peak tourism season. Lastly, a low supply of short-term rentals in the area can make it easier for a property to stand out. Our book, Real Estate Purchase & Investment, offers detailed insights into determining a good short-term rental vs. long-term rental, utilizing various investment principles and AI algorithms to help individual investors compare and calculate optimal results.”
In simple terms, doing your homework on a rental market can make all the difference. By understanding what travelers want and how local rules work, you can find the right spot to invest and stand out in the crowd.
Why emerging US markets matter
Emerging markets in the United States present a unique opportunity for investors to enter the short-term rental space with lower upfront costs while positioning themselves for significant long-term gains. It must be clarified that emerging US markets are different from ´émerging markets´ which usually refers to developing countries in Asia and Latin America. These destinations, often overlooked in favor of established hubs, tend to experience rising property values and nightly rates as they gain popularity, creating a compounding effect on returns.
One of the key advantages of emerging markets is their typically relaxed regulatory environment compared to more established STR hotspots. With fewer operational hurdles, investors can focus on maximizing profitability while navigating less restrictive rules.
For those looking to stay ahead of the curve in 2024, exploring untapped locations offers a competitive edge. Whether it’s the Midwest’s increasing urban allure or hidden vacation destinations, these areas represent the future of STR investing. Investors can make informed decisions by leveraging tools like AirDNA for market insights and cost segregation studies to minimize tax burdens. A strategic approach that accounts for market dynamics, operating costs, and seasonal trends is the key to unlocking the potential of these high-growth areas.
What are the best tools and platforms for STR management beyond AirDNA?
AirDNA is a leading platform for short-term rental investors, offering a wealth of data to help identify high-performing markets. It provides insights into occupancy rates, average daily rates (ADR), seasonality trends, and revenue projections for properties across various locations. By analyzing this data, investors can make informed decisions about where and when to invest.
Beyond AirDNA, several other tools enhance operational success in short-term rentals:
| Category | Tool | Description |
|---|---|---|
| Pricing Optimization | PriceLabs | A dynamic pricing tool that adjusts nightly rates based on market demand, local events, and seasonal trends. |
| Beyond Pricing | Similar to PriceLabs, this tool integrates with platforms like Airbnb and VRBO to ensure optimal pricing strategies. | |
| Guest Management | Guesty | A comprehensive platform for managing reservations, guest communication, and task automation across multiple listing platforms. |
| Hospitable | Known for its automated messaging, review management, and calendar synchronization, Hospitable is ideal for streamlining guest interactions. | |
| Property Maintenance | TurnoverBnB | Simplifies cleaning schedules and coordination between guest stays. It connects hosts with reliable cleaners and tracks completion of tasks in real-time. |
| Breezeway | A property care and operations tool for managing cleaning, inspections, and maintenance with a focus on quality assurance. | |
| Marketing and Visibility | Wheelhouse | Combines pricing optimization with marketing analytics to help hosts maximize their visibility and earnings. |
| Lodgify | Allows hosts to create direct booking websites, reducing reliance on third-party platforms and associated fees. |
FAQ
How do I determine the profitability of a specific property in a chosen market?
Profitability depends on location, property type, and operational costs. Start by using tools like AirDNA to analyze market-specific data such as occupancy rates, ADR, and projected revenue. Evaluate features like proximity to attractions or amenities that justify higher rates. Additionally, factor in expenses such as utilities, maintenance, and platform fees to calculate your net profit margin.
What features make a property more profitable?
Properties with unique or high-demand amenities—like pools, scenic views, or pet-friendly options—often yield higher profits. Proximity to tourist attractions or business hubs also increases appeal. Well-maintained properties with modern furnishings, high-speed Wi-Fi, and thoughtful touches like smart locks or curated welcome packages stand out in competitive markets.
What financing options are available for short-term rental properties?
Short-term rental properties can be financed through conventional mortgages, vacation home loans, or DSCR loans. Conventional loans often require a 20% down payment, while vacation home loans cater to properties used as both STRs and personal residences. DSCR loans are ideal for investors since they prioritize the property’s income potential over the borrower’s financial profile.
