The saying “location, location, location” is ubiquitous in real estate for good reason – when it comes to property investments, the neighborhood, and surrounding area can make or break your success. This is especially true when buying a home or condo to operate as a short-term rental (STR). While amenities and interior design certainly matter, choosing the ideal location should be priority number one.
In this blog post, we’ll explore why locale is so crucial for profitable STRs, the key traits that characterize a prime neighborhood, challenges to keep in mind, how modern tools can aid your search, and some top locations worth considering for STR investments in 2023.
The Significance of Location in Real Estate Investment
Short-term rentals live and die by location more than other investment properties because they cater to travelers looking for convenience and proximity to sights. The neighborhood largely shapes the guest experience and your rental income potential.
The rise of short-term rentals across the United States demonstrates the growing significance of location in real estate investing. According to data from Statista, the number of active Airbnb listings in the US has steadily increased over the past several years:
Here’s why location is very critical:
- Accessibility: Proximity to airports, public transit, and key attractions entice more bookings from travelers seeking convenience. Remote areas suffer lower occupancy.
- Desirability: Trendy or touristy neighborhoods see greater demand. A boring locale lacks appeal. Marketability matters.
- Amenities: Whether it’s restaurants, shopping, or entertainment, easily accessible local amenities enhance a guest’s experience.
- Regulations: Municipal laws can dictate if STRs are allowed in certain areas. Research this.
- Safety: Travelers avoid unsafe areas. A history of crime or disturbances will deter bookings.
- Competition: Popular areas see more rival STRs, but this can also indicate a coveted spot.
As an investor, doing your homework to find hot spots with consistent tourism is key. When it comes to short-term rental investments, the neighborhood and location of the property itself is arguably the most critical factor for success. The perfect property in the wrong neighborhood won’t deliver the payoff you want. But the ideal locale can make an ordinary place a lucrative investment. At the end of the day, location remains the number one driver of rental profitability.
What Buyers Should Look For in a Prime Location
When evaluating neighborhoods, keep an eye out for these key traits that signal an ideal short-term rental location:
- Walkability: The ability to access amenities on foot is a major plus for vacationers. Seek out pedestrian-friendly areas.
- Tourism: Proximity to major attractions like theme parks, museums, or national parks is ideal for drawing travelers.
- Desirable Setting: Waterfronts, mountain views, a downtown skyline – scenic settings entice guests.
- Financial Stability: Look for areas with a stable and growing local economy, low unemployment rates, and steady household income levels. This indicates a reliable local demand for rentals. Analyze job growth projections, new housing permits, and foreclosure rates.
- Quality Schools: Top-rated schools attract families and professionals to live in the area year-round, creating a consistent demand for rentals beyond just travel seasons. High graduation rates also promote stability.
- Public Transportation: Proximity to public transit like airports, train stations, and bus routes makes a location appealing and accessible to travelers. Even a few additional miles from these hubs can impact demand. Evaluate the convenience of transportation options.
- Amenities: Parks, recreational facilities, restaurants, cafes, shopping centers, and entertainment venues bring in tourism and also make the area more livable for long-term renters. A walkable neighborhood is always desirable.
- Safety: Low crime rates make families and solo women travelers feel secure staying in the area. Carefully analyze recent crime statistics and safety scores. Consider lighting, surveillance, and community watch programs.
- Income Potential: Project the potential for both ongoing rental income and long-term property value appreciation. Locations with vibrant tourism, conventions, or special events can command higher daily rental rates during peak seasons.
- Family-Friendly: For broader appeal, search areas with playgrounds, kid-friendly restaurants, and entertainment.
- Development: Up-and-coming areas with new buildings signal a desirable neighborhood on the rise.
- Limited Regulations: Research if there are limits on STRs before buying, as some cities ban them in certain buildings or neighborhoods.
- Consistent Demand: Analyze data to ensure the area has year-round appeal vs. seasonal highs and lows only.
Carefully evaluating and choosing neighborhoods that excel in these diverse factors will help maximize your rental occupancy, rates, and overall investment success.
Challenges to Consider in 2023
While short-term rental investing can be lucrative if done right, it also poses some unique challenges that real estate investors should be aware of:
- Local Knowledge: Investing out of state without understanding the nuances between neighborhoods, even within the same city, could lead to making the wrong purchase. A few miles can significantly impact a property’s value and appeal.
- Unexpected Costs: Be aware of all costs like property taxes, licensing and permitting fees, renovations, maintenance, parking, furnishings, amenities, utility bills, and either your time for self-management or an 8-15% property management fee. These can eat into profits if not properly accounted for.
- Property Management: Self-managing a short-term rental can be possible if you live nearby but requires investing significant time into booking, marketing, cleaning, maintenance, and addressing issues. Hiring a professional property management company is more hands-off but adds recurring costs.
- Evolving Regulations: Local municipal laws are evolving to regulate short-term rentals through permits, hotel occupancy taxes, restrictions on length of stay, limiting the number of guests, etc. Not being aware of new requirements in your investment location could lead to legal issues.
- Seasonal Variability: Some vacation-oriented locations may have dramatically higher demand during peak seasons and holidays, but very low occupancy during off-seasons. This seasonality requires financial planning.
Utilizing Modern Tools for Smart Decisions
Technology is transforming real estate investing. Many platforms aggregate data and aid investors by:
- Identifying profitable neighborhood investment opportunities
- Analyzing market trends, forecasts, and property appreciations
- Providing rental rate comparisons within a neighborhood
- Calculating Airbnb occupancy rates, rental income, cash flow, and ROI
- Ranking locations based on personalized investment criteria
While technology is invaluable, the human expertise of local real estate professionals remains important when evaluating a property and neighborhood. Utilize both for smart investing.
Top Neighborhoods for Short-Term Rentals in 2023
Analyzing markets using criteria like those discussed can reveal ideal neighborhoods for investment in 2023. Here are two top picks:
Harpers Ferry, West Virginia
- Popular historic tourist town located along the Appalachian Trail
- Vacation rentals averaged 79% occupancy and $175 average daily rates in 2022
- Appreciation rate of 5.1% predicted through 2023
Schiller Park, Illinois
- Located minutes from O’Hare International Airport in Chicago
- Proximity to the airport and downtown draws business travelers
- Average Airbnb daily rate of $75/day with 63% occupancy
- Strong local economy and walkable amenities
These locations demonstrate the traits of financial stability, amenities, tourism demand, and income potential.
In real estate, few factors are as crucial as location. Choosing the right neighborhood for short-term rentals means researching stability, amenities, safety, regulations, and profit potential – not an easy task! But using today’s tools to analyze areas in-depth helps investors make smart, data-driven decisions.
With diligent neighborhood research, investors can find lucrative locations to buy into for 2023. The adage still rings true: for profitable real estate, location is everything!
Frequently Asked Questions
- How do I evaluate the financial stability of a potential investment location?
Analyze economic factors like business growth, household income levels, unemployment rates, and real estate appreciation trends. This data helps determine an area’s stability.
- What are some costs I should factor in for a short-term rental property?
Beyond just the mortgage and purchase costs, factor in property taxes, licensing fees, renovations, maintenance, furnishings, amenities, and either your time for self-management or a property management fee.
- Can I trust real estate analysis tools like Mashvisor to identify profitable locations?
These modern tools aggregate helpful data but should be used as a starting point. Always cross-reference the information with localized insights from real estate agents and professionals.