Are you an experienced or new real estate investor? Are you looking to buy your next or first real estate investment property? Have you considered all the possible aspects – positive and negative – of the two main rental strategies – traditional rental strategy and Airbnb rental strategy – and decided in favor of Airbnb rentals? Are you searching for the most profitable locations for Airbnb rentals? You’ve come to the right place!!! Here we will have a look at the 10 most profitable locations for short-term rentals (i.e., Airbnb rentals) in the US housing market at the end of 2017. Sit back, read on, and start preparing to buy your next or first real estate investment property with high expected return on investment.
Before we reach the 10 most profitable locations for Airbnb rentals, we need to find the answers to a few major real estate questions. Namely:
What Does “Most Profitable Locations for Airbnb Rentals” Mean?
In real estate investing, there are many ways to measure profitability, i.e., the return on investment on a property. In simple words, you as a real estate investor want to make sure that you will make money rather than lose money from your property, regardless of your investment strategy and rental strategy. When it comes to Airbnb rentals as well as traditional rentals, there is one measure that all real estate experts consider the best: cash on cash return. “What is cash on cash return?”, you might ask if you are a new real estate investor just entering this exciting business. We will come to this in a moment. For now, just keep in mind that in this blog when we say “most profitable locations for Airbnb rentals”, we mean the cities in the US housing market which will bring you the highest cash on cash return for your short-term rental properties.
What Is Cash on Cash Return?
Now we come to one of the most important questions in real estate investing and a question whose answer every single real estate investor needs to know: What is cash on cash return? Well, in simple words, cash on cash return is a measure of the profitability of your investment rental property. Moreover, along with cap rate, it is one of the most widely used metrics in real estate investments. But what exactly does it measure? And how is it calculated?
The cash on cash return of an investment property – whether rented out through the traditional rental strategy or through the Airbnb rental strategy – is the net operating income (NOI) divided by the total cash investment.
Cash on cash return formula:
Cash on Cash Return = Net Operating Income (NOI)/Total Cash Investment
The net operating income, or NOI, is the difference between the total annual rental income (the monthly rental income multiplied by 12) and the operating expenses of the investment property. The total cash investment, in turn, is all the money you have paid in cash in order to buy an investment property and make it an operational rental, i.e., ready for renting out. This includes the cash you paid towards the property price, the loan fees, the real estate agents’ fees, the closing fees, and the repair costs.
The beauty of cash on cash return over cap rate is that this real estate metric allows real estate investors to differentiate between investment properties paid for fully in cash and investment properties bought through the bank with a mortgage loan. Since the total cash investment is one of the two factors which determine the cash on cash return (hence the name of this real estate metric), the financing method – whether cash or mortgage – is very important in calculating the cash on cash return of an investment property.
Now that we’ve established what cash on cash return means in the world of real estate investing, we come to another crucially important real estate question.
What Is the Best Way to Calculate Cash on Cash Return?
Any real estate investor should have at least a basic understanding of mathematics, finance, and budgeting. In the good old days, real estate investors had to go through numerous investment properties similar to the one they were contemplating buying in order to perform real estate market analysis and gather all needed real estate comps before they could decide whether they were about the make a good real estate investment decision or not. You can still do that and go through diligent investment property analysis. Or alternatively, if you are a real estate investor who values his/her time and energy, you could use an investment property calculator to do the job for you. “What is an investment property calculator?”, you might ask. An investment property calculator is the first real estate investing tool which every real estate investor needs to buy. It is a modern technology which will make all necessary calculations for you to let you decide whether to buy an investment property or not.
If you are looking for the best investment property calculator in the market, go for Mashvisor’s investment property calculator. It relies on traditional and predictive analytics to show you all crucial real estate metrics including cash on cash return (as well as cap rate, rental income, etc.).
Related: Mashvisor’s Investment Property Calculator: Real Estate Investing Made Easier
What Is Good Cash on Cash Return?
You don’t need to be a real estate investor to realize that the higher the cash on cash return of a certain investment property, the better the real estate investment decision. However, how high should the cash on cash return be in order to consider buying a rental property?
Most real estate experts would tell you that good cash on cash return is between 8% and 12%. There is no doubt that this range is good; however, if we have to be realistic – and you always have to be realistic in the world of real estate investing – it is very rarely that such cash on cash return is attainable. In reality, real estate investors should aim for an investment property yielding anything about 4-5%. Of course, if you can find a rental property with cash on cash return above 8%, go for it by all means. All we mean to say here is that you should not ignore an investment property easily just because the expected cash on cash return is 5-6%; actually, that’s some very good return on investment in real estate investments.
Related: What is Good Cash on Cash Return?
What Data Do We Use?
When talking about the most profitable locations for Airbnb rentals in a moment, we use data from Mashvisor’s investment property calculator. This data is highly reliable because it depends on actual figures from numerous similar investment properties in each and every location. The data is accurate as of November 2017.
Related: How Data Makes Real Estate Investors Rich: A Mini Guide
The 10 most profitable locations presented here are the cities in the US housing market among hundreds of other cities which yield the absolutely highest cash on cash return for Airbnb rentals. As mentioned above, even those most profitable locations for Airbnb rentals do not yield cash on cash return above 12%.
Finally, you will notice that the Airbnb cash on cash return and Airbnb cap rate are the same in our calculations because Mashvisor’s investment property calculator assumes in its calculations that all investment properties are bought fully in cash.
Related: Why does every real estate investor need a cash on cash return calculator?
What Are the 10 Most Profitable Locations?
At last, we have come to the 10 most profitable locations for Airbnb rentals in the US housing market in November 2017. Without further ado, here they are:
1. Waco, TX
- Median Property Price: $145,000
- Monthly Airbnb Rental Income: $1,920
- Airbnb Cash on Cash Return: 11.5%
- Airbnb Cap Rate: 11.5%
Waco, TX is a city in the McLennan County in the State of Texas with a population of about 125,000 inhabitants. To be honest, there isn’t much to say about Waxo, TX other than the fact that it is the most profitable location for Airbnb rentals in the US housing market right now. The median property price in the local housing market is relatively low, while the monthly Airbnb rental income is quite good, which makes for the excellent Airbnb cash on cash return and Airbnb cap rate. If you are a real estate investor interested in the Airbnb rental strategy, then definitely do give Waco, TX a thought. This is where you have the highest chance to make money – a lot of money – from Airbnb rentals in the US housing market at the moment.
2. Lubbock, TX
- Median Property Price: $151,000
- Monthly Airbnb Rental Income: $1,880
- Airbnb Cash on Cash Return: 11.2%
- Airbnb Cap Rate: 11.2%
Dear real estate investors, the second among the most profitable locations for Airbnb rentals in the US housing market at the end of 2017 is also in the State of Texas, this time in the Lubbock County. Lubbock, TX is another not very exciting city, with a population of 253,000 inhabitants. Not very exciting, that is, unless you are a real estate investor interested in the Airbnb rental strategy. If you happen to be exactly this, then start looking for options to buy an investment property in Lubbock, TX. It is just a bit less affordable than Waco, TX in terms of the median property price, while the monthly Airbnb rental income is only a bit lower. With a median property price of $151,000, it is easy to get Airbnb cash on cash return (as well as Airbnb cap rate) of above 11%.
Related: Texas Real Estate Investing: The Best Areas
3. Green Bay, WI
- Median Property Price: $220,000
- Monthly Airbnb Rental Income: $2,220
- Airbnb Cash on Cash Return: 10.5%
- Airbnb Cap Rate: 10.5%
If you are a real estate investor from Wisconsin or one in favor of out-of-state real estate investing, how about Green Bay, WI? After all, this is the third ranking city among the most profitable locations for Airbnb rentals in the US housing market this year. Green Bay, WI is smaller than the 2 top locations in Texas with a population of 104,000 inhabitants. While the median property price here makes Green Bay, WI a bit less affordable than Waco, TX and Lubbock, TX, the monthly Airbnb rental income is also higher, which brings the Airbnb cash on cash return and the Airbnb cap rate to quite a desirable level.
4. Camden, NJ
- Median Property Price: $80,000
- Monthly Airbnb Rental Income: $1,200
- Airbnb Cash on Cash Return: 10.5%
- Airbnb Cap Rate: 10.5%
Real estate investors, are you still looking for the ideal location for your next or first real estate investment? How about Camden, NJ? Real estate properties here are just cheap with a mean property price of $80,000. No wonder the Airbnb cash on cash return and the Airbnb cap rate are above 10%, considering the relatively lower monthly Airbnb rental income. After all, the return on investment is the difference between the money you pay and the money you make as a real estate investor, so your rental income does not have to be through the roof for you to make money from your rental property, as long as its price and maintenance costs are reasonable.
5. Dubuque, IA
- Median Property Price: $200,000
- Monthly Airbnb Rental Income: $1,930
- Airbnb Cash on Cash Return: 10.3%
- Airbnb Cap Rate: 10.3%
If you are ready to pay around $200,000 (in cash or mortgage) for your next or first investment property, then think about Dubuque, IA. With a population of 58,000 inhabitants, maybe you have never heard of Dubuque, IA. That’s OK if you are just a regular person, but it is a major mistake if you are a real estate investor interested in the Airbnb rental strategy. Dubuque, IA is actually #5 among the most profitable locations for Airbnb rentals in the US housing market at the end of 2017. The monthly Airbnb rental income is excellent compared to the median property price, which keeps the Airbnb cash on cash return and the Airbnb cap rate level above 10%.
6. Indianapolis, IN
- Median Property Price: $216,000
- Monthly Airbnb Rental Income: $2,220
- Airbnb Cash on Cash Return: 10.3%
- Airbnb Cap Rate: 10.3%
Finally, with Indianapolis, IN we come to a major city in our list of the most profitable locations for Airbnb rentals in the US housing market at the moment. That is, if you are a real estate investor who prefers major cities for his/her investment properties. Indianapolis, IN has a population of 855,000 inhabitants, while the metropolitan area has the 27th largest population and the 16th largest land in the US. Despite its relatively bigger size, the Indianapolis, IN housing market still offers affordable median property price, according to Mashvisor’s investment property calculator. The monthly Airbnb rental income is great, which brings the Airbnb cash on cash return and the Airbnb cap rate above 10%.
Related: Why It’s a Good Time for Indianapolis Real Estate Investments
7. Tuscaloosa, AL
- Median Property Price: $211,000
- Monthly Airbnb Rental Income: $1,960
- Airbnb Cash on Cash Return: 10.0%
- Airbnb Cap Rate: 10.0%
In the Tuscaloosa County in the State of Alabama, dear real estate investors, you will find the 7th among the most profitable locations for Airbnb rentals in the US housing market at the end of 2017 – Tuscaloosa, AL. With a population just under 100,000 inhabitants, Tuscaloosa, AL has an affordable median property price and good monthly Airbnb rental income, which means that the Airbnb cash on cash return and the Airbnb cap rate are at exactly 10%, according to Mashvisor’s investment property calculator.
8. Louisville, KY
- Median Property Price: $274,000
- Monthly Airbnb Rental Income: $2,360
- Airbnb Cash on Cash Return: 9.3%
- Airbnb Cap Rate: 9.3%
If you are a real estate investor looking for a relatively larger city among the most profitable locations for Airbnb rentals in the US housing market at the moment, here is Louisville, KY with a population of 765,000 inhabitants. Although the combined effect of the median property price and the monthly Airbnb rental income result in Airbnb cash on cash return and Airbnb cap rate at around 9%, you should keep in mind that this return on investment figure is still great. We have to be realistic, after all.
9. Miami Gardens, FL
- Median Property Price: $268,000
- Monthly Airbnb Rental Income: $2,940
- Airbnb Cash on Cash Return: 9.2%
- Airbnb Cap Rate: 9.2%
For all those real estate investors looking for warm locations for their Airbnb rentals, think about Miami Gardens, FL. Miami Gardens, FL is a principal city in the Miami metropolitan area, which hosts a population of above 6 million inhabitants. It is a major tourist destination for US citizens as well as foreign visitors, so no surprise that it is one of the most profitable locations for Airbnb rentals in the US housing market at the moment.
10. Oakland Park, FL
- Median Property Price: $240,000
- Monthly Airbnb Rental Income: $2,450
- Airbnb Cash on Cash Return: 8.3%
- Airbnb Cap Rate: 8.3%
If you are a real estate investor in favor of Airbnb rentals still looking for a place of your next or first investment property, then here comes Oakland Park, FL as the last city in our list of the most profitable locations for Airbnb rentals in the US housing market at the moment, according to Mashvisor’s investment property calculator. This is another city in the State of Florida in this list, which proves once again that Florida is overall a great location for real estate investments.
Related: The 7 Best Places to Buy Vacation Home in Florida
What Is Common Among All These Most Profitable Locations?
The 10 most profitable locations for Airbnb rentals in the US housing market in 2017 seem quite diverse, but there are a few common aspects among all of them. First of all, the median property price in all of them is quite low, especially compared to other top locations for investments in the US housing market. This only makes sense as return on investment – in this case in the form of Airbnb cash on cash return and Airbnb cap rate – is inversely proportionate to the property price or at least the part of it that you pay in cash as a real estate investor. Second, all these most profitable locations offer very good monthly Airbnb rental income, which again is logical as the rental income is another driver of the return on investment. Third, all these most profitable locations are not the typical real estate investment centers such as San Francisco, New York City, Boston, Chicago, Atlanta, San Diego, Los Angeles, etc. They are rather small cities that you might not have even heard of. Fourth, there is no geographical focus among them with the only exception that the State of Texas and the State of Florida host two of them each.
Related: Real Estate Investing for Beginners: How to Choose the Best Location for Your First Rental Property
How Are the Airbnb Regulations in These Most Profitable Locations?
Whenever real estate investors think or talk about the Airbnb rental strategy, they should consider the Airbnb rentals regulations prevalent in their housing market. Here we do not plan to discuss this matter, so if you have decided to buy your next or first investment property and rent it out as Airbnb in one of these most profitable locations for Airbnb rentals, you should first study carefully the local laws governing and regulating short-term rentals.
Related: Cities With The Least Airbnb Legal Issues
Choosing the location for your next or first real estate investment is the most important decision that you make as a real estate investor. Location is what makes it or breaks it in real estate investments. This is particularly true for Airbnb rentals. If you rent out through the traditional rental strategy, chances are you will always have tenants as people need a place to live regardless of where they are located. However, with Airbnb rentals, you need a place that will attract travelers and which will allow real estate investors to charge enough for their monthly Airbnb rental income to provide good Airbnb cash on cash return considering the property price and expenses.
If you as a real estate investor think that buying an investment property in one of the most profitable locations for Airbnb rentals above is the right choice for you, visit Mashvisor where the property search engine and the investment property calculator will help you choose the best neighborhood and then the best investment property in your selected city.