The Most Profitable Places to Own a Short-Term Rental

Finding a home has been so difficult lately. Is it worth buying one as a short-term rental? Yes — but not everywhere — suggests a report from AirDNA.

Revenues for short-term rentals faded in 2023 after two years of intense growth, but researchers at AirDNA expect those revenues to grow again in 2024. To locate the 25 best places in the country to buy a short-term rental, they created an “updated index” of Airbnb and Vrbo rental data for full single-family homes (the source of this week’s chart).

What may surprise you is that vacation homes in profitable areas are not always expensive. The typical home price (derived from the Zillow Home Value Index in December 2023) was found to be about $160,000 or less in two of the 25 areas on the list; under $250,000 in seven; and under December’s national median home price (roughly $418,000) in 17.

“A big piece of this is the big run-up of home values in the more traditional vacation rental markets that were also very attractive for people to live and work remotely during the pandemic,” said Jamie Lane, chief economist at AirDNA. In other words, higher demand in the most coveted vacation areas drove up home prices, cutting into rental profits.

As a result, he said, smaller cities “where we haven’t seen this much home-value appreciation” are reaping higher profits from short-term rentals.

Indeed, pricey areas that are popular as second-home and vacation destinations — Mr. Lane cited Joshua Tree, Calif., Breckenridge, Colo., and California’s Coachella Valley as examples — are conspicuously absent from this year’s list.

The study only considered markets with 500 or more listings. Areas with laws prohibiting short-term rentals were also omitted. To rank each market, 2023 rental demand and revenue growth since 2022 made up half of the score; the other half was based on an “investability” score largely derived by comparing typical home values relative to potential short-term rental profits.

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