Real estate market trends can change quickly. The US real estate industry is huge, and staying up to date on trends can be difficult—especially for someone who is just starting out with property investments. Investors might benefit from the knowledge of the best places to invest in short-term rental in 2022
Fortunately, it’s become a little easier to analyze the market and find profitable investment homes. Real estate professionals and potential investors may both now quickly use a variety of investing tools that give them access to vital data.
AirDNA predicts that the market for holiday rentals will expand by 15% in 2022 and that nationwide occupancy rates will reach 59.8%. The platform also says that last year, investors made an average of $56,000 in rental income thanks to the vacation rental sector. It’s safe to say that the short-term rental market is increasing, and in recent years, especially, the emergence of platforms for holiday rental properties has contributed to the acceleration of this trend.
Looking at the current real estate market trends makes it clear that short-term vacation rentals are becoming more and more popular every year. Additionally, with the correct setting, investors can easily grow their portfolios and provide a reliable income.
So make sure to stay tuned if you’re looking for profitable areas to buy an investment property with the goal of turning it into a holiday home.
We’ll provide you with a thorough breakdown of the ideal areas and some advice on how to make your investment dreams a reality.
How Do Short-Term Rentals Work?
Let’s first define “short-term rentals,” keeping in mind that the word may be unclear for those just entering the real estate market.
A short-term rental is essentially any kind of residential property—or ancillary building—that tenants occupy for a VERY SHORT length of time. We define “brief” as lasting no longer than 30 days.
Who occupies in these properties?
Basically anyone and everyone, I suppose.
Short-term vacation rentals, as opposed to long-term rentals, are appropriate for almost anyone seeking some “time out” from their hometown. Long-term rentals, on the other hand, are the favored option for families and contract workers.
All age groups are big fans of short-term rentals, whether it’s for the summer, spring break, or winter holidays.
For instance, families looking to travel will likely do a comprehensive examination of Airbnb to identify cheap locations to stay rather than shelling out money for ten nights in a hotel. It frequently involves setting a budget for their future vacation.
But vacation rental homes also have another important benefit that goes beyond just being more cost-effective. Unlike any hotel, they have that “home vibe.”
Along with the more typical vacation-related motives, many people choose to rent a holiday home while having their home restored or while they wait for the purchase agreement to be finalized.
As you’re going to discover, these attributes come in a variety of sorts for a variety of reasons.
What makes a good location for a short-term rental?
1. Low Vacancy Rates
Returning to demand now. Country capitals or larger, busier cities are frequently the best places with a steady stream of tourists and business travelers.
High-end buildings that provide space, a convenient location, and a luxurious experience appeal to regions where visitors are ready to pay more for lodging for investors with more money to spend. These visitors include individuals who need a home-away-from-home while conducting business in places with a lot of industry, and whose budget includes the rental. The other type of visitor in this group is the affluent traveler, who expects the “best life” experience from each stay and is willing to pay a little bit extra for it.
There are still a lot of nonurban places that offer excellent occupancy rates and ROI if you don’t have access to an endless supply of cash. However, the majority of these are usually built around certain tourist markets.
2. A high rate of return
Only half the battle is won with a full booking schedule. You must ascertain which regions charge the most daily prices in order to increase income. A wise investor will consider how each place charges throughout the week and on weekends, at peak times, and during particular seasonal periods because a daily fee isn’t a fixed amount either.
RevPAR, short for revenue per available rental, is the key concept in this context. An industry performance metric called RevPAR is created by dividing a hotel’s occupancy rate by the average daily room charge. Rate and occupancy are both necessary for a successful investment. A low rate could be implied by a high occupancy, and vice versa.
3. Regional Rules
When Airbnb arrived on our PCs and mobile devices, it paved the way for tourists to discover lodging much more easily, with virtually limitless alternatives. Rental property owners, particularly those in touristy locations, saw how much simpler it was to get a larger return from what were previously riskier short-term rentals. Long-term residential leases were converted for the short-term market as a result, causing a substantial shift.
If locals were replaced by a tourist majority, several local governments and city councils in Europe feared a loss in their city’s culture. In other words, they feared losing their status as treasured cultural centers and becoming mere tourist attractions. Therefore, several of Europe’s capital cities now limit short-term rentals to a specified number of nights per year in order to safeguard local housing markets and their inhabitants. Others impose strict requirements on owners before they may operate a commercial short-term rental property.
It should go without saying that such places will demand more work and strategic booking methods. Unless you have a proven way to fill your home with lengthier leases, you’ll probably take a huge blow on your revenues without the skills and expertise to manage such a rental.
10 Best Places to Invest in Short-Term Rental
1. South Lake Tahoe, California
Rate of Cap: 5.26%
Average cost of a home: $646,009
75% of vacation rentals are occupied.
For many years, South Lake Tahoe has been regarded as a destination for tourists. Tourists from the US and around the world love to visit this area for its seaside residences. As a result, those who own short-term rentals in the area, especially real estate close to the water, can make money during the busiest travel season in South Lake Tahoe.
In South Lake Tahoe, houses sell in less than 30 days and often receive two offers. The short-term rental market in this region is a gold mine for real estate investors, and they should have no trouble renting out their properties. Add to this the fact that there isn’t much competition for purchasing real estate, which allows investors to find fantastic offers without a lot of competition.
2. Levittown, Pennsylvania
Property prices on average: $292,897
occupancy rate on Airbnb: 78%
Rental income from Airbnb: $3,987
With an average Airbnb rental income of $3,987, Levittown is a fantastic chance for short-term real estate investors to generate a high monthly rental income. This region boasts an outstanding 78% occupancy rate for Airbnb, giving investors the opportunity to purchase a house at an inexpensive price and enjoy a high occupancy rate all year long.
Since last year, Levittown home prices have climbed by 9.7%, signaling a growth in home values and the prospect of future capital gains for investors. The local Airbnb Daily Rate is $104 and the local Airbnb Cash on Cash Return is 8%. Investors have a unique chance in this area to find homes that are likely to be rented out for nearly the full year.
3. Fresno County, California
6.58% cap rate
Home prices on average: $326,544
75% of vacation rentals are occupied.
Investors in short-term rentals have a fantastic opportunity to buy a home in Fresno, California, that is priced much below the national average and has a high occupancy rate for vacation rentals. This means that investors should have little issue finding tenants to rent their affordable properties. Fresno’s cap rate is around 10%, which may signal lower risk for investors considering buying vacation properties in this region.
Fresno has a sizable student population, making it simple for investors to find short-term tenants. Fresno vacation rentals are in great demand due to a number of factors, including frequent visits from parents to visit their children at college and graduation-related visitors.
Even though it is still in California, Fresno does not have the same excessive housing costs, which is fantastic for investors who can produce rental income without having as much money up front.
4. Baltimore, Md.
4.16% cap rate
Average cost of a home: $225,000
67% occupancy rate
Baltimore provides investors with an average daily short-term rental rate of $163 and a monthly average rental income of $2,167, according to AirDNA. Investors can discover reasonably priced rental properties in the city, which has a significant rental demand. Baltimore’s home values are rising, having risen by 13.8% in the previous 12 months.
Due to the enormous number of communities, Baltimore has been dubbed the “City of Neighborhoods.” This is a desirable alternative for investors due to the variety of property price ranges and neighborhood types available. Baltimore is a historical tourist destination, and home prices there are around 40% lower than in adjacent Washington, D.C.
5. Raleigh-Durham, NC
4.6% cap rate
Home median value: $360,891
74% occupancy rate
Another location that presents short-term rental investors with appealing alternatives is the Raleigh-Durham region of North Carolina. Investors can identify more cheap homes with a high occupancy rate of 74% and anticipate having tenants occupy them for the majority of the year. The average daily rate is $169, and the typical monthly income from a rental property is $2,425, according to AirDNA.
There is a considerable demand for short-term rentals in Raleigh, which has had a 28% increase in rental growth since 2019. Raleigh has seen a number of businesses open their doors in recent years, and as a result, the neighborhood is expanding quickly. Over the past two years, the number of rentals listed on websites like Airbnb and VRBO has increased by 81%.
6. Lake Havasu, Arizona
Rate of Cap: 5.9%
Average cost of a home: $474,900
66% occupancy rate.
The real estate market at Lake Havasu, a popular tourist destination in the desert, is expanding quickly and offers plenty of opportunities for short-term rental property owners. As people seek to escape the bitter weather and spend some time in a more temperate atmosphere, the winter months are a busy period for Lake Havasu.
Real estate investors can find a lucrative passive income market in Lake Havasu, in large part because visitors who travel here to avoid the bitter winters prefer to remain longer. According to AirDNA, Lake Havasu has an average daily rental fee of $301 and gross annual revenue of $3,664. The area’s historical sites, beaches, and other attractions draw approximately 800,000 tourists a year.
7. Kenai Peninsula, AK
Value of a typical home: $237,000.
67% occupancy
Revenue on average: $44,000
Alaska’s Kenai Peninsula is a well-liked vacation spot for people who like the great outdoors. With national parks, fjords, and a wide variety of species on show for visitors, it offers a wilderness experience. The epidemic has caused a significant trend change in favour of vacation destinations that provide outdoor experiences. As a result, Kenai Peninsula’s revenue growth rating on AirDNA is 94.
Because of its breathtaking natural beauty and top-notch salmon fishing, the Kenai Peninsula draws tourists from all over the world, primarily in the summer. In the summer, this region’s occupancy rates reach over 80%, providing investors in holiday rentals with a fantastic potential to make money from stable rental revenue.
8. Maui, Hi
Average cost of a home: $802,000
73% occupancy
Average annual income: $102,000
Hawaii, and Maui in particular, are well known for its renowned beaches and island culture, which draws lots of tourists. The second-largest island, Maui, offers a variety of activities for all interests, from those wanting for a surfing holiday to those looking for a peaceful time at the beach.
Recently, Maui topped Airbnb’s ranking of promising investment locales. Maui has a significant potential for investment because to its high occupancy rate and excellent revenue growth. An typical Maui vacation rental house that is rented out full-time brings in $375 per day on average, or roughly $102,000 annually.
9. Pulaski, VA
Real estate median price: $144.613
58% occupancy rate
Return on cash: 9.88%
The cost of a rental in Pulaski, Virginia’s picturesque town, is $241 a day. Clayton Lake State Park and New River Trail State Park are a couple of the town’s attractions. Investors in short-term rental properties will be pleased to hear about the town’s inexpensive property prices. With a population of just over 9,000, Pulaski is a popular destination for nature enthusiasts.
10. Chattanooga, Tennessee
Average price of a home: $258,000
70% occupancy
Revenue on average: $47,000
At the foot of the Appalachian Mountains, Chattanooga has a rental demand score of 98, according to AirDNA. With an annual average occupancy rate of 70%, the neighborhood ranks second highest in terms of rental demand.
The area’s historical attractions, especially the Lookout Mountain Incline Railway and outdoor trails, draw a lot of tourists. Given that Chattanooga’s home prices are anticipated to increase over 2022, the city is a potential option for real estate investors seeking a reliable stream of short-term rental income.
Financing options for acquiring short-term rental homes
Unless you won the lottery and are now independently wealthy, chances are likely that you will need to find sources of money for your home acquiring short-term rental endeavors. The following is a list of the most common loan types.
Hard money loan
A hard money loan might be easier to qualify for because the lender isn’t constantly looking at your credit. They may pull it to look at your debt-to-income (DTI) ratio, but they aren’t looking at the score itself. The amount of equity you have in your home may need a greater down payment.
Hard money loans from private lenders like 14th Street Capital may have quicker approval processes and you might be able to get one with negative credit because there is less underwriting required. The disadvantage is that origination fees and interest rates could be much higher than with a more typical mortgage.
Personal Loans
Although private loans might be a great option, they typically require prior financial connections. Your riskiness will decrease in their perspective the longer you have been a customer of theirs and perhaps even the amount of money you have in their care.
The advantage of using a private lender is that they could provide more flexible loan terms.
Private Loan
One benefit of personal loans is that they don’t require collateral. Additionally, you can receive your money in as little as a day or two after learning immediately if you qualify. The only negative aspect of this scenario is that the interest rate is higher than it might be for a mortgage.
Final thoughts
For investors who are ready to put in the work necessary, buying a vacation rental property might be a wise real estate investment choice. Even while managing a short-term rental property demands more time and care than managing a conventional longer-term rental property, it might generate more money through rent. Therefore, you should decide to become a vacation rental home owner once you are aware of all the requirements.
In order to purchase a short term rental homes, the seasoned lender 14th Street Capital will assist you in obtaining a hard money loan for non-owner occupied properties. Simple asset-backed hard money loans can help you obtain the funding you require regardless of your financial situation, whether you have a poor credit score, are self-employed, or have a history of foreclosure. These loans have flexible terms and little documentation. Get in contact with us today to begin investing in real estate.