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Why vacation rental investors are spending more time on market research before buying
Short-term rental investors confront a dual threat: cooling returns and tightening regulations that squeeze profitability while raising loan qualification hurdles. Platforms like Airbnb have democratized vacation rental investing, but they’ve also triggered state and local crackdowns on tax compliance, licensing, and occupancy caps.
For investors already holding properties or considering new purchases, miscalculating revenue in this environment, or ignoring regulatory shifts, can turn an expected return into negative cash flow or loan default. Market research has moved from helpful to essential.
Griffin Funding
Why 2026 ROI Isn’t What It Was
The annual STR outlook research published by AirDNA is one of the most useful top-level data sources demonstrating the health of the market as a whole, from which investors can glean a great deal. Among the various statistics highlighted in the report, the fact that 2025 saw average return on investment (ROI) for STRs hit 10.3% by year’s end was a major positive. That’s well below the 30.8% ROI peak achieved when the market was booming in the afterglow of the pandemic during 2021, but still a healthy margin for most investors.
Likewise, the report pinpoints the STR premium, meaning the typical gap between mortgage repayments and expected property revenue per month, at around the $1,000 mark in late 2025, with this projected to remain fairly constant throughout 2026 and 2027, unless market conditions shift sharply.
Coupled with property prices showing little to no growth in many regions and mortgage rates remaining stable for the moment, the temptation to start or expand an STR portfolio may be strong. However, the broad view doesn’t account for geographic variance.
Region-Specific Challenges
AirDNA’s granular data on the STR market in different parts of the country, as well as the regulatory outlook, which is changing in many states, means investor market research must be thorough. In some cases, the data points to both challenges and opportunities, with an investor’s own position as the defining factor.
For instance, the report points out that property prices are falling in some markets that are traditionally associated with vacationing, dipping 10% in Punta Gorda, Florida, and 6.7% in Pigeon Forge, Tennessee. For those in a position to buy, this makes these markets appealing prospects, as they’re likely to save money compared with if they’d bought in 2024. However, if someone already owns and is looking to sell or is dealing with rising costs associated with mortgage rates, they face a squeeze because of shrinking house prices.
Likewise, the imposition of stricter regulations in certain jurisdictions creates additional costs and administrative obstacles to overcome for investors. In California, for instance, Senate Bill 346 was passed in 2025 and came into force this year to target the estimated 75% of STRs that aren’t properly licensed and taxed, according to the authorities in the state. This legislation effectively requires platforms like Airbnb to provide information on property owners and operators so that more tax revenue can be recovered.
Similar increases in scrutiny for the STR market are taking place in other states, including Texas. That’s why thorough market research is a must for all investors, as tougher rules can erode ROI.
Making Accurate Revenue Calculations
Because traditional mortgage products often disallow projected STR income as proof of affordability, real estate investors rely heavily on Debt Service Coverage Ratio (DSCR) loans and private transition loans. In that context, it’s common for non-QM lenders to require proof of short-term rental market performance for the specific location and property in question before they will greenlight a loan.
According to Griffin Funding, a mortgage and home loan lender, investors must use a combination of data sources to calculate their expected ROI on a rental purchase, especially if they intend to buy an STR in a state where rules on ownership and taxation expectations are getting stricter at the moment. Looking at average daily rates (ADR), which actually dipped at the end of last year in AirDNA’s report, coupled with the projected decline in occupancy in 2026 and 2027, alongside location-specific research, must be done with care. Even if investors qualify for a DSCR loan on expected income, if that calculation is not accurate because it uses data that’s too broad or not up to date, the risks of having their ROI squeezed or even going into arrears are higher.
How to Avoid Revenue Modeling Miscalculations
The STR market over the last five years has been a rollercoaster, spiking post-COVID-19, then dipping hard in 2023, before making a recovery last year, and seeming to level off going forward. Investors can take heart in top-level data demonstrating that decent returns are achievable, and that alternative lending products make it possible for more people to enter the market if they’re comfortable with the risks involved.
Most importantly, rigorous market research remains crucial because differences in regulations, occupancy rates, ADR, and other metrics can make or break the ROI of an STR investment. There’s ample data available for regional markets, so there’s no excuse for inaccuracy or an excess of optimism.
This story was produced by Griffin Funding and reviewed and distributed by Stacker.
