With the advent of short-term rental sites like AirBNB and HomeAway, homeowners can use their homes to recoup some of the cost of homeownership. They can make their homes available for short-term vacation rentals through the sites. However, not every city offers the same income opportunity as others. Recently, Realtor.com assessed the nation’s largest 100 cities (while excluding some cities like Los Angeles and New York) to determine which cities offer homeowners the ability to make a profit on an STR. Austin made the top 10 in the Realtor.com ranking of cities where vacation rentals rake in the most cash.
Increased Regulation Have Curbed STRs
Because of increased legislation addressing unregulated vacation rentals, it’s been more of a struggle to make a profit on an STR. Cities have been curbing the vacation rental market by placing restrictions on the number of STRs in an area. Legislation that restricts the use of STRs came about as a result of outrage from inconvenienced neighbors and concerned community members.
For house hunters who are eager to take advantage of the short-term rental market, Realtor.com shared some sound advice. Aspiring STR operators are encouraged to do some research before purchasing a home. “Look at how much you could get for a traditional, long-term rental if legislation comes into town and makes that necessary,” says Peter Lorimer, a real estate broker who stars on the Netflix series “Stay Here,” which helps folks spruce up the properties they list on Airbnb and HomeAway. “Make sure it isn’t a saturated [market]. Look at the daily rates of competitors, and see if you can match or beat them.”
Vacation Rental Market is Still Strong
Overall, it looks like the short-term rental market is still growing and providing a return to those who operate an STR. In fact, the market has shown 97% growth in America’s 100 largest cities over the past three years. But that can change rather quickly with new legislation that curbs unregulated vacation rentals.
For instance, there have been some municipalities that have enacted strict legislation curbing the operation of STRs. Lawmakers in Las Vegas and Washington, DC have taken steps to phase out full-home rentals on sites like Airbnb with no owner present. That type of STR currently makes up about 70% of the STR markets in those cities.
Do Your Research Before Buying a Home
As for Austin, the city has enacted some legislation to try to curb the use of STRs throughout the city. Homeowners can still take steps to offer their homes or a portion of their home for a short-term rental. To do that, though, homeowners need to heed the rules on offering an STR on their property.
In addition to the current regulations, it would be wise to consider the possibility of future legislation regarding STRs. For instance, a report on the STR ranking in the community news site, Patch.com, the Austin airbnb industry recently was found to be making a noticeable dent in the hotel industry. The city derives a healthy hotel occupancy tax rate. As a result, it is very likely that legislation to curb the use of vacation rentals may pop up in the future.
You can also find out more about the application process for offering a short-term rental in your home from the Austin Code Department here.
To find the top places to own an Airbnb-type rental, Realtor.com collected data for those 100 largest cities. They used February data from AirDNA, a real estate data company that collects data on more than 10 million Airbnb and HomeAway rentals.
With that information in hand, Realtor.com then assessed the data based on the following criteria:
- Average short-term rental daily rate, monthly revenue, and occupancy rate
- Rental demand score for each market
- Average Airbnb host rating
- A three-year increase in short-term rentals
- Per capita number of short-term rentals
- Monthly average short-term rental income as a ratio of a monthly mortgage payment
- Median list price (a lower list price was better, in this assessment)
- One-year home appreciation
There were a few caveats in addition to the above. Realtor.com filtered out large markets like New York and Los Angeles because monthly mortgage costs are higher than the typical short-term rental income earned. Also, the daily rates used in the assessment are averages, which get skewed higher by luxury rentals.
Austin made the top 10 ranking with a median list price of $545,100 and an average daily rate of $245. Occupancy for the STR market in the Live Music Capital of the World is 70%. The report shows that there are about 10,825 active rentals at the time of the analysis.
According to Realtor.com, “There are about a zillion reasons to visit Austin. Visitors come for music, media, and film festival South by Southwest, a Texas Longhorns football game, or paddleboarding down the Colorado River. And they’re all looking for places to crash.”
So it’s no surprise that the Texas capital is the most popular city for STRs in the state. In fact, no other Texas city made the top 10 rankings. An important differentiating factor in this is the number of festivals and conventions in Austin draw larger numbers of short-term and vacation renters than other major cities within and outside of Texas. Since these factors aren’t likely to change (in fact, it may be that an increase in festivals and conventions draw more short-term renters to the area into the future), then it’s likely that the STR market in the Austin area will remain strong for the foreseeable future.
Learn more about Austin real estate.
Search Austin Area Homes for Sale