Co-founder at Uppercase. Passionate about real estate, technology and growing international businesses.
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With a background in investing, it’s no surprise that I’m asked about the ideal locations for short-term rental properties around the world.
My first recommendation is that unless you’re looking for a second home and “occasional” rental, don’t just pick a city you’d like to live in for part of the year; it will not maximize your earning potential.
As in any other business, short term rentals are driven by supply and demand. So if you’re considering investing, you need to understand the real estate market in the areas you’re considering and the numbers that will support your new venture. The more demand there is for rentals in an area, the more you will be able to stay full throughout the schedule. Prime locations cater to tourists and business travelers, operating year-round instead of charging peak rates only during specific seasons.
Research is vital. Luckily, there are plenty of properties in your price range that are already turning a good profit. By scrolling through your competitors on Airbnb and other short-term rental platforms, you’ll see which properties are booked and for how long, what they charge, and how they manage their operation.
What makes a good short term rental location?
1. High occupancy rates
Back to the request. Ideal locations with a flow of business travelers and tourists tend to be national capitals or larger, busier cities.
For investors with more to spend, high-end properties that offer space, a central location, and a luxury experience appeal to markets where customers are willing to pay more. These customers include those looking for a home away from home to do business in high-industry cities, where renting is part of their budget. The other type of guest in this category is the wealthy tourist, who demands his “best life experience” of every stay and are happy to pay a little extra to get it.
If you don’t have bottomless capital to play with, there are still plenty of areas in non-urban areas that offer high occupancy rates and ROI. However, most of them tend to be based on specific tourist markets.
2. High ROI
A full booking schedule is only half the battle. To maximize revenue, you need to determine which areas have the most attractive daily rates. Of course, a daily rate is also not a static figure, so a savvy investor will consider how each area charges during the week and weekend, at peak times, and during specific seasonal periods.
The crucial term here is RevPAR, which is income earned per available rental. RevPAR is a performance metric used in the hospitality industry, calculated by multiplying the average daily rate for a hotel room by its occupancy rate. Rate and occupancy are essential for a sound investment. A high occupancy could suggest a low rate and vice versa.
3. Local regulations
When Airbnb landed on our desktop and mobile, it opened up a much easier route for travelers to find accommodation, with nearly limitless options. Rental owners, especially in highly touristy areas, have seen how much easier it is to earn a much higher return from what were once riskier short-term rentals. This has brought about considerable change, with long-term residential leases being converted for the short-term market.
Many local governments and city councils in Europe have predicted a decline in their city’s culture if the residents were replaced by a majority of tourists. In other words, they thought they could turn into tourist theme parks instead of revered cities of culture. So, to protect local housing markets and their residents, many European capitals now limit short-term rentals to a specific number of nights per year. Others require landlords to adhere to strict measures to manage a short-term commercial rental.
It goes without saying that such locations will require more effort and smart booking strategies. Without the experience and expertise to handle such a rental, you stand to lose your profits hugely unless you have a surefire way to fill your property with longer leases.
Best locations for short-term rentals
I have built my own short term rental and property management operation on a selection of properties in several European capitals: London, Rome, Paris and Brussels. They gave us the high end apartments our customers have been waiting for in prime locations where the high quality international traveler would do business, vacation, study or intern.
However, properties in such incredible locations require serious investments due to their high purchase prices and are not suitable for everyone.
Seetransparent.com (short-term rental data management site) referenced a seasonal rental offer by RevPAR in Europe and the WE— they even have a profit calculator for their members. In both markets, the highest RevPAR opportunities (mostly) follow the trend of non-urban areas surrounding attractive locations. These are not the high priced properties you might expect to get the best returns, but cheaper nearby areas. Of course, there are a few exceptions to every list, but that’s a given, with the high-end sector still alive and kicking.
In conclusion
There are many considerations when investing in rental properties, and most revolve around numbers. Picking the most expensive opportunity you can afford won’t necessarily yield the highest return. Considering the rental market versus property prices is a must, and the more information you gather, the better informed you will be when it comes to taking the final step.
As many high-end investors are international business travelers, they already know what they would like to see on a short stay, such as:
• High-speed Internet.
• Additional technology for the home office.
• A location in the center of the business district or with excellent transportation options to areas where they need to be.
• Plenty of room to work and relax in a home-like living room with kitchen and functional appliances.
If you’re considering getting into this market, in addition to doing the research I’ve outlined above, make your own “must have” list.
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