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Finance • Investing

Investing in Airbnb: Best and Worst Markets for Airbnb Investment

What comes to mind when you think about Airbnb?

Probably, images of happy vacations, beautiful condos, life on the road, or maybe even your very own last Airbnb experience.

Vacation rental property platforms like Airbnb become even more relevant when you consider the nomad lifestyle.

After all, a huge selection of safe and vetted places to crash at after constantly being on the road sounds like quite the catch – especially if we consider the often close proximity to the locals, something that most legacy hotels do not provide.

But that’s all from a traveler’s point of view. What about the hosts – property owners, real estate investors, and the people who already own or plan to purchase rental properties in the future.

What do they think of Airbnb, and how does it fit into their future plans for rentals and real estate business.

Airbnb’s Effect on The Local Hospitality and Housing Market

Airbnb's Effect on The Local Hospitality and Housing Market

Since its launch in 2008, Airbnb has seen huge advancements, with Airbnb listings in over 220 countries and regions.

Despite such a vast presence, Airbnb often finds itself at odds with the markets it enters.

The local housing market and hospitality industry have always felt threatened by Airbnb and rightfully so.

Due to Airbnb, the hotel industry loses approximately $450 million worth of direct revenues annually.

Not only that, but what is termed by the Economic Policy Institute as the “Airbnb Effect“, increased Airbnb listings in an area drive up its real estate prices and compels the owners of the traditional rental properties to switch to short-term vacation rentals.

But is Airbnb really to blame for the impact it has on a certain market? We don’t think so.

Like any innovative entrepreneurial idea, Airbnb started small. It saw a gap in the bed and breakfast industry and it aimed to fill that gap with its affordable services – and the people loved it.

Airbnb isn’t any more to blame than Uber is, when it comes to grabbing the share of the local transport market.

Times change, technology gets better, and people naturally side with whoever puts the effort into providing the best experience.

Renting an Airbnb may be a piece of cake, but can the same be said about investing in Airbnb?

Is Airbnb investment really a good idea? And if it is, which one is better, renting out a property you already own or buying popular real estate to get the best yield on your Airbnb listing?

And what about offshore real estate opportunities? Is that even worth the effort?

Here, at Nomad Capitalist, we look into all these questions so you don’t have to. So, first, let’s answer some of the most common questions a potential Airbnb host usually has.

Is Airbnb Investment a Good Idea in 2022?

Whether you want to rent out an existing property for some passive income via Airbnb or you plan to dip your toes into local or foreign real estate opportunities, your Airbnb investment can bring you great profits.

Let’s take an idea from the factors mentioned below:

Home Owners’ Sentiment

If you find the idea of renting out your home on Airbnb profitable, you’re not alone – 82% of homeowners think the same.

54% of homeowners have even shown their interest in renting out their homes with a vacation rental app like Airbnb.

With stats like these the number of Airbnb hosts is only going to go up so if you are really serious about investing in Airbnb, now would be a great time to act upon it.

Travelers’ Sentiment

Airbnb is popular – far more popular than any other vacation rental app, all thanks to its completely online interface, review/rating system, and gorgeous listings.

In fact, while going on a vacation, 60% of travelers who have stayed in both Airbnb and traditional hotels, prefer Airbnb rentals.

That alone says a lot about consumer interest in Airbnb.

Renting Out Existing Property vs Buying New Property

Both have their pros and cons, especially when we add the option of purchasing foreign real estate.

An existing property will require spending far less money than buying a new property. It will also save all the time and legwork involved in staking an attractive real estate site that also works for you.

On the other hand, your existing property might need a lot of work to compete with nearby Airbnb rentals, driving up your costs.

Also, this question does not matter as much as people think, because the primary factor that makes an Airbnb property attractive isn’t necessarily related to its “old or new” status.

The make or break factor for any Airbnb rental property is its location.

As long as you nail that, your Airbnb investment property will keep you booked and collecting good money.

But how to select the best location for your Airbnb property?

How to Select the Best Places for an Airbnb Investment?

All the hottest Airbnb markets have a few similarities. Keeping those in mind, here are the most important factors you should consider while selecting the location for your Airbnb properties.

Focus on the City To Invest in, Not the Country

When talking about consumer markets, the data is always filtered by countries, and there are many logical reasons to do so.

But for a practical Airbnb investment strategy, it’s best to look at cities and their individual housing market trends rather than countries.

Why? Because a country’s pace of economic growth or lack thereof isn’t a clear indicator of the real estate situation in its individual cities.

Real estate trends depend upon a city’s housing supply, employment rates, and standard of living, rather than the country’s economic data like GDP.

Simply put, property returns and rental yields are location-specific. Two cities in the same country can, and usually have completely different property markets.

Does it mean that selecting a good country isn’t important at all? No. It’s still important.

Why? Because housing regulations and property laws are still set by the government of a country.

So, for your Airbnb investment, choose the best cities, and then make sure that those cities are part of an Airbnb-friendly country.

Rental History or Demand

Don’t just select a city because you think it’s beautiful, or you think it has potential.

Make data-driven decisions – that way you will ensure a greater chance of profitability.

Check the history of vacation rental properties in the area. Assess the demand – is it high, bare minimum, or non-existent.

If you can, meet with the real estate investors on the ground. They’ll be able to give you a far more practical assessment of the market trends.

Profitability

It doesn’t matter how many Airbnb hosts or Airbnb rentals are in the area – what matters is: are they profitable.

Are they seeing any revenue growth at all as compared to the past years? If not, then no matter how “hot” the area is, it’s better to avoid it.

Otherwise, you’ll be fighting for low profits in an already saturated market.

Rental Yield

This metric is of special importance if you are looking to invest in real estate for your Airbnb property.

You get your rental yield if you divide your annual rental income generated from your investment property by the total amount you have invested in it.

In simple words, a rental yield gives you an idea about the overall success of your investment.

The higher the percentage, the more successful is your investment property.

Now that we know how to select the best cities for Airbnb properties, let’s look at some of the best and worst markets for Airbnb investment.

Best Markets for Airbnb Investment

Best Markets for Airbnb Investment

Maui, Hawaii

Maui, Hawaii- Best Markets for Airbnb Investment

Even without looking at the data, Maui, the second-largest Hawaiian island, seems like the perfect vacation destination for any traveler looking to escape the city noise.

Maui, also known as “The Valley Isle” is famous for its beautiful beaches and breath-taking sunsets. So if you own any property there, especially a beach property, you might want to turn it into a short-term rental.

If you are an Airbnb investor looking to buy foreign real estate, Maui also does not disappoint.

Hawaii has the lowest property tax rates among the US states at only 0.28% (average), although Hawaii’s median home value is almost $669,200.

How is that possible? Because the state of Hawaii offers generous exceptions to homeowners.

But what about Maui? If Hawaii has the lowest tax rate in the US, Maui has the lowest tax in Hawaii – only 0.19%.

That along with the fact that an average rental property in Maui earns $102K per year at an average daily rate of $375 makes the beautiful island a must in the books of any Airbnb investor looking to buy a foreign Airbnb investment property.

San Cristobal, Mexico

San Cristobal, Mexico - Best Markets for Airbnb Investment

Although the US has the highest number of Airbnb listings, Latin America has become one of the fastest-growing markets for Airbnb with over 250,000 listings and growing.

Airbnb or not, Latin America has always been a popular destination among American retirees, expats, and tourists.

In fact, Mexico has the highest number of American expats in the world, making it one of the easiest countries to move from the USA.

That along with its vibrant culture, exotic beaches, and delicious food makes it one of the hottest markets for short-term rentals.

It’s no surprise that Airbnb has had a hard time in many regions due to the property regulations there, but Airbnb is not letting that get in its way of penetrating the Mexican market.

In Mexico City, Airbnb has adopted a friendly approach with the local administration, agreeing to provide 3% of its total revenue from the hosts’ booking to the city government.

The hotels in that area provide the same amount of lodging tax to the government.

Now that you know the dynamics of real estate in Mexico in terms of Airbnb, let’s talk about San Cristobal.

Never heard of it? This might also be a plus point – since the pandemic, Airbnb has seen a spike in the bookings in areas that are generally deemed less popular or less touristy.

But when we look at the data, San Cristobal, a beautiful high-altitude lush green city, tops many other popular Mexican states.

With an average daily rate of $755 and average monthly revenue of $8100, San Cristobal has over 95% channel presence on Airbnb, making it one of the best Mexican cities for your Airbnb business.

Mexico also has a wonderful Residence Through Real Estate program that should be checked by Airbnb investors looking to buy Mexican land, either for a primary residence or Airbnb investments.

Singapore, Singapore

Singapore, Singapore - Best Markets for Airbnb Investment

When it comes to world indexes, Singapore has a history of topping all the good ones.

Digital advancement, personal safety, and low crime rates make Singapore one of the best and safest countries in the world to live and invest in.

Singaporeans love Airbnb. In fact, they love Airbnb so much that they have booked more Airbnb stays than the rest of Southeast Asia combined.

Singapore is one of the Asian countries where foreigners can buy land. Although it’s far from tax-free, or cheap, the returns are promising, making it a lucrative hub for investors.

Singapore is the land of the wealthy – with a low unemployment rate and high purchasing power, Singaporeans are always on the lookout for a weekend getaway in a luxurious Airbnb rental.

Airbnb rentals are especially popular among Singaporean Millennials who prefer to spend some time away from their family homes, at a vacation rental nearby.

Vantaa, Finland

Vantaa, Finland - Best Markets for Airbnb Investment

When it comes to Europe, you will see a thriving Airbnb rental business in several regions.

Countries like Italy, Spain, and France may seem like the obvious options to invest in, considering their hyper-tourism.

But a huge number of tourists flowing to a certain region does not guarantee much for the short-term rental businesses there.

In Europe, it may be wise to go off the beaten path and provide a quality vacation rental at an underrated place.

We are not saying to choose the most remote locations for your Airbnb business, but rather choose countries that are less touristy than mainland Europe, while still providing a high quality of life.

That brings us to Vantaa, the 4th biggest city in Finland. Although not the ultimate tourist destination, Finland is the happiest country in the world.

Finland is also one of the most peaceful countries in the world, making it a haven for remote workers looking to escape their stressful “office” routine.

With an average daily rate of $98 and average monthly revenue of $1044, Vantaa is a wonderful European location for an Airbnb investment.

Medellin, Colombia

Medellin, Colombia - Best Markets for Airbnb Investment

The comparatively lower property rates in Medellin, Colombia makes it a great location for an Airbnb rental business.

Property investors should also look into Colombian citizenship and residency before buying an investment property in Colombia.

Here, it’s important to notice that in Colombia, it’s illegal to rent a place for less than 30 days (with some very specific exceptions).

Property regulations like these are the very reasons that one should be very careful selecting a country for running an Airbnb rental business.

Our list includes cities from major regions around the world like Asia, Europe, Latin America, and the US, so that you can have a global view of the emerging and profitable Airbnb markets.

Now that we know the best markets for Airbnb business around the world, let’s look at some of the worst ones too, so that you know which region to steer clear of.

Worst Markets for Airbnb Investment

China- Worst Markets for Airbnb Investment

China

Airbnb formally launched its business in Mainland China in 2016, with the hopes to grab a market share in one of the largest consumer markets in the world.

But unfortunately, after a few years of mounting competition, and low profits, Airbnb will close all its China-based services including all the rental listings and experiences, starting July 30, 2022.

The company will still maintain a presence in China for its outbound services.

New York, New York

The Big Apple is not a fan of Airbnb. It’s no surprise that getting a house or an apartment in New York City is getting harder and costlier by the minute.

With more and more property investors buying properties to rent them out on Airbnb, the housing market has become impossible to navigate for an individual or potential homeowner.

All of this resulted in the state of New York passing a law in 2017, that prohibits listing an entire unoccupied property for less than 30 days.

Moreover, hosts with short-term rental properties in New York City will be required to register with the city and obtain a short-term rental registration number, starting from 2022.

Thailand

You may be surprised to see Thailand on this list since it’s brimming with tourists. But yes, Airbnb, by all means, is illegal in Thailand.

Then how are there so many Thai listings on Airbnb? In Thailand, hosts must have a license if they receive tenants who plan to rent their property for less than 30 days.

Most hosts don’t bother and continue to receive guests through Airbnb anyway.

It’s still not legal, and the hosts are perpetually running a risk of getting caught. Since we believe in keeping things 100% legal, we will not advise this approach to any of the potential investors.

What are You Waiting For?

Whether you run a property management company or just starting to get your feet in the rental world, the Airbnb rental market can be great for you.

Is it for everyone? No. Airbnb is not for everyone, renters or investors. You have to consider your purchasing power, the real-time data, and so many other factors that can make or break your investment.

Researching foreign real estate and looking into second residence programs can be a great starting point for any potential Airbnb investor.

If you are confused, contact us. We have been doing it for years, and we would love to devise a holistic strategy that works best for you.

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