An extra room in your home isn’t just free space - it can be a gold mine for those who own rental property in the right states.
Airbnb hosts in Hawaii earn the highest average annual revenue, according to a new study of 706 markets in the U.S. with at least 300 active Airbnb listings, by vacation-rental data platform AirROI.
Airbnb hosts with rentals in Hawaii earn an average of $64,721 per year. Kahuku is the state’s top market, where it “commands premium rates, about $730 a night, and still books 63% of nights...that adds up to $149,000 per listing over the year,” the study said.
The next four most profitable markets in Hawaii are Koloa ($113,000 per year), Waimea ($106,500), Hanalei ($99,900), Poipu ($89,800) and Kaanapali ($85,400), according to AirROI.
The next four states with the nation’s top average revenue are spread from coast to coast: California ($46,107), Tennessee ($44,632), Colorado ($44,625) and Massachusetts ($44,621).
States like Oklahoma, Idaho, Wyoming and Vermont had high average annual revenue but were not included in the study’s rankings because they had too few Airbnb rentals to qualify.
The study found that Florida had the most Airbnb markets of any state - 108 of the 706 ranked in the study.
While there’s plenty of money to be made in South Carolina, Hawaii, California and other states, earning that cash isn’t as easy as people think, Lisa Johnson, a real estate broker with Georgia-based Mountain Sotheby’s International Realty, told The Independent in an email.
“There are quite a few misconceptions; one at the top is the assumption that simply owning a ‘vacation rental’ is easy passive income,” Johnson said. “While it can be a very good investment to provide an additional source of income or to help build someone’s real estate portfolio, there is a domino effect that has to be considered.”
The domino effect refers to the need for multiple factors to fall into place to earn consistent income from an Airbnb. If any of the following factors isn’t there, it could cause the rest of the “dominos” to fall and undermine revenue, Johnson said:
- Location
- Room size
- Room style
- Interior layout
- In-room and in-home amenities
- Amenities on the property
- Number of vacation rentals in the area.
“If the property does not meet all of the above, then the occupancy rate can be very disappointing,” Johnson said. If all of the key factors are in place, hosts can maximize their revenue with several strategies, experts said.
Hosts that adjust their rental rate based on the market around them will be more profitable than those who don’t, Zach Labrum, chief growth officer at vacation rental management company Avari, said in an email to The Independent.
“Rates should respond to demand, booking pace and comparable homes,” Labrum said.
“That means capturing a premium when demand is strong and making strategic adjustments on slower nights, rather than letting them sit empty. Rigid pricing can mean missed opportunities in either direction.”
Another important way to earn consistent revenue is to eventually acquire customers directly through your own website, rather than only paying a platform like Airbnb and Vrbo to list your rental, Eric Goldreyer, CEO of vacation-rental direct booking site Savvy.com.
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“Direct bookings can make a big difference to your bottom line because they give you the opportunity to reduce distribution costs and build relationships with guests who may come back year after year,” Goldreyer said.
A business mindset is needed for running a successful vacation rental, Goldreyer said. Constantly review pricing, fees paid to listing sites (“distribution costs”) and other factors is paramount, he said.
“The best operators never really stop optimizing,” he said. “They're continually looking at their pricing, distribution costs, guest experience, and opportunities to bring previous guests back. That's how you build a vacation rental business that performs well over the long term.”
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