What Are the Best Short-term Rental Markets in 2021?

Buying a short term rental property is an excellent strategy for real estate investment. Short-term rentals are always in demand and, therefore, guarantee you a constant stream of passive income.

However, buying in the right location is crucial to the success of this approach, as there may be off seasons sometimes. Consequently, investors must know how to spot suitable areas to make profitable short-term rental investments.

 How Can I Recognize the Best Short-term Rental Markets in 2021?

Finding the best short-term rental markets in 2021 requires you to have a solid understanding of how the industry works. That way, you may conveniently identify real estate marketplaces with excellent potential. Here are three key considerations that may help to determine the profitability of a real estate market.

1.   Location

The site of a vacation property always plays a significant role in its success. Therefore, location, location, and location remain the first three golden rules to observe in all real estate investments. Every other element is contingent on the area where it’s situated.

Picking a location (state) that fosters a buoyant rental market is the first decision before you even consider assessing a subject property. This step requires you to consider the tourist attractiveness, crime rates, living affordability, accessibility, and every other criterion that may influence demand levels.

Spending $500,000 on a vacation rental property wouldn’t matter if it’s in a poor location. It’s imperative to select a neighborhood that people would love to holiday and also call home.

2.   Economy

Economy, in this context, refers to the economic evaluation of other similarly structured properties in your preferred neighborhood. Metrics to consider are the sale frequency of existing rentals, the average price of existing properties, the local market, and the area’s occupancy rate.

Considering these indicators helps to determine the worthiness of a neighborhood before investing. Positive patterns in each indicate that an area qualifies for short-term rentals. However, it’s noteworthy that a market may flourish with only a few of these factors.

3.   Vacancies and Listings

Proper due diligence provides you with the vacancy ratio in relation to the listing count in a neighborhood. For instance, an abnormally high number of listings hints at two possible scenarios: it’s either the neighborhood is having a downward trend in demand, or it’s currently in its on-season. The best thing is to correctly interpret the meaning of the current listing ratio in a neighborhood before investing.

In addition, vacancy rates are a reliable tipoff metric too. They help to predict the demand type to expect in time. Low vacancy rates may indicate that demand is intact and active — a positive symptom. However, high vacancy rates may mean that the neighborhood isn’t thriving as expected.  

Shortlisting the Ten Best Short-term Rental Markets in 2021

Knowing the considerations for identifying the best short-term rental markets in 2021, we’ll highlight the top ten markets to buy a short-term rental property in this section. All statistics are culled from AirDNA — a reputable source of precise and comprehensive vacation rental data and analytics. 

Here are ten locations that have thrived in short-term rentals for a while and now play host to over 1,000 agile vacation rental properties.

  1. Palm Springs, California (89.7 Investor Score)

Annual revenue potential: $64,571
Investability rating: 100
Revenue growth rating: 99
Rental demand rating: 60

  2. La Quinta, California (84.1 Investor Score)

Annual revenue potential: $77,936
Investability rating: 93
Revenue growth rating: 99
Rental demand rating: 52

  3. Sevierville, Tennessee (83.9 Investor Score)

Annual revenue potential: $61,961
Investability rating: 100
Rental demand rating: 71
Revenue growth rating: 65

  4. South Lake Tahoe, California (81.9 Investor Score)

Annual revenue potential: $62,187
Investability rating: 95
Rental demand rating: 47
Revenue growth rating: 91

  5. Gatlinburg, Tennessee (81.6 Investor Score)

Annual revenue potential: $55,439
Investability rating: 100
Rental demand rating: 70
Revenue growth rating: 56

  6. Pigeon Forge, Tennessee (77.1 Investor Score)

Annual revenue potential: $51,857
Investability rating: 99
Rental demand rating: 42
Revenue growth rating: 70

  7. Saint Augustine, Florida (73.4 Investor Score)

Annual revenue potential: $47,371
Investability rating: 82
Rental demand rating: 62
Revenue growth rating: 68

  8. Gulf Shores, Alabama (73.2 Investor Score)

Annual revenue potential: $99,095
Investability rating: 100
Rental demand rating: 19
Revenue growth rating: 74

  9. Bradenton Beach, Florida (72.9 Investor Score)

Annual revenue potential: $60,051
Investability rating: 100
Rental demand rating: 43
Revenue growth rating: 48

  10. Panama City Beach, Florida (72.2 Investor Score)

Annual revenue potential: $59,986
Investability rating: 100
Rental demand rating: 36
Revenue growth rating: 55

 What Short-term Rental Trends Should Investors Expect in 2021?

Trends are helpful metrics that may assist short-term rental investors in their investments this year. Experts predict three key trends that you and other similarly minded investors should note:

  Telecommuting Will Affect Short-term Rental Demand Levels

In recent research, 83% of respondents stated that they preferred to relocate to work remotely. A quarter of these participants added that this arrangement would allow them “to live where they desire and work from home”. In addition, guest reviews with mentions of ” relocate”, ” trying a new neighborhood”, and ” remote work” grew by 128% from July to Sept 2020.

What do these stats indicate? They mean that fewer travellers will visit the same places at the same time. Consequently, this change will reduce the huge numbers that give mass travel credence.

  People Will Prefer to Travel Close

Experts expect that more and more people will continue domestic travel due to the uncertainty surrounding international travel. The survey above recorded that 62% of participants preferred vacationing close to their homes. As such, local tourism may be how economies will recover.

The implication for short-term rentals is that investors may consider investing in properties in their neighborhoods. However, research is crucial before such a move.

  People Will Travel More in Groups

The fear of contracting COVID-19  will lead to pod travel popularity. In other words, families and friends will likely travel together to minimize external socialization and, by extension, the risk of the virus. An Airbnb survey revealed that over 50% of searched trips for 2021 included three or more persons.

Consequently, vacation rental investors should consider large properties that can conveniently house three or more travellers.

  ConclusionVarious factors determine the best short-term rental markets in 2021, and each market that we shortlisted above meets most of the criteria we mentioned. Trends are also valuable tools to use. However, it’s imperative to note that trend predictions aren’t infallible. You may use the short-term rental investment property calculator at www.theshorttermshop.com to gain more helpful insight.