When it comes to choosing a location for your next Airbnb investment, it’s easy to get caught up in the dream of owning property in a well-known tourist spot. The idea of being near a famous beach or within walking distance of city landmarks sounds appealing, but if it feels like a dream holiday destination to you, it’s likely that everyone else thinks the same thing. This can quickly lead to overcrowded markets and unfavorable competition, meaning the profits you expect may not come as easily.
Why the Obvious Choice Isn’t Always the Best
The most common mistake I see with new investors is choosing a property based solely on its popularity. Saturation becomes a problem when you’re competing for the same pool of guests, often without realizing that there are too many listings in the area already. High occupancy doesn’t always equal higher profits. It’s important to focus on emerging markets with growth potential but less competition.
Let’s break down the factors that you should consider when choosing a location.
Key Factors to Consider When Choosing Your Airbnb Location
- Saturation Level of Airbnbs in the Area Simply put, if an area has too many Airbnbs, your listing could get buried. Saturation creates high competition, and in highly saturated markets, standing out becomes difficult. Instead, focus on areas with growing demand and relatively few listings. These emerging markets offer better opportunities to secure higher occupancy rates with less competition.
- General Competition It’s not just about how many properties are in the area, but also about the quality of competition. If the market is flooded with low-quality listings, you could still attract guests by offering a superior experience. However, if the competition consists of well-established, high-quality listings, breaking into the market may be much harder.
Research your competition carefully. What gaps can you fill? Maybe your competitors don’t offer a certain amenity, or perhaps their guest experience falls short in some way. By filling these gaps, you can differentiate your property and improve your chances of success. - Scarcity of Amenities vs. Competition Scarcity is your ally in real estate. If there are missing amenities in the area—whether that’s pet-friendly accommodation, family-friendly spaces, or even office space for remote workers—investing in those features can give you a competitive edge. By offering something different that others don’t, you can appeal to a niche market and stand out in a crowded field.
- Type of Accommodation vs. Competition Understanding what type of accommodation works best in your chosen area is crucial. Are you focusing on high-end villas, budget-friendly apartments, or something unique like a tiny house or a houseboat? The type of property you invest in should align with the demand of the guests in the area.
Before choosing a location, it’s just as important to understand what type of property you’re buying. If you’re still deciding, here’s a helpful breakdown on how to choose between buying a house or an apartment for Airbnb—it could make a big difference to your returns.
For example, if your market is dominated by families, a spacious home with lots of bedrooms and child-friendly amenities could be the way to go. Alternatively, if your market consists mostly of solo travelers or couples, a stylish one-bedroom apartment with unique design elements could attract the right type of guest.
Can You Still Earn Money in Oversaturated Areas?
Absolutely. It’s possible to earn money in oversaturated markets, but you need to be strategic. Positioning yourself correctly in these areas is crucial, whether it’s by offering a better guest experience, standing out with a unique property, or simply ensuring your pricing is competitive.
Without the right approach, however, you risk falling into a race to the bottom with other investors. But with careful research and positioning, even in saturated areas, you can still succeed—especially if the long-term capital growth potential of the property remains strong.
What Makes a Good Short-Term Rental Investment?
To make sure your investment is profitable in the short term, there are a few essential factors to keep in mind:
1. Short-Term Rental Pressure vs. Long-Term Housing Growth
First, let’s clear up the distinction between short-term rental demand (focused on immediate pressure from buyers and sellers in the housing market) and long-term housing growth (which is more about the overall health of the local housing market over time).
Short-Term Pressure:
Short-term pressure is all about the dynamics of the local housing market, not the tourism market. Look for areas where the housing market is under pressure, indicating that homes are selling quickly and often above asking price, and where inventory is low. This can give you a good indication that the area is highly sought-after, and properties are in demand, even before considering the specific vacation rental market.
To measure short-term pressure, assess:
- Days on Market: How long do properties typically sit on the market before selling? The shorter the time, the higher the demand.
- Inventory Levels: Are properties scarce, and is there limited new supply coming to market?
- Bidding Wars: Are properties consistently selling for above the listing price?
- General Housing Demand: Are buyers being outbid on properties? This is a strong indicator of a highly competitive housing market and potential demand for future growth.
If you find an area with these characteristics, you’re looking at a market under pressure, which can lead to higher short-term rental demand—just make sure you’re balancing it with other factors.
Long-Term Housing Growth:
Long-term housing growth is about sustained demand for housing. This could be due to:
- Demographics: Is the population growing? Is there an influx of people moving into the area for work, lifestyle, or other reasons?
- Cost of Living: Is the area affordable enough to attract renters and homeowners? Higher living costs could impact people’s spending in the local economy.
- Suburb Development: Is there new infrastructure being built, or is the area growing in terms of schools, businesses, or amenities?
- Supply Addition: What is the forecast for new properties coming onto the market? Too much supply can hurt long-term growth.
In these areas, capital growth potential is strong, meaning your property’s value will likely increase over time, even if short-term rental demand fluctuates. Look for areas with strong demographic trends, affordable cost of living, and limited supply—these are key indicators that the market is primed for long-term growth.
2. Normal Rent to Mitigate Risk
Even with high demand for short-term rentals, it’s essential to consider long-term rentability. Long-term rental income can act as a buffer if your Airbnb property doesn’t perform as well as expected.
Areas that have a strong rental market for long-term tenants can offer you peace of mind in case you need to pivot your strategy. Being able to lease your property out to long-term renters is an important risk mitigation strategy, ensuring that your cash flow stays consistent.
3. Avoiding Overly Saturated Areas
Overly saturated markets are tough to succeed in unless you can offer something truly unique. While high demand is a good sign, too many listings can create intense competition, lowering your potential returns. Instead, focus on emerging areas where demand is growing but competition is still relatively low.
And if you do choose a saturated market, ensure that the capital growth potential is strong enough to make up for any short-term rental challenges you might face. If your property is appreciating in value, you may still come out ahead even if your Airbnb doesn’t perform as well as expected.
Research Beyond Just Scanning Listings
When looking for the best location, researching Airbnb listings is just one piece of the puzzle. To truly make an informed decision, you need to dig deeper and look at yearly trends, property types, and market data. Here’s how you can go beyond the basics:
- Property Type: Certain areas may perform better with specific types of accommodation. Is your area better suited for luxurious villas, quirky cottages, or basic apartments? Know the local market’s preferences and invest in the type of property that will get you the most attention.
- Seasonal Trends: Research trends across seasons to see whether the area has a peak season that sees higher demand or if the demand remains consistent throughout the year. This can help you manage expectations and plan your pricing accordingly.
- Historical Performance Data: Look at yearly trends in terms of occupancy and rental rates in your area. Have prices been increasing steadily? Are occupancy rates rising or falling? This can give you a sense of whether the area is on an upward trajectory or whether you’re jumping in at the wrong time.
- Tourism Data: Beyond Airbnb, research the local tourism industry. Are more visitors expected in the next few years due to events, festivals, or new attractions? This can indicate higher demand for short-term rentals in the area.
- Market Data: Look at broader real estate trends, including housing supply, price growth, and property type demand. Understanding where the housing market is going will help you make smarter decisions. Consider property price trends over the last 5-10 years and what the future forecasts look like.
- Local Infrastructure and Development: While infrastructure itself isn’t always directly tied to tourism, it can influence demand. Look for areas with potential for future developments such as new roads, public transport, or retail spaces. These can drive demand for housing, which, in turn, can impact your Airbnb.
By incorporating yearly trends, property types, and seasonal demand into your research, you’ll be well-equipped to find the best markets for your Airbnb investments. Just be sure to do your due diligence and look beyond the listings to understand where the real opportunities lie.
