Every good realtor says it: “location, location, location!” And it is not only cheesy, but true. For example, let’s say you are deciding between a high-priced property in the center of town or a low-priced property in the suburbs.
If your focus is on a long-term rental, you’d probably be fine in the suburbs since everyone has to live somewhere. But for a short-term rental, you have to think about where your Airbnb renters want to be. Most people want to be in the center of town, or near attractions, or in a nice area.
Besides location, reading the market is very important. You need to predict the future- or at least consider the future. For example, there is a suburb of Phoenix called Chandler, a huge area where a lot of young families live but pretty far from most attractions that tourists come to Phoenix for. There are not many short term rentals in Chandler, so an aspiring host may think the market is ripe for an Airbnb in Chandler. Which is true, there likely is a market for this now. But long term, since Chandler is so large, there is a significantly higher amount of inventory there vs. some other denser areas in the Phoenix area. Meaning that there is more potential for neighbors to convert to Airbnb in the future. Contrast that with Old Town Scottsdale, which is one of the hottest rental markets and tourist central. You’ll pay a lot more to buy an investment property there so in the short term it may appear that you’re not doing as well as the person who bought in Chandler. But most people believe that the tourism will not only continue but grow in Old Town Scottsdale, so even if 50% more homeowners converted their homes to Airbnbs there would still be a demand for rental housing. In Chandler, if 50% more homeowners came to the rental market, the market would be so saturated that there wouldn’t be enough renters because the area simply doesn’t attract as many short term renters.
You want to be logical when looking at the market and think to yourself, is this market going to continue to be big enough? Are the homes in that area going to be scarce enough for that market? Don’t even necessarily look at today’s market, think about the future.