Airbnb Market Research: Identifying Investment Locations

Airbnb market research is at the core of profitable short term rental property investments. Have you heard the slogan “Location Location Location”? Well, this motto is as true in Airbnb investing as in any other aspect of the real estate industry. Where your property is located determines the best property type to invest in, the purchase price, the type of guests to cater to, the daily rates that you can charge, the occupancy rate that you can expect, the revenue and profit that your rental will be able to generate, and the legal regulations that you will need to abide by. All these factors mean that you should conduct careful and diligent research to choose the best Airbnb market that meets your investment aspirations along with budget limits.

This step-by-step guide will take you through the details of performing focused, data-driven Airbnb market research to find the top locations for buying a vacation rental property. We’ll look at the factors that you need to take into consideration in addition to the best tools that can help you facilitate the process while enhancing outcomes. Finally, we’ll conclude with bulletproof tips and tricks on how to maximize the impact of your research for profitable investments each and every time.

Meanwhile, if you’re looking for the most efficient way to find top-performing properties nationwide to start or expand your Airbnb portfolio, check out STR Search. Their team can match you with a positive cash-flow property that meets your specific requirements and expectations in 30 days and also help you get started as an Airbnb host. They make the process as hands-on or hands-off as you prefer.

Here are the steps for well-thought-through Airbnb market research:

Step 1: Define Your Airbnb Investment Objectives and Set Up a Budget

The first step that you need to take before diving into the actual market research is to outline clear goals for your Airbnb investment and to define your budget for the endeavor.

Smart investors know what they want to achieve with their property investment from day one and let their objectives drive all their decisions along the way. It is important to take some time, think carefully about what you are trying to do with your STR, and even write it down so that you can keep coming back to it. This will help keep your research and analysis focused on hitting your target.

Some questions to ask yourself when defining your investment objectives are:

• What is your #1 goal: To gain financial freedom through cash flow, to get appreciation over time, to buy a second home where you can spend time with friends and family, to access tax benefits, or all of these?
• How many Airbnb properties do you plan to buy? And over what time period?
• Are you working on your own or with a partner/team?
• Do you plan to be a passive investor (who hires professional property management) or a DIY Airbnb host (who manages their property on their own)?
• How much rental income do you aim to earn?
• What is your ideal ROI and profit level?
• What is your budget?

Once you know what it is that you are planning to achieve with your Airbnb investment, you have to allocate a budget for it and stick to this budget without giving in to temptations. You should not forget that investing in Airbnb is a business process and should be based on sound financial decisions rather than emotional considerations.

When putting together your budget, take into account the following factors:

• Your existing savings
• Any expected changes in your current income and spending
• Available financing options: Do you have enough cash to purchase a property or do you need financing? Do you qualify for a conventional mortgage and is this the most suitable option in your specific situation? What other Airbnb loans could work?
• Emergency fund: It’s a must to set aside enough funds to cover the operating costs of your Airbnb property over 6 months in case of zero rental income. As an investor, you have to be prepared for the worst and make sure that you can maintain your business even without any cash flow. One of the most important lessons of the Covid-19 pandemic was that the short term rental market can take a sudden hit (before bouncing back), and hosts should be ready to weather storms without going bankrupt. That’s why you want to have enough money to cover mortgage payments, utilities, and maintenance for at least 6 months.

As soon as you have your investment goals and budget all figured out, you are ready to launch your Airbnb market research in line with your aspirations and finances.

Step 2: Identify the Best Short Term Rental Markets Within Your Budget

After you know how much money you can afford to spend on an investment property, you can start searching for the top Airbnb locations within your budget. Start at the city level before narrowing down to specific areas and neighborhoods.

Typically, the best short term rental markets include:

• Beach locations
• Ski resorts
• Cities with multiple tourist attractions
• Romantic getaways
• Business travel destinations
• Event-driven cities
• Digital nomad-friendly locations
• College towns
• Rural escapes

Some of the most important factors that make for a good Airbnb market include:

• Affordable property prices (this is particularly important for beginner investors who don’t have large funds to invest in their first property)
• Strong average daily rates (ADR)
• High Airbnb occupancy rate with little seasonal fluctuations
• High-demand tourist attractions such as beaches, outdoor activities, cultural attractions, historical sites, theme parks, convention centers, and others
• Year-round events like conferences, symposiums, concerts, award ceremonies, and others
• Well-functioning Airbnb activities without the marketing being overly saturated yet
• Distinct character that attracts a certain type of guests, such as couples, families with children, group travelers, businesspeople, or remote workers
• Easily accessible transportation options
• Low operational costs for Airbnb hosts
• Lien short term rental laws which don’t get on the way of feasible Airbnb investments
• Competitive Airbnb management market in case you want to hire a professional to take care of your short term rental
• History of above-average real estate appreciation so that you can make money from your investment in the long term
• Strong potential for year-round revenue and good profit as your ultimate goal as an Airbnb investor is to generate positive cash flow and above-average ROI

If you are a newbie who doesn’t already have preferred markets, you can start your preliminary Airbnb market search in a number of different ways:

• Check out your local market: The first place to look for profitable opportunities is your own area. Investing close to home comes with important benefits, especially for beginner investors and DIY hosts. However, you have to check the data, analyze travel statistics, and research the Airbnb market to make sure that your city makes sense for short term rental investments. If that’s not the case, you should not be afraid to venture out of your comfort zone because that’s how some of the best investments are made.
• Analyze popular tourist destinations: You should check out top tourist locations, such as big cities, popular resorts, and travel destinations, to see if any of them might make sense for your strategy. Visit their websites to gather visitor information; check listings on Zillow, Redfin, and Realtor.com to get an idea of the average property prices; and see listings on Airbnb and other booking channels to learn about top features, daily rates, and rental activities. Putting together the results of your initial research should help you decide which markets might be worth exploring in further detail.
• Read short term rental blogs: Trustworthy real estate investing websites, such as AirDNA, Mashvisor, PriceLabs, and Airbtics, offer articles that list the top Airbnb investment locations based on different criteria. For example, you can find the most affordable markets, the locations with the highest ADR, the cities with the best occupancy rate, the ones that generate above-average cap rate or cash on cash return, or the cities with the most favorable Airbnb laws. Vacation rental blogs are a quick and easy way to identify potentially good markets to focus your in-depth research on.
• Watch YouTube real estate investment channels: Similarly, you can watch videos on leading Airbnb investing YouTube channels to look for top markets. Channels such as BiggerPockets, Airbnb Automated, and Lydia Patel can give you practical advice on where to look for the best Airbnb markets.
• Visit Airbnb investment forums: Reading through discussions on forums like BiggerPockets and Reddit can point you towards the hottest Airbnb markets where fellow hosts are currently reaping good profits. In addition, you can specifically ask for recommendations on locations that match your requirements including budget and get tips from investors with more experience in the field.
• Consult with more experienced investors: You can try to connect with peer investors via local meetups or in other ways to ask where they are owning properties and how they are performing. Experienced real estate investors are always happy to help beginners and potentially even forge a partnership with them.
• Hire an investor-friendly real estate agent or broker: If you have a general idea of where you would like to invest, you can work with a local agent or broker who specializes in Airbnb properties to show you the best locations for this strategy. The added benefit is that an agent will not only help you research the market but also assist you in the purchasing process.
• Talk to Airbnb managers: You can get in touch with national Airbnb property management companies to get advice on top-performing markets that match your interests. Property managers will be particularly happy to help you identify opportunities if you plan to hire them to manage your property once you buy it.
• Use Airbnb data analytics software: You can use short term rental data analytics tools, such as AirDNA, Rabbu, Mashvisor, and AllTheRooms, to access market-level Airbnb data to help you identify the best vacation rental locations nationwide. You can focus your search on different factors, like home values, nightly prices, occupancy, monthly revenue, RevPAR, cash flow, cap rate, and cash on cash return.
• Hire professional help: Finally, the best way to find the right Airbnb market for your aspirations is to work with an experienced team of short term rental experts, such as STR Search. The team uses loads of public and institutional grade data from highly reliable sources to identify the best market and locate the top property there for each investor, based on their unique goals and needs. Over the course of the last 3 years, we’ve helped investors buy more than 200 Airbnbs across the US market, and all of them have been bringing positive cash flow from day one.

After checking out a few of these sources, you should be able to identify a couple of potential markets that meet your requirements and could be offering profitable opportunities.

Step 3: Analyze the Potential of Your Selected Market

The next step in Airbnb market research is to deepen your investigation of the few locations that caught your attention in the previous step.

Your city-level research and analysis should incorporate the following factors and data points:

• Average price of real estate listings for sale
• Range of daily rates of Airbnb listings
• Popular property types and amenities listed on Airbnb
• Travel statistics and visitor data
• Seasonality in tourism activities
• Popular tourist attractions in the area
• Cost of utilities and other operating expenses
• Airbnb management fees (if you plan to hire professional services)

To access this data, you need to use a few different resources, including:

• Real estate websites like Zillow and Redfin
• Local authority websites that highlight tourism trends
• The Airbnb platform to check out listings and their performance
• Airbnb data websites, such as AirDNA, Rabbu, and Airbtics
• Local and national Airbnb managers to get an estimate of their fees

After looking at all these factors, you should have a pretty good idea whether your selected market or markets have the potential to host top-performing short term rentals.

Step 4: Focus Your Airbnb Research on the Neighborhood Level

Next, you need to narrow down your research to focus on specific neighborhoods within your chosen market. Airbnb is a very local business, which means that adjacent areas inside the same city or town can yield strikingly different results for investors because of various factors.

When searching for the best area to invest in a short term rental, concentrate on these factors:

• Proximity to tourist attractions: Areas that are close to popular tourist sites enjoy more demand from Airbnb guests.
• Available transportation options: Guests give preference to places that are easy to get to and get around from.
• Availability of restaurants, cafes, and shops: The best Airbnbs are located close to dining, entertainment, and shopping options so guests don’t have to spend all their time traveling.
• Local Airbnb laws: Frequently, zoning regulations determine which districts can host short term rentals and which cannot, so it’s important to confirm that your selected neighborhood allows Airbnb activities.
• Airbnb listings: The number of listings in the area and how much availability they have in the coming weeks/months will give you a good idea of how strong the local Airbnb market is. While you want to invest in a location that has an operating short term rental business, you don’t want to put your money in an overly saturated market where new listings stand no chance. Moreover, top-ranking listings will show you what’s trending in the area and guide your property choice down the road.
• Performance data: You can talk to local hosts or use analytics tools to check the actual performance of vacation rentals in the neighborhood in terms of daily rates, occupancy rates, revenue, and ROI.

Choosing the right neighborhood is just as important as selecting the best city for Airbnb. Small differences between local areas can lead to major discrepancies in the performance of short term rental properties. Thus, neighborhood analysis is an indispensable part of your Airbnb market research.

Step 5: Do Research on Supply, Demand, and Seasonality Factors in the Area

The next compulsory step in analyzing Airbnb markets is researching supply, demand, and seasonality. These factors should guide not only your choice of a place to buy a vacation rental property but also your listing, marketing, and pricing strategies to optimize the performance of your Airbnb.

On the supply side, it’s important to understand how many active listings there are in the market, what they offer to guests, what they are missing (so that you can find your unique value proposition), and what factors drive their performance. You can learn a lot by spending some time on the Airbnb platform, conducting different searches in the area, and looking through the listings of other hosts.

In terms of demand, you can start your research by accessing aggregate tourism data from federal and local sources to see how many visitors come to the city each year, what their demographic breakdown looks like, what attracts them to the area, and which months are the most popular for tourists. Demand will determine what occupancy rate you can expect for your property, what the typical guest would look like, and what amenities and experiences you should offer to get more bookings.

Finally, it’s crucial to consider the impact of seasonality. Most Airbnb locations experience a certain degree of seasonal fluctuations in demand and thus prices. Generally speaking, seasonality is more noticeable in resort towns driven by outdoor activities, while it’s less significant in major cities, business hubs, and cultural destinations.

At the end of this part of your research, you should have a good understanding of the balance between supply and demand forces in the market and the impact that seasonality has.

Step 6: Find Out the Ideal Airbnb Guest Persona in the Market

Another major outcome of your Airbnb market research should be a detailed profile of the ideal guest persona for your vacation rental business. The most successful short term rentals are those that target specific types of guests as they can provide the exact amenities and supplies that these guests demand.

Your audience niche should dictate the type of property that you buy, the way that you furnish it, and the amenities that you add to it. For example, if you plan to cater to the needs of business travelers, it’s a smart move to invest in a condo in the city center and supply it with a home office and a small kitchenette with a coffee machine and a microwave. On the other hand, if you want to host families, you should consider purchasing a single-family home or a townhouse where you furnish a children’s room and a children’s play area and childproof the necessary spaces.

In your selection of the most appropriate types of guests in the market, you should rely on:

• Most visited local attractions
• Visitor statistics from tourism boards
• Nearby short term rental listings, the language they use in their titles and descriptions, and the amenities they offer
• Recommendations from local hosts

Some popular types of Airbnb guests include:

• Solo travelers exploring top destinations
• Couples looking for romantic getaways
• Families with children searching for more comfort than a traditional hotel room offers
• Pet owners who cannot stay at hotels
• Friends interested in group travel vacation rentals
• Digital nomads and remote workers looking for extended stays
• Businesspeople
• Work teams engaging in team-building activities

As you can imagine, each of these types of guests has very different requirements and preferences for a comfortable stay at a short term rental. Knowing the typical guest persona in the local Airbnb market will help you make informed investment and management decisions that boost the performance of your property and maximize your profit.

Step 7: Benefit from Airbnb Comps in the Local Market

Finding Airbnb comparables, or Airbnb comps, is a crucial step in Airbnb market analysis. These are short term rental listings that are similar to the property that you plan to buy and located within a radius of no more than 3-5 miles of your target location. Studying these comps can help you obtain a lot of important information about the expected performance of your vacation rental before you even buy it.

To perform this part of your research, you need to spend time on the Airbnb website looking for listings that are located in the area where you plan to invest and that are of similar type and size as what your budget allows.

The specific factors that your short term rental comp analysis should focus on comprise:

• Listing title and description
• Property type
• Number of bedrooms and bathrooms
• Outdoor spaces
• Available amenities: Pay attention to both what is available and what is not available in the local market. In this way, you can make sure to offer something unique while covering all the basics that guests expect to find in an Airbnb rental in the area.
• Airbnb interior design theme
• Choice of furniture and decor items
• Daily rates
• Booking availability
• Overall ranking
• Positive and negative guest reviews: Check out what guests praise and what they complain about in their reviews as this will help you decide what you should do and what you should not do with your own Airbnb property.

While having a general idea of the entire city and neighborhood is important, your research should really focus on comps as these are your closest competitors. Their strategies and performance are the best indicators of what you can expect in the local area and how you should structure your STR to get the best possible results.

Step 8: Research Past, Current, and Future Trends in the Airbnb Data and Market Performance

In addition to assessing the current state of the industry, a thorough Airbnb market research should also incorporate past trends and future forecasts. The vacation rental industry is highly dynamic, driven by multiple factors including but not limited to supply, demand, the economy, and legal regulations. What was the best place to invest in Airbnb yesterday is no longer a top option today, just like the optimal market today might not be so profitable tomorrow.

Thus, when choosing the right location for your buying an investment property, you should look at historic and future trends to go for a market that is expected to perform well in the coming years as well. In this regard, you have to differentiate between fluctuations attributed to seasonality (which you should have already studied) and long-term adjustments in the market.

Some of the most important trends to look into include:

• Changes in the number of short term rental listings in the area
• Adjustments in the average daily rate
• Trends in occupancy rates
• Movements in the number of visitors
• Appreciation in real estate prices
• Ongoing discussions on the need to tighten or loosen short term rental rules
• Major real estate or business developments planned in the market

Analysis of historic, present, and future trends and dynamics will help you select a market that has all the attributes to make for a profitable vacation rental investment location in the long haul. Focus on markets that have been growing at a steady pace and have not reached their full potential yet, with strong appreciation rates so that your investment makes money for you in the long run too.

Step 9: Study Local Airbnb Laws and Regulations

Yet another important step in Airbnb market research is studying the short term rental regulations. State, county, and city authorities all have the right to impose rules that aim to govern the Airbnb industry in an attempt to protect housing prices and local communities from the potentially detrimental effects of the STR business.

Over the last 15 years or so, many US states and cities have introduced a wide range of Airbnb laws, while many others are now discussing and deciding how to regulate short term rentals.

Some of the most popular restrictions that local governments impose on vacation rentals include:

• Zoning regulations
• Cap on the number of days for which a property can be listed for rent per year
• Limit on the maximum number of guests per room and property
• Prohibition of non-owner occupied short term rentals
• Safety requirements concerning the availability and number of smoke alarms, carbon monoxide detectors, and fire extinguishers
• Required off-street parking spaces
• Noise levels
• Use of advertising

Before making the final decision whether to invest in a certain location, you have to check out all pertinent regulations as they might have a major impact on the profitability and even feasibility of a short term rental investment.

The best sources of this kind of information are:

• Checking the websites of state, county, and city authorities
• Consulting with local real estate attorneys
• Contacting Airbnb management companies that operate in the area
• Talking to local hosts and investors

Once again, in addition to researching the existing rules, you should also check for any potential new regulations. You can search for draft laws under consideration or look for articles in local news websites that mention conflicts between Airbnb hosts and local residents. These are strong indicators that you might expect some less favorable regulations in the near future so that you can prepare a contingency plan should the legal framework make STRs challenging.

Step 10: Use the Best Tools for Airbnb Research and Analysis

Finally, you should make use of the right Airbnb software tools for market research and analysis. To thoroughly study a short term rental market in the traditional way, you need to collect data on thousands of properties, organize it in spreadsheets, and make endless manual calculations that are prone to human error. To eliminate this problem, you can deploy tools and apps that help investors research and analyze markets faster and more efficiently.

Some of the most trusted tools for Airbnb market research include:

• AirDNA: AirDNA has been STR investors’ go-to data platform for many years now. AirDNA offers a wide range of Airbnb data that allows you to analyze the potential of and trends in both large markets and smaller areas to find the best place to invest in for your specific requirements. You can build your own comp sets to analyze the performance of the properties that make the most sense for your strategy and to learn all you need to know about prices, occupancies, and top amenities.
• Mashvisor: Mashvisor is another popular platform that helps investors research markets and analyze available properties for sale. One of the tools that investors enjoy the most is the heatmap that allows them to focus their search on neighborhoods with affordable property prices and high revenue and occupancy.
• Rabbu: Rabbu allows buyers to analyze the potential of specific addresses across the US and choose the best markets for short term rental investments. An important advantage of Rabbu over other competitors is that the platform can be used for absolutely free, which makes it a good tool to start with to get a general idea of the top Airbnb locations before deeping your research.
• PriceLabs: While PriceLabs is generally known for its dynamic pricing tools, the website also offers an Airbnb calculator which provides estimates of the performance of STRs in various locations. Investors can customize comps to focus their market research and get the most relevant results.
• Wheelhouse: Wheelhouse offers Airbnb market insights that cover seasonality, real-time market trends, forward-looking analysis, and historical metrics. Investors can use the available data to inform their research and make profitable decisions.

When it comes to vacation rental data analytics tools, it’s important to note that no single tool is perfect. Each one has its strengths and weaknesses, and that’s why savvy investors use a mix of tools in their Airbnb market research. Combining a few different tools helps you benefit from the advantages of each platform while avoiding silly mistakes because of over-relying on one single source of data.

10 Proven Tips to Boost the Results of Your Airbnb Market Research

The steps outlined above make it significantly easier for beginner investors to start researching and analyzing markets on their own. Still, as a new investor, you should use all the help there is when choosing the best location for your Airbnb strategy.

Following are 10 easy-to-implement tips that experienced investors swear by when it comes to studying potential markets:

• Use data from reliable, publicly available sources.
• Mix and match data from multiple sources for comprehensive analysis that includes all important points.
• Let data drive all your investment decisions. Remember that investing in a short term rental property is a business process that should be guided by diligent data analysis rather than emotions and personal preferences.
• Try to forecast upcoming adjustments in short term rental regulations in the area. Most markets give early signs of future changes to the legislative environment which investors can use to their advantage to buy a property in a location that will remain conducive to Airbnb in the long term.
• Carefully analyze both top-performing and bottom-ranking competitor listings in the area to identify the best and the worst Airbnb amenities for local guests, to inform the furnishing and decorating of your property, and to drive your listing and marketing strategies.
• Understand the main characteristics of the typical guests in the Airbnb market and their expectations and requirements to offer exceptional guest experiences for 5-star reviews.
• Use Airbnb data tools discreetly by combining the analysis they provide with your own investigation for solid conclusions.
• Apply the results of your market research to invest in the right type of property based on demand.
• Factor operating costs in your Airbnb market analysis for accurate cash flow and profit estimates.
• Partner with the best experts in the industry. The team at STR Search has helped clients buy 200+ Airbnb properties, all positive cash-flowing, that have generated $5+ million in cash. Within 30 days, they can match you with a top-performing property that meets your budget and investment goals and is located in one of the best Airbnb markets. They can also help you get your property guest-ready for optimal performance in line with local trends and hospitality standards.

Bottom Line

While Airbnb market research is a demanding and time-consuming process, it is an absolute must for making profitable investment decisions. Where your STR property is located determines most of the factors that drive the success - or the failure - of an Airbnb business. The 10 steps outlined in this guide should make the process significantly more manageable, even for beginner investors, by breaking it down into specific tasks and activities that you can take one at a time. From defining your investment goals to using the right tools, each of these steps will help you get closer to the ultimate goal of buying a top-performing vacation rental property.

To eliminate all these steps and land a profitable deal with zero efforts, get in touch with STR Search. Their  team can match you with the best property for your needs and budget in 30 days and help you get started with your Airbnb business on the right footing. From market research and property analysis to furnishing and launching your listing, they can do it all for guaranteed positive cash flow and high profitability.