Short-term rentals have become a booming business for property owners over the last decade, especially in large cities where tourism and business travel are consistent throughout the year. Platforms like Airbnb, VRBO, and Booking.com have transformed the hospitality industry, allowing travelers to stay in unique properties while providing hosts with lucrative income opportunities. We’ll discuss some of the top US cities for investment, as well as key factors contributing to success in cities and local legal regulations to consider.
Benefits of Airbnb Investment in City Properties
Higher Demand = Higher Rates
Occupancy Rates – Occupancy rates measure the total number of days a short-term rental is occupied in a month or year and are important metrics to consider when evaluating a property’s success. According to AirDNA, the average occupancy rate from March 2023 to February 2024 was 55.1%, and some major cities see occupancy rates that exceed that.
Average Rental Rates – Guests are more than willing to pay premium rates for the convenience of being near major city attractions, public transportation, restaurants, and nightlife. Just like occupancy rates, the average daily rate (average nightly spend that the guest pays during their stay) is dependent on the market you’re in.
Events
In cities where short-term rentals thrive, major events can significantly drive up demand and rental rates. Whether it’s a music festival, sports event, or convention, these occasions can attract visitors who prefer staying in short-term rentals over traditional hotels. For example, Taylor Swift’s Eras Tour grossed over $1 billion, and cities where the concerts were held benefited greatly. Los Angeles, CA alone saw a $320 million increase in the Los Angeles County GDP, and hotel and short-term rental occupancy saw a large influx. Guests attending these events want to be close to the stadiums or concert venues, giving short-term rental hosts in these cities considerable booking opportunities.
City Attractions & Tourism
Highlighting popular city attractions in your Airbnb or VRBO listing is a small but effective way of edging out the competition. Iconic landmarks, cultural hotspots, entertainment venues, and popular events consistently attract tourists and business travelers looking for convenient, comfortable stays. Mentioning that your listing is just “Steps away from Fenway Park” or “2 Blocks from Broadway Street” can help boost occupancy rates and rental income.
Guest Demographics
Major-market cities attract diverse travelers, from those seeking an action-packed vacation to those traveling for business. Short-term rentals in large US cities are increasingly popular among business travelers and remote workers, offering flexible, home-like accommodations with high-speed internet, workspaces, and kitchens. This growing demand makes cities a prime market for short-term rental investments catering to this audience.
Potential for Property Appreciation
Major urban areas tend to experience robust property value growth due to high demand, limited available land, and the influx of businesses and people attracted to city amenities. With a well-located property, appreciation can steadily increase your Airbnb investment property value over time, potentially leading to substantial gains if you decide to sell in the future. Additionally, as property values rise, you can often charge higher nightly rates for your STR, capitalizing on rental income and long-term property growth.
Considerations Before Buying in a Major City Market
Regulatory Uncertainty
When investing in a short-term rental in a big city, you must be aware of local legal regulations that can significantly impact your operation. Many large cities have strict rules governing short-term rentals, such as requiring hosts to obtain permits, limiting the number of rental days per year, or restricting rentals to primary residences. Zoning laws, neighborhood-specific regulations, and occupancy limits may also apply. Non-compliance can lead to hefty fines or property delisting, so thorough research and adherence to local laws are essential for a successful and legal short-term rental investment.
Competition
In large urban markets, STRs compete with established hotels that offer amenities like concierge services, spas, and on-site restaurants. Additionally, countless other short-term rentals may be vying for attention on major booking platforms. This saturation requires you to distinguish your property, which could mean offering high-end features, personal touches, or tailored guest experiences. To attract urban guests to your Airbnb, especially those accustomed to luxury hotels, your property must meet high comfort, convenience, and aesthetic appeal standards.
Higher Investment and Operating Costs
Initial purchase and set-up (property, furnishing, regulatory licenses) – Buying in a major city means dealing with elevated property prices directly impacting your down payment and mortgage. Furthermore, furnishing an STR in a city requires stylish, durable, and upscale decor and amenities that align with guest expectations for a modern, urban setting. Add to this the licensing and permitting fees, which can be extensive in cities with strict STR regulations. Some cities cap the number of licenses they issue, making it essential to secure regulatory approvals as early as possible to avoid potential losses.
Increased Operating and Maintenance Costs – Urban properties have higher costs associated with routine operations and ongoing maintenance. City properties often require:
- Regular Professional Cleaning: Expect higher costs for cleaning services, especially since rapid guest turnover requires frequent deep cleaning and a detailed cleaning checklist to maintain the high standards guests expect in a city rental. To alleviate the stress of finding qualified cleaners, use services like Turno and automate your short-term rental cleaning.
- Professional Property Management: With faster turnovers, you may need to hire professional management to handle frequent check-ins and checkouts, maintenance, and guest communications. In cities where guests come and go quickly, your property could need daily oversight, pushing up management fees.
- Security and Insurance: City rentals may require more sophisticated security systems, especially if your property is in a high-traffic area. Higher insurance premiums are often needed in urban areas, particularly for condos or multi-unit buildings where liability can be complex.
Expectations for Urban Guests
Urban STR guests generally expect hotel-level experiences with a unique, personal touch. This might mean high-quality bedding, smart-home features, contemporary design, and proximity to key city attractions. Competing in a market where luxury hotels are the norm may also mean adding services like custom local guides or partnerships with nearby businesses to give guests a reason to choose your property over a hotel.
Full Scope Financial Planning
Operating an STR in a major city calls for detailed, robust financial planning. You’ll need to account for every expense in your financial model, including:
- High mortgage payments: Especially in popular cities where real estate prices are elevated, financing costs can be substantial.
- Regular maintenance and unexpected repairs: With urban property values often come higher repair costs for items like HVAC systems, plumbing, and appliances.
- Licensing fees and taxes: Most large cities levy specific STR taxes, which can reduce profits.
- Insurance premiums: In large cities, insurance rates tend to be higher, especially if there are risks like theft or liability associated with multi-family buildings.
5 Top Promising US Cities for Airbnb Investment
Nashville, TN
The Music City saw a whopping 16.8 million visitors in 2023, generating $10.56 billion in visitor spending. Nashville continues to break tourism records, and because of that, it’s a great place to consider investing in a short-term rental. The city attracts travelers of all backgrounds, from bachelor/bachelorette parties to business travelers and country music fans to sports enthusiasts. Nashville’s market score is 86, with an annual average revenue of $42.4K, an occupancy rate of 53%, and an average daily rate of $350.20. The typical home value in Nashville is $450,000. With tourism trending upward year after year, Music City is a great place to consider for your STR investment.
Short-Term Rental Regulations: To host on Airbnb or rent a property on any online travel agency site, you must receive a permit from the Metro Codes Department before listing.
Las Vegas, NV
Las Vegas is a world-renowned vacation destination, and in 2023, the city welcomed 40.8 million visitors. Much like Nashville, the “Entertainment Capital of the World” hosts a diverse crowd of travelers drawn in by the casinos, nightlife, and endless entertainment. Las Vegas’s market score is an outstanding 97, meaning the STR market is strong and in demand. Las Vegas sees an annual average revenue of $25.8K, an occupancy rate of 50%, and an average daily rate of $306.90,
Short-Term Rental Regulations: Short-term rental hosts in Las Vegas must follow specific guidelines and restrictions. You must obtain a short-term rental license from the City of Las Vegas. A few guidelines include that the property be ‘owner-occupied’ throughout the rental period, be located at least 660 feet from any other short-term residential rental, as well as 2,500 feet from a resort hotel, be in a zoning area that allows short-term residential rentals, and have written permission from your Homeowners Association (HOA).
Boston, MA
Boston attracts a steady stream of vacationers year-round. Many are drawn to Boston for its rich history and landmarks like the Freedom Trail and Boston Common, and the city also boasts a thriving cultural scene and world-class universities like Harvard and MIT, which attract students, families, and professionals. Compared to other cities on this list, AirDNA gives Boston a market score of 35. Still, with an annual average revenue of $31.6K, an occupancy rate of 60%, and an average daily rate of $336.10, hosts can earn a high ROI, with the average Airbnb rental income being more than traditional rentals.
Short-Term Rental Regulations: Short-term rentals in Boston need to register with the City of Boston. Boston’s Short-Term Rental (STR) program allows the renting of residential units for less than twenty-eight (28) days for a fee. Only owner-occupied condominiums, single-family, two-family, and three-family buildings are permitted. For two-family and three-family buildings, the owner-occupant must own all the units.
Austin, TX
Austin, Texas, is known for its live music, outdoor festivals, and tech scene. The city attracts visitors year-round, and events like South by Southwest (SXSW) and the Austin City Limits Music Festival bring tourists from around the globe to the “Live Music Capital of the World. ” The city’s laid-back atmosphere and cultural appeal make it an excellent destination for short-term rentals. Austin’s market score is 72, with an annual average revenue of $23.6K, an occupancy rate of 52%, and an average daily rate of $292.30. Austin continues to see record growth and has been consistently ranked one of the fastest-growing metropolitan cities in the US.
Short-Term Rental Regulations: To operate in Austin, short-term rentals must apply for an STR license. For a detailed description of guidelines and restrictions, visit here.
Denver, CO
Known for its outdoor recreation, bustling downtown, and thriving cultural scene, Denver attracts diverse travelers, from outdoor enthusiasts exploring the Rocky Mountains to business travelers attending conferences and events. With a steady influx of tourists and the city’s appeal as a relocation destination, STR investors can benefit from high occupancy rates (63%) and seasonal demand surges.
Short-Term Rental Regulations: If you rent a property to guests for fewer than 29 nights at one time, a short-term rental license is required. The property being rented must be your primary residence. If you are not the property owner, you will need permission from the property owner to operate short-term rentals there. If you only rent for 30-plus days at a time, a residential rental property license is required.
Suggestions for Urban Airbnb Resources and Market Data
When investing in a major-market short-term rental, gathering up-to-date data and using resources that can help inform your financial planning, market research, and property management strategies is crucial. Here are some key tools and resources to get you started:
- AirDNA and Mashvisor: These platforms offer market data tailored to short-term rentals, with AirDNA providing information on occupancy rates, average daily rates, and revenue potential. Mashvisor goes a step further by offering investment analytics, neighborhood insights, and estimated ROI, which are invaluable for understanding the performance potential of specific properties in your target city.
- BiggerPockets: A popular real estate investing platform and community, BiggerPockets offers forums, articles, and calculators for investors. It’s an excellent resource for connecting with other STR hosts, learning about investment strategies, and accessing a library of tools and advice on everything from property financing to market trends.
- NerdWallet’s Cost of Living Calculator: This calculator can help you evaluate the financial viability of operating an STR in your chosen city by breaking down monthly expenses like rent, utilities, and other living costs. Comparing costs in different cities will give you a better idea of what to expect and help assess whether a specific market aligns with your financial goals.
- Local Short-Term Rental Associations: Many large cities have STR associations that focus on local STR issues, advocacy, and regulations. For instance, the Nashville Area Short Term Rental Association (NASTRA) in Nashville provides guidance on legal issues, regulatory changes, and best practices. These associations can be invaluable for staying informed about legal considerations and connecting with other local hosts.
- Local Tourism and Convention Bureaus: Reviewing resources from the city’s tourism board can offer insights into local events, seasonal demand, and visitor demographics. Leveraging these insights can help you better market your STR around high-demand times and understand what attracts visitors to the area.
- Nashville – Visit Music City
- Las Vegas – Las Vegas Convention and Visitors Authority
- Boston – Meet Boston
- Austin – Visit Austin
- Denver – Visit Denver
Making It Big in the City
Investing in a short-term rental in a major U.S. city offers the potential for strong returns, thanks to the consistent demand from both tourists and business travelers. With high occupancy rates, premium rental rates, and the added benefit of property appreciation, cities like Nashville, Las Vegas, Boston, Austin, and Denver are well-positioned for profitable Airbnb investments.
Navigating urban markets requires careful planning due to higher operating costs, intense competition, and often strict regulatory requirements. By understanding the unique dynamics of each city and utilizing available resources, investors can make informed decisions and capitalize on the booming urban STR market. Whether you’re a first-time Airbnb host or an experienced investor, considering these factors will help maximize your success in the city of your choice.
