By Financial & Real Estate Desk
Published: Real Estate Strategy & Investment Insights
Main Facts: The Hidden Gems of Short-Term Rentals
When real estate investors search for the nation’s top short-term rental (STR) markets, the same familiar destinations inevitably dominate lifestyle magazines and social media feeds: Gatlinburg, Tennessee; Joshua Tree, California; Scottsdale, Arizona; and the misty peaks of the Great Smoky Mountains.
However, a comprehensive new national analysis strips away the lifestyle marketing to reveal what the hard numbers actually dictate. Utilizing property performance metrics pulled by analytics platform BNBCalc—which evaluated 462 cities across all 50 states, backed by a minimum threshold of 50 real properties per market—a vastly different map of opportunity emerges.
The top performer in the nationwide gross yield ranking is not a trendy desert escape or a premier mountain resort. It is Sandusky, Ohio.
This counterintuitive finding anchors a broader revelation: the most lucrative short-term rental opportunities are tucked away in unglamorous markets where homes are reasonably priced, and content creators are entirely silent. Yet, as the data demonstrates, a high gross yield on paper is far from a guaranteed path to profitability in today’s macroeconomic environment. When subjected to the realities of modern mortgage rates, operating expenses, and local zoning laws, roughly half of the nation’s top state-level markets fail to break even on a conventional purchase.
Chronology: How the Data Was Built and Where the Market Stands
To understand how real estate analysts uncovered these off-the-beaten-path markets, it helps to examine the step-by-step evolution of how STR data is gathered, vetted, and ultimately stress-tested.
- Phase One — Aggregating the National Footprint: Analysts pulled performance metrics from a vast dataset encompassing over 10 million Airbnb and VRBO listings across 2,400 global markets, isolating 462 U.S. cities with robust sample sizes.
- Phase Two — Filtering for Quality and Independence: To prevent statistical skewing from a single luxury outlier, markets required at least 50 analyzed properties and a high concentration of independent hosts. Cities failing internal quality thresholds were discarded.
- Phase Three — Calculating Gross Yields: The best city in each of the 50 states was ranked by its gross yield—calculated as annual short-term rental revenue divided by the city’s median home value for a matching bedroom count.
- Phase Four — Applying Macro Realities: Analysts took the median winner from the nationwide list and applied contemporary financial assumptions—including a 20% down payment, a 30-year mortgage at a 7% interest rate, and standard operating expenses—to see how gross yields translate into actual cash in hand.
The chronological takeaway for investors is stark: while top-line revenue metrics can point a buyer toward an overlooked municipality, the journey from gross yield to net cash flow is fraught with financial tripwires.
Supporting Data: Crunching the Numbers on Yields and Cash Flow
To accurately evaluate the findings, investors must understand the distinct difference between gross yield and cash-on-cash return.
Every percentage point modeled in the state-by-state ranking represents modeled gross yield: annual revenue divided by home value. Crucially, this metric excludes mortgages, down payments, property taxes, insurance, cleaning services, utilities, and management fees. Gross yield simply measures what a property generates before any external costs are applied.
While cash-on-cash return tells an investor what actually hits their bank account, it relies heavily on speculative assumptions regarding interest rates, personal credit profiles, down payment amounts, and operational strategies. Gross yield, by contrast, establishes a standardized baseline of revenue-to-price efficiency.
The Median Winner Stress Test
Consider the median winner from the national index:
- Median Property Value: $251,338
- Annual Short-Term Rental Revenue: $27,671
- Gross Yield: 10.91%
At first glance, an 11% yield sounds exceptionally healthy. But when run through a realistic financing model, the story changes dramatically:
- Down Payment: Putting 20% down requires $50,267 in capital.
- Debt Service: Financing the remaining balance on a 30-year note at a 7% interest rate results in an annual debt service of $16,052.
- Operating Expenses: Allocating 37.5% of revenue ($10,376) to cover cleaning supplies, utilities, insurance, property taxes, and general repairs.
The Result: The property clears roughly $1,241 annually. On an initial investment of $50,267, that represents a meager 2.5% cash-on-cash return—a figure easily beaten by a standard high-yield savings account, minus the headache of plumbing emergencies.
Furthermore, if an investor lives four states away and must hire a professional property manager (who typically takes roughly 20% of gross revenue, amounting to $5,534 in this scenario), the investment plunges into a net annual loss of approximately $4,292.
Backwards-calculating the math reveals that covering debt service and operating costs under these baseline assumptions requires a minimum gross yield of roughly 10.5% before a single dollar of profit is realized. Across the 50 state-level winners analyzed, exactly 26 cities clear this hurdle, while 24 fall short. In other words, nearly half of the "best-in-state" markets fail to break even on a conventional purchase at current interest rates.
Spotlight: Five Markets to Watch
The national ranking highlights stark contrasts between unexpected top performers and struggling coastal heavyweights:
- Sandusky, Ohio (Ranked #1 Overall): Boasts an impressive 15.35% gross yield across 181 properties, with a median home price of just $145,150. Driven primarily by Cedar Point amusement park traffic, the market features 48% independent hosts, indicating it has not yet been entirely overtaken by institutional property management companies.
- Detroit, Michigan: Yields 15.1% across a deep sample of 506 properties, with a median home value of $137,024. Because of the city’s vast geographic footprint, neighborhood-level and block-by-block variance is extreme, requiring rigorous address-specific due diligence.
- Kapolei, Hawaii: Generates a 15.06% gross yield across 337 properties, boasting a median home value of $597,065 and producing $109,736 in annual revenue—the highest top-line revenue figure in the dataset. However, this is fundamentally a zoning story rather than a simple real estate play.
- Abilene, Texas: Delivers a 15.05% gross yield across 315 properties at a median price of $194,996, with 58% independent hosts. Devoid of beaches or major theme parks, Abilene benefits from steady, year-round demand—a rare asset in a heavily seasonal industry.
- Lewes, Delaware (Bottom of the List): Posts a meager 5.43% gross yield across 212 properties at a median value of $540,439. This proves a critical real estate axiom: every state has a top-performing city, but that does not mean every state has a deal worth executing.
Official Responses and Regulatory Realities: When Policy Dictates Yield
No conversation about short-term rentals is complete without addressing municipal regulation. A gorgeous gross yield is entirely meaningless if local ordinances explicitly outlaw the operational model an investor is trying to run.
Kapolei, Hawaii, serves as the most prominent cautionary tale. While the citywide gross yield is remarkably high, it exists strictly due to precise zoning lines. The city and county of Honolulu strictly limit short-term rentals in residential areas, enforcing long minimum-stay requirements and weathering years of litigation over whether the legal minimum is 30 or 90 days. However, Ko Olina—which sits within Kapolei—is designated as a resort-zoned area where short-term rentals are legally permissible. On Oahu, understanding which side of a zoning line an address sits on is the single most important factor of the investment.
Similarly, major metropolitan and regional hubs like Atlantic City, Baltimore, Detroit, and Myrtle Beach have repeatedly rewritten their short-term rental compliance frameworks. For modern investors, regulation is never a mere footnote; frequently, regulation is the yield.
Implications: A Strategic Framework for Modern Investors
For prospective real estate buyers, data rankings should serve strictly as a compass pointing toward overlooked regions, never as a green light to purchase sight-unseen.
Industry experts recommend a rigorous, step-by-step due diligence process before committing capital:
- Start at the Address, Not the City: Citywide averages can mask severe neighborhood-level volatility. Plug specific property addresses into analytics tools to review hyper-local revenue projections, average daily rates, occupancy metrics, and immediate comparable listings.
- Filter Comps by Realistic Budgets: Adjust comparable property filters to match the exact property type, bedroom count, and amenities that a realistic purchase budget can afford in that market.
- Analyze Monthly Seasonality: Review the shape of the calendar year. Investors must examine the lowest-performing trough months and calculate whether projected peak revenues can comfortably carry the property through the off-season.
- Model Long-Term Rental Floors: Always run parallel analyses for traditional long-term rentals and Section 8 housing. If municipal ordinances shift unexpectedly in year three, the long-term rental market serves as an essential financial backstop.
- Incorporate Tax Strategies Early: High interest rates mean that tax outcomes often outweigh operating outcomes in year one. Utilizing cost segregation studies and qualifying for short-term rental tax incentives—such as utilizing material participation rules to offset W-2 income with depreciation losses—can fundamentally alter the financial viability of a deal.
Ultimately, the overarching lesson of the latest short-term rental data is clear: true revenue efficiency hides in unglamorous, blue-collar markets. Premium mountain and coastal destinations frequently languish at the bottom of yield tables simply because buyers pay an exorbitant premium for the zip code.
By looking beyond the hype, conducting granular property-level research, verifying local municipal codes, and carefully accounting for today’s financing realities, investors can separate genuine opportunities from unprofitable statistical noise.
