Analyzing Markets for Short-Term Rental Investment
Rule out cities that limit short-term rentals to the host's own home, then compare nightly rates, occupancy, seasonality, listing growth, and revenue against home prices.
Analyze a short-term rental market in two passes: first rule out places where the rental you plan is not allowed, then compare the rest on what similar listings earn and what similar properties cost. New York City, San Francisco, Boston, and Denver allow short-term rentals only where the host or owner lives, so they fail the first pass for any property you will not live in. For the markets that remain, compare average daily rate, occupancy, seasonality, and growth in the number of listings, then divide typical annual revenue by typical purchase prices to see which markets can carry the cost of buying.
Step 1: Rule out markets where your rental is not allowed
Check the rules before you look at revenue. These examples show the range:
| Place | Rule | For a property you will not live in |
|---|---|---|
| New York City | Stays under 30 days are legal only when the host stays in the same unit as the guests. | Not allowed |
| San Francisco | The host must spend at least 275 nights a year in the unit, and un-hosted stays (nights the host is not home) are capped at 90 a year. | Not allowed |
| Boston | Short-term rentals are allowed only in owner-occupied condos and one- to three-family buildings, and the owner must live there at least 9 months of every 12. | Not allowed |
| Denver | Licenses are issued only for the host's primary residence, and a person can have only one primary residence. | Not allowed |
| Florida | State law bars local rules adopted after June 1, 2011 from prohibiting vacation rentals or regulating how long or how often they are rented. | Older local rules can still apply |
| Arizona | Cities and towns cannot ban short-term rentals, but they can require a permit (fee no more than $250), an emergency contact, and notice to neighbors. On a lot with an accessory dwelling unit (a second, smaller home) approved on or after September 14, 2024, they can require the owner to live on the property. | Allowed with a local permit, except where a city requires owner occupancy on a lot with a newer accessory unit |
The Florida and Arizona laws limit what local governments can do. An HOA's or condo association's covenants, the recorded rules that bind each owner, are a separate set of rules, so read them for any property you shortlist. Rules also change, so confirm them again for the specific address before you make an offer. Short-term rental regulations covers how to find and read a city's rules.
Step 2: Read the demand and supply numbers
Pull these figures for listings like the one you would run (same bedroom count, entire home or private room, similar neighborhood), not for the whole market:
| Metric | How it is figured | What to look for |
|---|---|---|
| Average daily rate (ADR) | Rental revenue divided by booked nights | The rate comparable listings get, by month |
| Occupancy | Booked nights divided by nights available | Whether listings like yours fill most open nights |
| Revenue per available night | ADR x occupancy | One number that combines rate and occupancy |
| Seasonality | Revenue month by month | How deep the slowest months are |
| Listing growth | Active listings now compared with a year ago | Supply rising faster than bookings |
Know how the data is built before you rely on it:
- Paid data services. AirDNA, for example, figures occupancy over the last 12 months as reserved nights divided by active listing nights. A night counts as active only if the host did not block it and the listing had a reservation in the past 28 days. Because blocked nights look the same as booked nights on a public calendar, AirDNA uses a model built on booking signals to tell them apart.
- Free data. Inside Airbnb publishes free quarterly snapshots of listings, calendars, and reviews for the past 12 months for US cities including Austin, Chicago, Dallas, Denver, Los Angeles, and Nashville. It estimates occupancy from reviews: it assumes half of stays get a review, uses 3 nights per booking where a city's average stay is not published (or the listing's minimum stay, if that is longer), and caps the estimate at 70%. It also notes that the calendar cannot tell a booked night from a blocked one.
Base your estimate on the median comparable listing, not the top performers, and look at each month rather than the annual average. To measure supply growth, count active comparable listings in two snapshots a year apart. Airbnb pricing strategies covers how rates move by day of week and season once you are operating.
Step 3: Judge what drives demand
Name the reasons people stay in the market, then check the dates and the length of stay each one produces:
- Tourism. In beach, mountain, and national park markets, check how far revenue falls outside the peak months, and compare your fixed costs with the weakest month in the data.
- Events and universities. Graduation, move-in weekends, and home football games fall on dates the school publishes in advance. Look past them at ordinary weeknights, which make up most of the calendar, and at summer and winter breaks.
- Business travel and conventions. Weekday demand can fill the nights that leisure travelers leave open. Check whether comparable listings book Monday through Thursday.
- Hospitals and long stays. If you are counting on stays of a month or more, such as from visiting medical staff, check how local law treats them. New York City counts a 30-night stay as permanent occupancy rather than a short-term rental, and San Francisco warns that tenant protections and rent control may apply to stays of 30 days or more.
Step 4: Compare revenue with purchase prices
Divide the typical annual revenue of comparable listings by the typical price of a comparable property. Example with assumed figures for a two-bedroom:
| Market A | Market B | Market C | |
|---|---|---|---|
| Median annual revenue, comparable listings | $52,000 | $74,000 | $41,000 |
| Typical price of a comparable home | $360,000 | $880,000 | $255,000 |
| Revenue divided by price | 14.4% | 8.4% | 16.1% |
Market B earns the most per listing but the least per dollar of price. Market C screens best, but check its slowest months and its listing growth before ranking it first. Run the same ratio for a long-term rental (annual rent divided by price) in each market, using the method in market analysis for rental properties, to see how much the short-term rental has to outperform a tenant.
This ratio is a screen, not a budget. Take the finalists through the expense, mortgage, and break-even occupancy math in financial analysis for short-term rental properties. Starting an Airbnb business covers the steps that come after you choose a market.
Sources
- FAQ for Prospective Hosts (Local Law 18 short-term rental registration) (NYC Mayor's Office of Special Enforcement)
- FAQs on Short-Term Rentals (San Francisco Planning, Office of Short-Term Rentals)
- Short-term rentals (City of Boston Inspectional Services)
- Short-Term Rentals (licensing) (City and County of Denver)
- Florida Statutes section 509.032 (2026), Duties; local regulation of vacation rentals (Florida Legislature)
- Arizona Revised Statutes section 9-500.39, Vacation rentals; short-term rentals (Arizona State Legislature)
- How does AirDNA calculate occupancy rate? (AirDNA Help Center)
- Data assumptions (Inside Airbnb)
- Get the data (Inside Airbnb)
Financial Disclaimer: Tellus provides this content for informational purposes only. This is not financial advice. Financial returns and mortgage terms vary based on individual circumstances and market conditions. Consult a qualified financial advisor before making financial or borrowing decisions.
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