January 15, 2020
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Post type:
Airbnb Operations
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Author:
Boris Mordkovich

How to Evaluate a Market to See If It’s a Good Fit For Airbnb?

How to Evaluate a Market to See If It’s a Good Fit For Airbnb?

Both new and experienced Airbnb hosts frequently have this question. Is [name of a city] a good market for a short-term rental property? 

This is a very important question, as the market itself can determine your revenue and return potential. 

Whether you live in the city where you want to launch your short-term rental or looking outside, it still pays to do the same sort of an analysis, so you can have a data-driven approach that determines whether it’s the right place to have a property.

In this article, we want to talk about the objective - and some subjective - ways that we evaluate markets ourselves and what tools are available at your disposal.

AirDNA

AirDNA is a very unique and powerful research tool designed specifically for short-term hosts. It looks at virtually every major market in the U.S. and abroad, scrubs the data from existing hosts on Airbnb and Homeaway, and analyzes it to provide you with real-world occupancy numbers, revenue numbers, average daily rates and so much more.

This tool gives you both the macro level data about a market, showing the performance across all properties, as well as provides you a way to dig down deeper. Do you want to see how 2-bedroom units that can accommodate up to 6 people in a specific zip code typically do? You can find that out. Do you want to see how a specific address is likely to perform based on the performance of the properties around it? It gives you that.

Of course, we never recommend to use that data at face value, as performance of other properties is not a guarantee of how your property would do. However, it does give you a wealth of data and allows you to understand things directionally - in case, you want to compare different markets or different properties.

Use AirDNA to understand the basic performance data of the STR market

 

NeighborhoodScout:

We’re huge fans of NeighborhoodScout as a way to understand the real estate trends.

When it comes to real estate, it’s a very granular thing. Oftentimes, within the same city, different neighborhoods and even different blocks can perform very differently. Unless you have an intimate understanding of that city from the get go (and even if you do), it helps to have data that you can use to better understand the market.

With NeighborhoodScout, you can get real estate data such as prior appreciation and future appreciation forecasts, as well as information about demographics of people who live there, such as income levels and so on.

It also allows you to plug in a specific property address you may be considering and getting all of this data calculated specifically for that property.

Use NeighborhoodScout to understand more about block-by-block specifics of a of a city including demographics, real estate, crime, schools, etc.

 

Rentometer:

We are fairly conservative investors and, as such, we always look to make sure that a property can still cashflow as a long-term rental if we ever decide to change our business model.

Rentometer does just that. It allows us to plug in a specific address and the size of the property (e.g. how many bedrooms) and see what the average and median rents are, along with all of the recent properties that were up for rent.

This way, we can calculate a forecast for the property as a long-term rental and see if it still fits within our range.

Use Rentometer to analyze the long term rental pricing of a specific property

 

Government Websites:

As the regulations on short-term rentals in different cities are constantly changing, it’s also important to understand how any market you’re considering looks at non-owner occupied short-term rentals.

If it’s not allowed, then - unless you are planning on living in that house - the market would be a no-go. As such, this is one of the first things you’ll want to check and understand. 

Government websites are a key resource for STR regulations


Subjective Elements:

There are a few other things that we’ll typically study about any market we are considering. To be clear, these are simply personal preferences and indicators valuable to us. They can be quite different for other people:

  • Population Trends - we look at the markets to see if the population is increasing or decreasing. For us, since these are long-term investments, we want to make sure that the number of people in that area is increasing so we can be confident that the property value will continue to grow.
  • Proximity of Colleges, Hospitals and Airports - we like to see a diverse group of travelers coming through, so being close to any of the above facilities will typically assure a healthy mix of people coming and going.

 

Conclusion:

Real estate is both a bit of an art and a science. However, when it comes to analyzing an area, it’s quite vital to rely more on data and less on personal biases towards an area, so we try to use the tools available to us to do that.

One other resource we wanted to share is something that we put together for our readers: U.S. Short-Term Rental Market Analysis Database (2020 Edition). This database looks at 320 cities in the U.S. with a population of over 100,000 people, as well as the top 100 vacation destination and pulls together data from government sources, AirDNA, NeighborhoodScout, Rentometer, Zillow, Wikipedia and other places to make it easy to quickly and efficiently analyze and compare different markets for yourself. 

If you have any questions, feel free to email us at hi@buildyourbnb.com. We would love to hear from you!


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