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Investing in short-term vacation rental properties? Focus on these high-ROI cities

Aly J. Yale
The Mortgage Reports contributor

Where to buy to rent

Want to make some extra Airbnb income? Then buy in a small or medium-sized market with lots of residents — preferably one with warmer weather. According to new data, these are your best bet for banking the big bucks on the short-term vacation rental market.

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The best spots for short-term vacation rentals

AirDNA, a short-term rental data and analytics company, recently published its Best Places to Buy a Vacation Home list. According to the analysis, Sevierville and Gatlinburg, Tennessee, are some of the most promising markets – especially for investors with low starting budgets. In Gatlinburg, the average Airbnb property makes more than $53K per year, while only costing $8,000 in mortgage payments — less than $700 a month.

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Sevierville’s a good bet too, with mortgage costs of $10K annually and an average profit over $43,350. Kissimmee, Florida — located not far from Disney World — is also one of the top spots for short-term rentals, making more than $37,000 in profits each year, with an average daily rate of $206.

Other cities good for low-budget, high-profit rental properties include Las Vegas; Fort Walton Beach and Pensacola, Florida; and Pigeon Forge, Tennessee. If you have a higher budget, a home in Palm Springs, California, could bring in nearly $75K per year, while Florida’s Destin and Key West offer annual earnings of almost $60,000.

Buying a home to rent on Airbnb

Where vacation rental properties lose out

Want the best possible ROI on your vacation rental investment? Then steer clear of big cities with red-hot housing markets, Airdna’s Leslie James says. In places like New York, Los Angeles and throughout California, rental investors actually stand to lose cash in the long run.

“Airbnb investors in cities where house prices are sky-high and competition is fierce — think Los Angeles and New York City – would actually make a negative return on investment of tens of thousands of dollars,” James wrote. “It is a similar story for smaller markets, which are often just as expensive, such as Santa Monica, Oakland and Berkeley, CA. Long-term rentals might show an alternative trend, but these markets are currently best avoided by the vacation rental investor.”

The average Airbnb rental in Berkeley loses about $27,000 per year, while those in Oakland and Santa Monica lose around $20K.

Verify your new rate (Dec 11th, 2018)

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Considering investing in a short-term rental property to bring in cash? Then shop around for mortgage rates today.

Verify your new rate (Dec 11th, 2018)