The Truth About Short Term Rentals in Austin Right Now

[Blake Anthony Carter]

It's crazy! Just a few years ago Austin was one of the easiest short term rental markets in the country. Investors were buying houses, furnishing them over a weekend, and watching the bookings roll in. If you owned a decent property anywhere near downtown it was hard not to make money. We were putting beds and couches in pretty much any house and we would get freaking BOOKED.

Today the conversation around Austin short term rentals sounds so different though!

If you spend even five minutes online and you will see people claiming the market is dead because of regulations or over saturation. Others will tell you Austin is still one of the best STR markets in the country. Both groups are partially right and partially wrong. Austin is no longer the easy money market it once was, but for investors who understand the regulations and know where to buy, it is an extremely strong short term rental market. And we are still doing very well.

You have to know what really changed though. The city has changed things around with restrictions that no one has any idea what is going on. This is where I see a lot of investors completely stop their research and decide Austin is no longer a viable market. But not only is permitting in Austin pretty straight forward now, it's also not the only area you can have success.

What they miss is that Austin tourism does not stop at the city boundary. The metro area is surrounded by unincorporated communities and smaller municipalities where short term rentals are fully legal. Areas around Lake Travis, Lago Vista, parts of Jonestown, and Spicewood have become extremely popular with investors because they allow short term rentals while still benefiting from Austin’s tourism economy. Even further out suburban markets like Round Rock, Manor, Buda and Pflugerville are crushing for us. Guests still travel to these areas for lake access, events, and proximity to the city, but investors operate under much friendlier rules with the areas outside of the city.

Demand in the Austin market is still very real. Austin consistently ranks among the fastest growing large cities in the United States and tourism continues to expand every year. The city hosts some of the largest events in the country including SXSW, Austin City Limits, and Formula One at Circuit of the Americas. The University of Texas alone brings a massive amount of year round travel to the city. Add in tech conferences, corporate travel, and remote workers staying for extended periods and the result is a market with consistent demand across the entire year rather than just a traditional tourist season. Austin is ranked NUMBER ONE for live events and NUMBER TWO for bachelor and bachelorette parties in the whole country.

Data from AirDNA and KeyData shows that the broader Austin area continues to generate strong short term rental performance compared to many other Texas markets. Occupancy in many parts of the metro area still sits around the mid to high sixties on an annual basis while average daily rates often range from two hundred to four hundred dollars depending on property size and location. During major events like Formula One and SXSW nightly rates can climb dramatically higher.

What has changed is not demand. What has changed is the level of competition and the expectations of guests.

One of the biggest mistakes I see investors make today is assuming any property will work as an Airbnb. That might have been true when the market was less competitive. Today Austin has become a design driven market where the properties that perform the best feel like an experience rather than a basic rental. Guests traveling to Austin are often coming for events, group trips, or vacations around the lake. They are choosing between hundreds of listings and the homes that stand out visually and offer strong amenities tend to win.

Properties that accommodate groups, offer great outdoor spaces, or create a unique design experience consistently outperform properties that simply look like a long term rental with furniture added. Investors who approach short term rentals like a hospitality business almost always outperform investors who treat them like a passive rental.

Revenue potential still varies widely depending on the property and location. Smaller homes and condos often generate somewhere between $50-90,000 in annual gross revenue. Mid sized homes near popular attractions or lake areas frequently produce between $80-140,000 per year. Larger homes designed for group travel or luxury experiences can generate well over $150,000 and even more than $300,000 in some areas. We have launched several this year hitting those numbers.

And this is no BS. We have been operating STR's in Austin for many, many years. We run one of the top management companies in the city (CribsConsulting.com), own several STR's in the city and have consulted with over 500+ STR investors in the city of Austin. This is what we do and we have a tonnnn of datat to pull from.

Of course those numbers depend heavily on design quality, pricing strategy, and how the property is operated. One of the biggest shifts in the STR industry over the last several years is the widening gap between average listings and top performing listings. Investors who focus on design, hospitality, and guest experience often capture a disproportionate share of the revenue in their market.

Looking ahead it is very likely that Austin will continue tightening enforcement within city limits. At the same time the broader Austin tourism ecosystem continues expanding. The region keeps attracting new employers, population growth remains strong, and Austin continues to establish itself as one of the most important cultural and event destinations in the country. Areas surrounding Austin are growing rapidly and many of those communities remain friendly to short term rentals.

Austin is no longer the simple Airbnb gold rush it once was. The investors who succeed today are the ones who understand the regulations, buy properties in areas where short term rentals are actually allowed, and design their homes to compete in a hospitality driven marketplace.

For investors willing to approach the market strategically, the Austin area can still offer some of the strongest short term rental opportunities in Texas.

If you are considering investing in the Austin short term rental market, spend time understanding the regulations and the micro locations before you buy. In my experience the difference between a great STR investment and a frustrating one is usually determined long before the first guest ever checks in.

I spend most of my time helping investors analyze short term rental opportunities in the Austin market and the surrounding lake communities. If you are researching this market and want to compare notes with someone actively operating here, feel free to connect with me on BiggerPockets. I am always happy to talk shop with other investors exploring the space.

[Jon Martin]

TLDR

No market is ever really dead unless there is a Chernobyl level event. There just isn’t enough market share to take care of everyone once a market has matured 

The properties in the best locations will always excel, and well managed and furnished properties in B locations can still do very well. Future entrants should prioritize location first and foremost.