Since the launch of the Airbnb platform in 2008, Airbnb rentals have become synonymous with short term rentals. Although other vacation rental marketplaces, such as Vrbo, HomeAway (now Vrbo), and Booking.com, were founded years before Airbnb, the latter was the one that took the travel industry, as well as the real estate industry, by storm. This is proven by the 6.6 million listings worldwide, owned by over four million global hosts.
Over the past decade or so, short term rentals turned into an investment strategy of their own, with millions of investors buying second homes for the sole purpose of renting them out on Airbnb, Vrbo, Booking.com, and other platforms. It became a global phenomenon, with more than 220 countries hosting Airbnb listings. as short term rental hosts began to see higher profits than traditional landlords with the same type of properties in the same markets.
However, to assume that the ride was entirely smooth and trouble-free would be misleading, to say the least. For one, the COVID-19 pandemic posed a major challenge for the vacation rental industry and forced a significant slowdown for a number of months. Local short term rental regulations and restrictions across popular tourist destinations are another example of the hardships the industry faced.
It renders the question whether you should still consider investing in a short term rental in 2023 or you should look elsewhere to put your hard-earned money. Here, we will take a look at five reasons why buying an Airbnb-style property continues to be a profitable strategy this year.
Short Term Rentals Offer Higher Monthly Income Than Long Term Rentals
The main reason behind the exponential growth in the vacation rental investment strategy in recent years, at least in the US market, is the opportunity to make more money than with its closest alternative, investing in traditional monthly rental properties. The trend continues strongly into 2023 despite all the challenges the former had to overcome in the last decade.
We will take a look at recent data provided by the Airbnb calculator of Mashvisor, a US-based residential real estate data analytics company. The data analyzes and compares the performance of short term and long term rentals in over 10,000 US cities and towns in July 2023. The short term rental data reflects the performance of Airbnb listings specifically.
According to Mashvisor’s data, at the moment, an average Airbnb host in the US makes $2,499 per month when renting out an entire house (not just a room). Meanwhile, a typical landlord earns $2,291 per month. It means that, on average, a short term rental property generates 9.08% more revenue than its more traditional counterpart.
The said difference in profit potential is a strong factor favoring short term rental investments in 2023. After all, the ultimate goal of real estate investors is to make money.
Short Term Rental Hosts Make More Money in 2023 Than in 2022
Another positive trend pointing toward profitable opportunities within the vacation rental investment business is that short term rentals are performing better than they did a year ago. When choosing an investment strategy, you should consider what strategy offers the potential to generate money in the future—not only at the moment. And consistently improving data is a strong indicator of upward trends.
Based on short term rental data from Mashvisor, the average monthly rental income from Airbnb properties in the US market was $2,364 in July 2022. The fivure represents a 5.71% year-on-year growth in the Airbnb income of a typical host in a year.
To put it in perspective, in June 2023 (latest available data), the 12-month inflation rate in the US economy was 3%. The increase in short term rental income exceeds the annual inflation, so Airbnb properties can also serve as a hedge against inflation for investors in the US residential real estate market.
Travel Activities Face Positive Trends
Yet another reason to consider investing in vacation rentals in 2023 is the return to normal and the resumed growth in the travel industry after the official end to the global pandemic as a global health emergency. Needless to say, travel activities are the backbone of Airbnb rentals.
In the first five months of 2023, total travel spending in the US went up by 5.5% compared to the same period of 2022. The growth in spending is driven mainly by increased travel among domestic tourists, while overseas arrivals witnessed minor improvements, too.
In addition, demand for hotel stays declined by 2% in May 2023 (latest data). Combined with the increase in travel activities, it strongly indicates that hosts can expect more demand in the coming months. Many travelers are eager to compensate for the missed opportunities during the pandemic and choose Airbnb experiences over impersonal – and frequently overpriced – hotel rooms.
Such a positive trend in travel activities can lead to higher Airbnb occupancy rates and daily rates, directly boosting the potential for rental income.
For best results, make sure to perform detailed rental market research and investment property analysis and use up-to-date, reliable data from trusted sources before making an investment decision.
Short Term Rental Properties Provide Flexibility
A fourth reason to choose a short term rental investment over a long term rental or another investment strategy is the flexibility that the former offers.
Many real estate investors choose to buy a second home to use personally for a few weeks a year and rent out most of the time to cover their mortgage payments and earn positive cash flow. Short term rentals allow for this dual purpose because they are rented out on a daily basis. As long term rentals are leased monthly or annually, they just do not provide the same flexibility.
Moreover, as a second homeowner in the US, you can gain access to essential tax deductions and benefits, depending on the number of days for which you stay on site and the number of days for which you rent.
Short Term Rental Investments Can Be Remote and Passive
The final reason to invest in a short term rental in 2023 is related to debunking a myth in the real estate investing business. Many investors stay away from the profitable opportunities provided by vacation rentals because of the assumption that buying an Airbnb property is equivalent to becoming an Airbnb host, which can indeed be a full-time job.
However, remote and passive investments are feasible with the multitude of Airbnb property management companies in the US market. Many investors use analytical tools to find the best deals and then hire a professional property manager to invest from out of state and even from overseas.
Investing in a Short Term Rental in 2023: Final Words
For all the above reasons, buying a vacation rental property can be a very profitable endeavor in 2023. Before moving forward, investors need to remember that not all markets and properties are created equal when it comes to short term rental investment opportunities.
You need to conduct detailed rental market research and investment property analysis before making a decision. Ultimately, your investment decision should be based on up-to-date, reliable data from trusted sources to achieve the best results.
