How to Analyze a Market for Airbnb (Part 1)

What’s up guys, in today’s video, we’re gonna be talking about how to analyze a market for short term rental investing and how you can find the best possible market to invest in for short term rental. So let’s just get started. And let’s talk about how to out of this whole world of different markets that you could potentially invest in. How do you start narrowing that list down?

Well, for a lot of investors, I find that one of the big benefits of investing in short term rental properties is that obviously it can be used as a lifestyle asset as well, right, you can actually buy this property, get a return on your investment, and also have a cool property that you can use with your family you can travel to. So that’s one of the big advantages of short term rental properties. So if you fall into the bucket of one of those investors, who is looking at this as not just a pure investment, but also a lifestyle asset play, then start with that, start by asking yourself, where do you actually want to own a property? Because good chances are, if you have a market in mind, you can find a really great property in that market, as long as it passes a few checks, which we’re going to talk about later in the video. So start by just asking yourself, hey, what markets? Are you familiar with you like, Would you be interested in investing? Now if you’re coming at this as just a pure investor, and you’re looking for the absolute best market, you just care about the return on investment, then from now perspective, you’ll really want to take a more quantitative rather than qualitative approach to finding the initial set of markets that you’re going to start analyzing, the best way to do that, that I found is an expensive one, I there’s no other way to say it, it’s relatively expensive, but it is just the best way to do it. And that’s the era DNA data mining company in this space, they have data on how short term rentals all over the world perform. Now, every single quarter, they released something called the BP ti report stands for best places to invest. Now, we’ve had a lot of money for that report, to have it on our company and use it. And the really cool thing is that it really just breaks down every single market in North America and tells you which ones are the best ones to invest in. Now, if you as an investor want to go out and invest in that it’s going to be very expensive, you probably better off frankly, working with a company like ours that already has access to it has as a tool in our tool belt and can use it to gain the knowledge to help you figure out where to invest, and really just show you what the best markets are to invest in. But basically what it does, it analyzes and compares the average purchase price and a home relative to the amount of income that the average property in that area can bring in as a short term rental property. And obviously, if you find properties that are less expensive, that have higher revenue, that’s going to give a really great return on investment, and is therefore going to be a good market for investing in short term rentals. But it’s not just quantitative you want to look at that is going to give you a good idea of some of the best places to start looking. But then from there, you really want to qualify those different markets and make sure that the numbers are actually going to be good, because sometimes there are outliers that skew numbers different ways. And then we also want to look at some more qualitative factors. And so let’s jump into that next. Once I’ve found a couple of good markets, three, four or five markets that I’m interested in exploring further, the first thing I’m going to do to easily eliminate some is going to be look into regulations. Now whenever I’m looking into regulations, I want to know two things. One, what are the regulations right now? And two, I want to know what are the regulations going to be in 345 10 years from now? Now that latter one I can’t figure out exactly, because obviously, I lack a crystal ball, I can’t see what’s going to happen in the future. But I can look at certain factors to make an educated guess as to what’s going to happen in the future. And so that’s what I tend to do. So first off, figuring out what the regulations are right now, it’s pretty straightforward, pretty simple. You just want to go on Google type in short term rental regulations for Houston, Dallas, whatever city that you’re interested in, type that in. And what you want to look for is a.gov website, just actually look for the government website. And as boring as it sounds, there’s going to be a PDF on the website or linked on Google somewhere that literally just outlines the actual regulation, you want to get your hands on that document. If you can’t find it from a Google search, you can always call the state or city office. And actually just get them to send you the PDF. Don’t talk to the person there and get them explain it to you actually do your homework, get the actual documentation and read through that documentation. That is by far the best way to learn what the regulations are, is to actually read the regulations themselves. Because the challenge is if you go to a media website or something like that, you risk getting a biased opinion, as opposed to the actual facts. And if you speak to someone else, and try to have them explain it to you, then you risk them not understanding it and explain it to you incorrectly. So I would recommend just actually getting your hands on the regulation document, reading through it. And that is obviously if there are regulations at all. Now for me, the things that I always like to avoid when it comes to regulations are things that are restrictive, or that basically just kind of shut down or really limit short term rentals in that market. Because that not only tells me that it’s going to be really challenging to run a short term rental in that market, but also that the overall sentiment towards short term rentals in that market is less than favorable. So things that I would look out for would be things like just obviously an outright ban on short term rental properties. Sure, maybe you can get away with it. But why would you bother, I don’t recommend doing any of that. The next thing I’ll look for, that’s a really big nono for me, is going to be nightcaps. So you see a market that limits the number of nights, you can rent your property short term, that to me is going to be an absolute no and absolute deal breaker. We’ve seen that happen with other investors who are prominent here on YouTube investors, like, for example, Shelby church, I’ve done a couple of videos reviewing her, she went invested in property in Palm Springs, and there was a nightcap. And she was a little shocked by that and ended up really negatively impacting the performance of the property, which really shouldn’t have come as a surprise, if you do your homework properly, you’ll find these things out ahead of time, the thing is, with nightcaps, it really just limits how you can use the property pretty significantly. So not only is it going to really squander your overall returns, it’s also just going to make it so that you have less options, options are always a really great thing to have with your property so that you can put in place backup plans, and make sure that there are different ways that you can get to a good overall return with a nightcap is just really restrictive. And it also tells you that that market is not really favorable toward short term rentals. It’s not a huge, massive, like important part of the local economy there if they’re restricting it in that way. So I would steer clear of nightcaps, there are a few other ones that I would avoid, you want to just look through it on a case by case basis. But generally speaking, anything that ties the success of that area into short term rental success, that has their kind of best interests mutually aligned, that tends to be really great. Other things that are great to look for when it comes to regulations are going to be things that just limit short term rental in a way that is actually beneficial long term. So I’ll give examples of both of those things. Something that ties a city or municipality into the success of short term rentals is taxation. Again, I’m not big on paying taxes, I don’t love it, I don’t love paying all these fees. But the reality is, if I’m paying taxes or fees, that means that the more money I make, the more money the city makes. And the more money the city makes, the happier they are right, the more beneficial it is for them to have short term rentals in that area. So I tend to see that as more of a positive than a negative, it’s just something ultimately that I have to factor into my numbers to make sure I’m adjusting for it. And I’m still gonna get the returns I’m looking for, even when I’m paying my taxes or licensing fees, or whatever that might be. The other thing that I like to look for is going to be occupancy limits, if we’re in an area that limits the occupancy of a property to, let’s say, 16 people, as a lot of places do, I tend to like that. Because generally speaking, if you go and buy a property, and you put it on short term rental and allow 1617 1820 people to stay there, the neighbors are going to get upset, the more neighbors are getting upset around the area, the more they’re going to be complaining municipality and the more likely it’s going to be that they’re going to take unfavorable action to regulate against short term rentals. So we do things to make short term rentals actually work within the community so that people aren’t complaining about having a neighbor next door that’s constantly partying and loud and everything else, that’s just generally going to be good for the long term. So once you’ve gotten through the regulation stage for figuring out what the regulations are right now, the next step for me is trying to project what the regulations are going to be in the future. Now, the number one thing I like to look at here is what are the incentives? What actually makes sense for that city? If I were in charge of that city, what would I do, right? And try to stay as objective as possible, don’t come up with your biases about obviously, loving, freedom, loving, investing, loving, loving, short term rentals, I’m all about that. But you want to try to be as unbiased here as possible, so you can make the best decision for you for yourself. So if I look at, for example, a small kind of cottage destination where people like to go to get away, I’ll give you an example. One of the markets that we invest in quite a bit is a couple hours outside of Toronto, which Toronto, obviously major metro hub. So there’s lots of people that go out there, that it’s by lakes, it’s by Forest, it’s by hiking, all kinds of fun stuff. So they go there to get away for the weekend. Now, those neighborhoods, those cities, those areas, tend to about 234 5x in population during the summer months, from people going up there and staying at the short term rental properties, because there just aren’t hotels in the area to service these people. And people love to get away and do these vacations. So all the local businesses in that area really depend on the traffic that they get from all those cottage goers, all those weekend getaway people. And so if the area were to regulate against short term rentals, now suddenly, all the local restaurants, all the local shops are really going to suffer, they’re not going to have nearly as many people actually going there and it’s gonna really, really hurt the local economy. That’s obviously not going to be a very popular political decision to make. And so it’s very unlikely that’s going to happen in the future. So I look at a market like that and I go, Yeah, in the future, it’s very, very likely that they’re going to stay friendly towards short term rental properties.

If we contrast that with a city like turkey Toronto, we look at it and we go, okay, great, well, they’ve got a housing crisis. First off, so there’s always people that are going to be pointing the finger at short term rentals for taking away affordable housing, making housing less affordable. So that’s not a great one, the local economy definitely does not rely on short term rentals, because it’s just not a massive part of the local economy in Toronto. And it’s also there’s a ton of competition, right? There’s hotels that can facilitate all the demand that there is for travel, we don’t really need short term rentals in Toronto. And certainly these hotels would rather the short term rentals not be there. And they also have a whole bunch of money, it just so happens so they can lobby the government. And so now if you look at it, the government’s perspective, whoever’s running the office, whoever’s making these decisions is gonna go Okay, great. Well, it’s a really popular political decision to make to just ban short term rentals or to heavily restrict them, it’s going to make housing more affordable, or so should, right that’s their theory. And that’s what they can tell people it’s going to do. It also is going to be not negatively impactful on the local economy. There’s all kinds of incentives that don’t really align with short term rentals being there. So it would make sense that they would regulate against short term rentals or be relatively unfavorable to short term rentals. So if I am investing in a market like that, it’s not to say never invest in an area like that, it’s just to say that you have to have a backup plan that doesn’t rely on short term rentals. So that might be switching to a furnished mid term rental, it might be switching to a long term rental, you just have to have a good backup plan in place so that if the local government does decide to regulate unfavorably toward short term rentals, you have a backup plan from there. So that’s regulations. I know that was a lot. I actually think I’ll split this video up into a part two here, so that we can go through more of the market analysis. So if you want to know more about that, there’s gonna be a part two coming out soon. Let me know hit the like button on this video. Make sure you subscribe so you can see that part two of the video and make sure that you leave me a comment and the comment section down below. Let me know your thoughts. That’s kind of my first level of analysis for a market is just looking at different markets and then going in doing the regulation research and our next video, we’re going to talk more about the rest of that analysis process for finding the best market. So again, hit the like button on this video. If you’d liked it, if you got value from it, make sure you subscribe so you can see that second part the part two when it comes out, and I’ll see you in the next video.