What to look for in successful short-term rental markets

Are you considering investing in the short-term rental (STR) market but unsure of how to identify the best locations? Look no further. In this article, we’ll cover everything you need to know to find profitable STR markets. We’ll explore factors such as the best locations, target markets, rental demand, local regulations, and seasonality. Additionally, we’ll show you how to analyze the STR market concerning profitability, calculating occupancy rates, expenses, and other financial variables. By the end of this article, you’ll have a solid foundation to help you make informed decisions regarding your STR investments.

Location, Location, Location for Short Term Rentals

When it comes to short-term rentals, location is critical. The best properties are in locations that naturally attract visitors – whether for business or leisure. To start, consider towns and cities near beaches, popular attractions, mountains, universities, national parks, or places of interest. Big cities that attract thousands of visitors yearly can also be excellent markets. For first-time real estate investors, looking for properties in nonurban areas near popular locations can yield rich pickings. Other considerations regarding vacation rental property location include access to public transport, a good selection of shops and restaurants nearby, and being located in an appealing neighborhood. A good view always helps too.

Demand for Short-Term Rentals

As with any real estate market, demand and supply are two of the most vital factors to ensure a good ROI. Ideally, your chosen market should have a steady flow of visitors. Therefore, check the demand for short-term rental accommodation in the high and low seasons. Look for areas that have a good mix of business and leisure visitors. Business travelers are often in town for a shorter time and willing to pay more for a comfortable stay.

Ideally, focus on areas that have at least a 70% occupancy rate on average, and never pick a location that has less than a 50% occupancy rate.

Seasonality for Short Term Rentals

Seasonality refers to the fluctuations in demand and supply of properties in specific locations or markets at different times of the year. Most STR markets have a low season or quiet period when demand falls. Depending on the location, the short-term vacation rental market experiences several variables. For example, beach areas’ seasonality depends on the location. Some areas like Florida or California can see high demand for vacation homes from late winter until early fall. Other areas may peak from late spring until late summer. Vacation rentals in the mountains typically peak from December to March during the ski season. However, they are also popular from late spring until fall for tourists wanting to explore the mountains. The demand for rental units in the most popular lake destinations tends to be in summer, with families looking for weekend getaways or longer summer breaks. Vacation homes in desert areas tend to see a peak in demand during winter months when it’s cold in northern regions but not too hot in the desert. Large cities that attract tourists can have a high demand for short-stay rental accommodation throughout the year.

Easy access to local attractions, public transport, and restaurants is crucial in these markets. Seasonality is an important factor when evaluating the short-term rental market. Income from short-term rentals tends to decrease during low-demand periods. Therefore, rental income from the peak season should be enough to get you through quiet periods. But, of course, you could devise innovative ways to market your rental during slower periods.

A Clear Target Market for Your Short Term Rental

When analyzing the profitability of the rental market, it is also good to evaluate your target market. For example, older couples may want a home-away-from-home experience in a vacation house with the facilities of a traditional hotel. However, families will want a larger house, maybe with several bathrooms. On the other hand, millennials tend to prefer rentals that offer a unique, small-scale experience.

Specific Outline for Any Regulations for Your Short Term Rentals

One of the most challenging aspects of the vacation rental marketplace is rules, regulations, and zoning restrictions. For example, some cities require hosts to collect and remit occupancy taxes on short-term rentals. These taxes can range from a few percent to over 10% of the rental price, so it’s important to factor them into your expenses and pricing when you are trying to estimate your return on investment.

In summary, researching successful short term rental markets is a crucial step in determining where you want to start your short term rental business. It’s important to do your due diligence, researching location, demand, seasonality, your target market and regulations before investing in a property. This will help you ensure success from the start.

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