17 undervalued U.S. markets for short-term rental investment

AirDNA, which monitors and analyzes data from platforms such as Airbnb and Vrbo, has identified 17 “hidden” U.S. markets that present particularly strong investment potential.

The criteria used to select these markets were between 400 and 1,000 short-term rental listings, an annual yield of more than 10%, and a share of professionally managed properties below 20%.

The latter factor is considered particularly important, as it provides individual property owners with greater scope to compete in the market without facing large property management companies directly.

Rockford Leads the List with a 14% Yield

At the top of the list is Rockford, Illinois, approximately 90 minutes northwest of Chicago. The average home value in the area stands at approximately $300,442, while potential annual gross revenue from short-term rentals is estimated at $40,024.

Based on these figures, AirDNA estimates a yield of approximately 14%. At the same time, the number of available short-term rental properties in the area has increased by 13% year over year.

The increase in supply, however, has not so far resulted in a corresponding downturn in the market. RevPAR, or revenue per available room, is rising by approximately 6% annually, indicating that demand for accommodation remains strong.

Another notable characteristic of Rockford is the limited presence of professional property managers. According to AirDNA, professional management is essentially absent from the market, meaning that an individual host does not directly compete with a local property management company for bookings.

In second place is Akron, Ohio, with an estimated yield of 13%, while Warner Robins, Georgia, ranks third, with a yield of approximately 12%. In both markets, the average home value remains below $325,000, while potential annual short-term rental revenue is close to $40,000.

As in Rockford, RevPAR continues to increase despite the number of available short-term rental properties growing at a double-digit rate. This suggests that, so far, the increase in supply has not offset demand.

The 17 Markets with the Highest Yields

Beyond the top three markets, AirDNA identifies another 14 markets with characteristics that make them attractive for short-term rental investment:

• Utica, New York
• Otsego Lake, Michigan
• Lawton, Oklahoma
• Millersburg, Ohio
• Midland, Texas
• Geneva, Ohio
• Castle Rock Lake, Wisconsin
• Houghton, Michigan
• Michigan City, Indiana
• Gary, Indiana
• Manhattan, Kansas
• Terlingua, Texas
• Nolin River Lake, Kentucky
• Dunnellon, Florida

The geographical distribution of these markets primarily highlights the potential of the U.S. interior and the South, where home prices remain lower than in the major metropolitan centers on the East and West Coasts.

The Key Advantage: Lower Home Prices

The shift by investors toward these smaller markets is largely linked to the high cost of financing. With mortgage rates remaining at elevated levels, purchasing expensive homes in major metropolitan areas has become more difficult to justify from an investment perspective.

By contrast, lower prices in markets such as Rockford, Akron, and Warner Robins allow investors to make a smaller initial capital outlay and, according to AirDNA, maintain potential for positive cash flow.

Linda Rollins, Senior Research Analyst at AirDNA, notes that the availability of markets where home prices remain affordable can make it easier to achieve an investment return that justifies the cost of financing.

They Do Not Have to Be Tourist Destinations

One interesting characteristic of the markets identified by AirDNA is that they do not necessarily offer the attractions and entertainment options associated with major U.S. cities. Nevertheless, they continue to attract steady demand from residents of large urban centers seeking short getaways from their daily routines.

In addition, several of these markets are located near military bases, which serve as an additional source of demand for accommodation.

National parks and natural attractions can also play an important role. As AirDNA economist Bram Gallagher points out, visitors traveling to such destinations often return and repeat the experience, generating consistent tourism activity.

The Rise of Short-Term Rentals Adds Pressure

The increased investment demand for properties in U.S. interior markets comes at a time when the region is already facing significant pressure from buyers leaving more expensive markets such as New York and Los Angeles.

Housing costs in the Midwest remain, on average, approximately 30% to 50% lower than in markets on the West and East Coasts.

This difference has attracted a significant number of buyers, particularly Millennials and Gen Z, increasing affordability pressures in cities such as Chicago, Columbus, Indianapolis, Detroit, Milwaukee, Kansas City, Minneapolis, Cleveland, and St. Louis.

Despite increased demand, housing affordability in the Midwest has remained relatively stable so far. According to the National Association of Realtors’ housing affordability index for August, the Midwest ranked third among the major U.S. regions.