Taking into account all of this information, we can clearly see a number of cities traditionally overlooked by investors that jump off the page as great places to invest in an Airbnb property.

Charleston, South Carolina appears to be one of these cities with a huge profit margin. With rentals available for $1,140 per month and 90th percentile Airbnb income at $4,974, you’re looking at a gross profit margin of over $3,500 each month.

Several Hawaiian cities also stand out with Honolulu and Kailua seeming ripe for investment. A couple of Midwest cities, Kansas City and Cleveland, represent great value plays. Cleveland, in particular, can generate a 400% return on a 1-bed apartment with as little as a $6,000 initial investment. If we do a simple breakdown of financials, we get this:

Financial Breakdown Set Up: Deposit, 1st Months Rent, $4K furnishing $5,226 Remainder: 11 months rent @ $613 +$100 utilities $7,843 Total: $13,069 12 Months Airbnb Revenue @ $2,815 $33,780 Potential 1 Year Profit $20,711

There may be other operational expenses for managing the rental property throughout the year. Check out our blog post on the best Airbnb property management services for a list of emerging low cost providers.

2 bedroom rental performance on Airbnb

Many Airbnb investors hold that 2 bedroom rentals offer the best value, so we chose to investigate. Out of the 40,000 full-time rentals analyzed here, only 1,850 units were entire home 2 bedroom apartment listings. Let’s see what we found.

Boston, New York, and Santa Monica seem to stand out here, all with average Airbnb revenues of over $6,000 in the month of June, and the 90th percentile properties earnings ranging between $8,000-$10,000. Comparing that to the average rental cost of $3,000-$4,000 leaves a fat $5,000 potential profit margin in one single month.

However, the winter season is harsher to some cities than others. New York, for example, is a highly seasonal market. With an average rental income of $6,557 in the months of May and June, it dips down 43% to only $3,836 in the months of January and February. A solid understanding of seasonal (and even daily) demand for rentals in these temperate climates is crucial to maintaining profitability throughout the year.

As would be expected, the sunny skies of Hawaii, California, and Florida compared to the other major cities, peak in performance in the winter months. Play with the chart time slider to see how the seasons affect your city. For an in-depth analysis of daily rental demand sign up for MarketMinder or grab a custom report.

Purchasing an Airbnb Vacation Rental

Although smaller apartment units dominate the Airbnb market, there is growing number of single-family homes being uploaded onto Airbnb every day. As more and more traditional vacation rentals realize the tremendous opportunity of targeting a new, younger demographic, houses that were once only listed on HomeAway.com and Vrbo are now appearing on Airbnb. For the purpose of this analysis, we will only be including 2-4 bedroom homes to minimize the effect of housing mix (to avoid comparing studio apartments to 7 bedroom villas).

This resulted in about 3,000 full-time single family home listings. With over 300,000 advertised properties in the U.S. today, this might seem like a tiny sample size. But it is important to remember that about 40% of those listings are for shared spaces and rooms, and less than half of the remaining properties are rented full time on Airbnb. The visualization below shows the average monthly revenues for entire homes in cities that have at least 10 full-time rentals.

Airbnb real estate investors consider the most attractive cities to be those with lower house prices and above average short-term rental returns. The sweet spot seems to be the homes in the cities with a Zillow mid-tier home value index in the $200,000 – $300,000 range. Some of the new cities appearing here are Nashville, Palm Springs, Chicago, and Atlanta.

Home prices vary wildly based on the exact location of each home within a city, so this analysis should only be used to help you start to narrow your search for a vacation rental property investment. But according to this analysis, it would be possible to pay off a 20% down payment and become cash flow positive in less than one year in these cities.