5 Affordable Short-Term Rental Markets You Might Not Know About
In recent years, investing in vacation rentals has become a popular real estate trend, with the short-term rental industry showing significant growth. As more travelers opt for vacation homes over traditional hotels, many investors are considering purchasing properties for short-term rental purposes. The key to success in this venture lies in choosing the right market - one where rental demand is high, rental income is lucrative, and property prices are affordable. To aid aspiring investors in their decision-making process, AirDNA has identified the Best Places to Invest in Short-Term Rentals in 2024. In this blog post, we will delve into five affordable short-term rental markets that may not be on your radar.
What Makes a Good Short-Term Rental Market?
AirDNA analyzed several factors to determine the best short-term rental markets, including rental demand, revenue growth, government regulations, and investability. Investability, in particular, measures the profitability of a property in relation to its price, often calculated using the cap rate metric. The cap rate, derived by dividing the net operating income of a property by its market value, serves as a crucial indicator of a market's potential for investment success.
How to Calculate Cap Rate for Vacation Rentals
Calculating the cap rate involves determining the net operating income (NOI) by subtracting operating expenses from expected revenue. The 50% Rule, a guideline suggesting that operating expenses typically account for half of a property's gross income, can be used to estimate expenses. A cap rate falling within the range of 5-10% is generally considered favorable, balancing investment returns with risk.
The Top 5 Affordable Short-Term Rental Markets
Columbus, Georgia
Cap Rate: 9%
Median Home Price: $161K
Occupancy Rate: 60%
ADR: $178
Annual Revenue: $29K
Reason: Keen interest from outdoor enthusiasts and tourists, offers solid returns at an affordable price point.
Ellsworth, Maine
Cap Rate: 6.3%
Median Home Price: $325K
Occupancy Rate: 73%
ADR: $335
Annual Revenue: $41K
Reason: Proximity to Acadia National Park drives high demand, with a remarkable 73% occupancy rate.
Logan, Ohio
Cap Rate: 12.2%
Median Home Price: $233K
Occupancy Rate: 57%
ADR: $343
Annual Revenue: $57K
Reason: Picturesque surroundings and vibrant arts scene enhance investment potential, offering a strong cap rate.
Spring Hill, Florida
Cap Rate: 5%
Median Home Price: $389K
Occupancy Rate: 62%
ADR: $251
Annual Revenue: $39K
Reason: Nature-centric attractions drive occupancy despite a lower cap rate, catering to lovers of outdoor experiences.
Sneads Ferry, North Carolina
Cap Rate: 6.4%
Median Home Price: $555K
Occupancy Rate: 63%
ADR: $461
Annual Revenue: $71K
Reason: Coastal charm and high revenue potential offset the higher median home price, offering a lucrative opportunity for investors.
Bottom Line
Choosing the right short-term rental market is crucial for maximizing investment returns. By considering factors such as rental demand, revenue potential, and affordability, investors can identify promising opportunities in lesser-known markets like Columbus, Georgia; Ellsworth, Maine; Logan, Ohio; Spring Hill, Florida; and Sneads Ferry, North Carolina. These affordable markets offer a blend of high occupancy rates, attractive median home prices, and strong revenue potential, making them worth exploring for investors looking to capitalize on the growing vacation rental industry.
Frequently Asked Questions (FAQ)
1. What is an ideal cap rate for short-term rental investments?
An ideal cap rate typically falls within the range of 5-10%, balancing returns with risk tolerance.
2. How can I calculate the cap rate for vacation rentals?
The cap rate is calculated by dividing the net operating income of a property by its current market value. Subtracting operating expenses from expected revenue helps determine the net operating income.
3. Why is investability an important factor in short-term rental market analysis?
Investability measures a property's profitability in relation to its price, providing investors with insights into the potential returns on their investment.
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