Should You Buy a Short Term Rental in Dallas?

Dallas has always been one of the best locations for vacation rentals. Will buying a short term rental in Dallas remain profitable?

There are many different factors that make a market good—or bad—for investing in a short term rental. In addition to tourist and visitor numbers, investors also need to look at local laws and regulations, as well as ROI figures. In this article, we’ll touch upon all these factors to help you make the smartest and most profitable investment decision in the coming year.

Table of Contents

1. Real Estate Market Trends and Forecast in Dallas
2. Tourism and Travel Trends and Forecast in Dallas
3. Short Term Rental Laws in Dallas
4. How to Find a Profitable Short Term Rental Property in Dallas
5. Top 4 Neighborhoods for Short Term Rentals in Dallas
6. Getting Started with Dallas Short Term Rental Investments

US housing market predictions show that this year will be an excellent time to invest in short term rentals due to the expected increase in travel and tourism activities. While a rise in demand for vacation rentals is expected everywhere, Dallas will be on top of the top locations.

However, not every area and not every short term rental in Dallas is predestined for success. Investors need to take into consideration several factors, like property prices, short term rental daily rates, occupancy rates, monthly income, and return on investment.

To help you get started, we’ll provide you with a step-by-step guide on how to locate the best investment properties for sale in Dallas. We will show you how Mashvisor can support you in every step of the process. In addition, we will give you a list of the four top neighborhoods in Dallas for the short term rental strategy based on our most recent data.

Real Estate Market Trends and Forecast in Dallas

The first step in deciding whether Dallas will be a good location to invest in short term rentals is to conduct a city-wide real estate market analysis. So, let’s take a look at the numbers describing the current state of the Dallas market based on the analysis performed by Mashvisor as of 20 November 2022.

Dallas Real Estate Market Analysis

The following are the most important real estate data analytics, as reported by Mashvisor:

• Median Property Price: $603,079
• Average Price per Square Foot: $433
• Days on Market: 14
• Walk Score: 47

The median home price value in Dallas (as reported by Mashvisor) exceeds the national average (as reported by Zillow) by 69%.

The relatively high property values mean that investors need to find good financing options before deciding to buy a short term rental in Dallas. Amid skyrocketing mortgage rates, it might be a good idea to look into alternative options like private money, hard money, syndication, and partnerships.

Zillow reports a 14.2% YoY increase in property prices in Dallas. While the upward trend is expected to continue, experts forecast Dallas residential real estate prices to increase by around 2% in the next 12 months.

At the same time, the very low number of days on market indicates that Dallas remains a strong, hot seller’s market, and the trend is likely to continue at least in the next few months. Mid-year might witness a slight shift towards a more neutral market, in line with the rest of the US.

But what it means, for the time being, is that beginner investors should make use of all the help they can get in order to compete with more experienced investors in such a competitive market. It includes getting access to the best real estate investment tools and working with a real estate agent.

Dallas Rental Market Analysis

As the second step in our analysis, let’s have a look at the long term and short term rental analytics provided by Mashvisor:

• Number of Short Term Rental Listings: 2,413
• Monthly Short Term Rental Income: $2,329
• Short Term Rental Cash on Cash Return: 1.43%
• Short Term Rental Cap Rate: 1.46%
• Short Term Rental Daily Rate: $162
• Short Term Rental Occupancy Rate: 32%
• Number of Long Term Rental Listings: 5,011
• Monthly Long Term Rental Income: $2,408
• Long Term Rental Cash on Cash Return: 2.76%
• Long Term Rental Cap Rate: 2.81%
• Price to Rent Ratio: 21

The Dallas short term rental industry is well-developed, with over 2,400 active listings on Airbnb alone. Short term rentals yields good monthly revenue of $2,329. The city-wide return on investment does not look too great, but you should keep in mind that these are simply city averages. Meanwhile, specific neighborhoods and properties are able to yield significantly better ROI.

Moreover, the main driver behind the relatively low cash on cash return and cap rate is the low Airbnb occupancy rate. The figure is expected to grow significantly as people not only return to travel but actually compensate for the opportunities they missed during the peak of the COVID-19 pandemic.

In addition, long term rentals show strong performance in the Dallas market, driven by demand from renters as a result of the high price to rent ratio. It is a positive trend for investors who want to buy a short term rental now. It means that if they ever change their strategy for whatever reason, their investment property will continue generating above-average rates of return.

So, all in all, Dallas is looking like a great place for vacation rental investments.

Tourism and Travel Trends and Forecast in Dallas

The short term rental business is largely driven by travel and tourism activities. That’s why next, we’ll analyze the trends in these two industries in Dallas.

A recent report ranks Dallas as the 14th best city in the US in 2022. Moreover, it’s in the top 20 places to visit in the US in multiple rankings and lists. As a result of such lofty status, Dallas attracts more than 27 million visitors per year. The number was growing year after year before the pandemic, and the trend is expected to resume.

The large number of visitors is driven by numerous tourist attractions and business opportunities. So, if you’re thinking of buying a short term rental in Dallas, you can choose between focusing on hosting tourists or business travelers. While the latter might come with more expectations and requirements, they’re ready to pay more and cause less property damage.

It’s important to decide between the two options in order to select a Dallas area that is appropriate for your target guests and to furnish your property according to their needs. It will help boost Airbnb occupancy rate and ROI in addition to bringing positive guest reviews, which will lead to more bookings and more rental income.

Short Term Rental Laws in Dallas

One of the main differences between investing in short term rentals and long term rentals is that with the former, you need to conduct careful Airbnb market research on laws and regulations. To counteract the massive spread of vacation rentals in residential areas over the past decade, many local authorities have implemented various restrictions.

The good news for investors is that Texas, in general, and Dallas, specifically, have some of the most conducive short term rental laws across the entire US market. Dallas has not passed any specific ordinance limiting vacation rentals. However, you can find a few regulations, mostly related to taxes.

So, let’s answer two important questions before getting into the details:

What is considered short term rental in  Dallas?

The City of Dallas—and the State of Texas—define a short term rental as a hotel for Hotel Occupancy Tax (HOT) purposes. A short term rental in Dallas means the rental of all or part of a residential property to a person who is not a permanent resident. It generally refers to rentals of fewer than 30 consecutive days.

Does Dallas allow Airbnb?

Yes, the City of Dallas allows Airbnb or short term rental properties as long as hosts complete the registration and pay HOT. Importantly, unlike other best short term rental markets, Dallas allows non-owner occupied vacation rentals for an unlimited number of days per year.

All investors need to do is fill up a registration form to be able to pay tax. HOT is to be reported and paid to the City of Dallas on a monthly basis.

To learn more about the relevant laws in Dallas or any other US city, check out the Mashvisor short term rental regulations page.

How to Find a Profitable Short Term Rental Property in Dallas

Now that you know that you should buy a short term rental in Dallas and the reasons why, it’s time to look at how you can locate the most profitable opportunities.

Below, we’ve provided a step-by-step guide on how to find top-performing short term rentals for sale in Dallas (which—by the way—can be applied to most other markets too):

Step 1: Choose a Good Dallas Neighborhood for Airbnb

As we will show below, different areas in the same city can yield very different results for short term rental properties. That’s why it’s crucial to conduct not only city-level but also neighborhood-level real estate market analysis. It includes important factors like property prices, supply and demand for Airbnb, rental income, and return on investment.

To save lots of time and energy while getting reliable results, you can use the Mashvisor tools to find the best neighborhoods for investing in short term rentals in Dallas.

Real Estate Heatmap

First, the Mashvisor real estate heatmap can help you with high-level neighborhood analysis. You can use a number of different filters to search for an area that matches your exact expectations.

The filters include:

• Property listing price
• Short term rental income
• Short term rental occupancy rate
• Short term rental cash on cash return

On the heatmap, neighborhoods with small values are colored in white, while neighborhoods with high values are colored in dark blue. Medium values are various shades of blue.

Next, you can use the Mashvisor neighborhood analysis pages for a detailed analysis of your selected areas. The said pages will provide you with all the possible real estate and short term rental data that you possibly need to decide if a neighborhood is good for this strategy or not.

The metrics include:

• Median property price
• Average property price per square foot
• Short term rental income
• Short term rental occupancy rate
• Short term rental cash on cash return
• Number of investment properties for sale
• Number of active Airbnb listings
• Walk Score
• Transit Score

As a beginner real estate investor, focus on Dallas neighborhoods with affordable home prices and above-average income and ROI. It increases your chances of finding profitable opportunities without running into a foreclosure.

Step 2: Find Potential Vacation Rentals for Sale

The second major step in locating the best options for investing in a short term rental in Dallas is the investment property search phase. It means looking for real estate listings with the potential to convert into vacation rentals with good occupancy and daily rates.

There are many different ways in which you can go about the rental property search. You can check out newspapers, magazines, online property marketplaces, your network, or even driving-for-dollars opportunities. The common disadvantage of all the said approaches is that while you can find many nice properties for sale, it’s not easy to know if they will do well as rentals.

Alternatively, you can use the Mashvisor real estate investing app, which allows you to look for the best short term rental properties for sale in specific. On the search page, you can enter your exact criteria. In a second, Mashvisor will provide you with a list of MLS listings and off market properties that meet your requirements.

Some filters you can use include:

• Location
• Budget
• Financing method
• Number of bedrooms
• Short term rental income
• Short term rental return on investment

In this way, you know that every single property that shows in your search results come with the potential to become a highly profitable vacation rental. It’s only a matter of finding the best of these top opportunities, which we’ll discuss next.

Step 3: Analyze the ROI of Selected Opportunities

The final step in finding a profitable short term rental in Dallas is conducting investment property analysis.

It means locating active vacation rental listings that are very similar and close to the one you’d like to buy, known as rental comps, and figuring out how they perform. However, it is not easy because booking websites like Airbnb do not provide this kind of information.

But once again, the Mashvisor Airbnb profit calculator can help you. For any property that you liked during the search state, you can conduct rental property analysis that focuses on its performance as a short term rental, in particular. Just click on your desired listing, and you’ll be provided with all the necessary data and analytics.

Importantly, all data used by Mashvisor comes from reliable nationwide resources like the MLS, Airbnb, and public records. After collecting the data, Mashvisor uses its AI-driven machine learning algorithms to predict how a vacation rental is forecast to perform based on past and current data on comps.

The numbers that Mashvisor provides include:

• Property price
• Price per square foot
• Number of bedrooms and bathrooms
• Startup costs
• Down payment
• Monthly mortgage payments
• Short term rental income
• Short term occupancy rate
• Short term cash flow
• Recurring operational costs
• Short term rental cash on cash return
• Short term rental cap rate

All inputs are customizable, so you can adjust any numbers to fit your specific strategy and approach before getting updated estimates of the outputs.

To start searching for and analyzing the best short term rental investment opportunities in Dallas, sign up for a 7-day free trial of Mashvisor.

Top 4 Neighborhoods for Short Term Rentals in Dallas

As mentioned above, finding the best area is one of the most important steps in locating a good short term rental in Dallas. To give you a head start, we’ve ranked the top four Dallas neighborhoods for short term rentals. The ranking is based on Mashvisor-collected and calculated data from 20 November 2022.

We focused on the average short term rental cash on cash return that properties are able to generate in each local market. The cash on cash return is the most comprehensive measure of ROI in real estate as it accounts for the method of financing.

So, here are the four best neighborhoods for Dallas Airbnb properties, ranked from those with the highest to the lowest cash on cash returns:

1. Main Street District

• Median Property Price: $411,333
• Average Price per Square Foot: $173
• Days on Market: 20
• Number of Short Term Rental Listings: 475
• Monthly Short Term Rental Income: $2,887
• Short Term Rental Cash on Cash Return: 3.48%
• Short Term Rental Cap Rate: 3.53%
• Short Term Rental Daily Rate: $165
• Short Term Rental Occupancy Rate: 45%
• Walk Score: 96

Of all Dallas neighborhoods, Main Street District offers the highest return on investment. Even if 3.48% does not sound like a lot, take into consideration that the figure is just a neighborhood-level average. Some properties for sale are able to bring double-digit returns.

2. Farmers Market District

• Median Property Price: $540,980
• Average Price per Square Foot: $256
• Days on Market: 13
• Number of Short Term Rental Listings: 494
• Monthly Short Term Rental Income: $3,528
• Short Term Rental Cash on Cash Return: 3.05%
• Short Term Rental Cap Rate: 3.09%
• Short Term Rental Daily Rate: $167
• Short Term Rental Occupancy Rate: 43%
• Walk Score: 71

Another profitable area for buying a short term rental in Dallas is the Farmers Market District. The average ROI here suggests that finding profitable opportunities in the neighborhood is much easier than in other areas.

3. Reunion District

• Median Property Price: $640,828
• Average Price per Square Foot: $314
• Days on Market: 9
• Number of Short Term Rental Listings: 512
• Monthly Short Term Rental Income: $4,206
• Short Term Rental Cash on Cash Return: 2.84%
• Short Term Rental Cap Rate: 2.87%
• Short Term Rental Daily Rate: $171
• Short Term Rental Occupancy Rate: 42%
• Walk Score: 50

Number 3 of the top neighborhoods for investing in a Dallas short term rental is Reunion District. The area provides the highest monthly rental income.

4. City Center District

• Median Property Price: $541,365
• Average Price per Square Foot: $277
• Days on Market: 13
• Number of Short Term Rental Listings: 479
• Monthly Short Term Rental Income: $2,643
• Short Term Rental Cash on Cash Return: 2.54%
• Short Term Rental Cap Rate: 2.64%
• Short Term Rental Daily Rate: $163
• Short Term Rental Occupancy Rate: 47%
• Walk Score: 86

Yet another profitable area for vacation rentals in Dallas is City Center District. Here home prices are more affordable than in Reunion District.

To start searching for the best short term rental properties for sale in these neighborhoods or any other area of Dallas, click here.

Getting Started With Dallas Short Term Rental Investments

If you’re thinking of investing in a vacation rental, checking out opportunities in the Dallas real estate market is worth it. Buying a short term rental in Dallas promises to remain a profitable investment strategy for all the reasons listed and explained above. Dallas offers good daily rates, and a boost in occupancy can significantly enhance ROI.

Just like in any other market, buying a top-performing investment property requires going through a certain process. With the help of Mashvisor, the necessary real estate research and analysis can be decreased from three months to just 15 minutes. Meanwhile, all data and analytics you obtain are as accurate and as reliable as they get.

So, if you’re ready to make this year your most profitable yet, click here to start searching for the best short term rentals for sale in the Dallas market.