California is one of the most popular destinations for travelers in the United States and around the world. The Golden State offers a diverse range of attractions, from sunny beaches and scenic mountains to vibrant cities and cultural landmarks. For those who want to enjoy the best of California in style and comfort, investing in a luxury Airbnb property can be a smart and lucrative move. Luxury Airbnb properties are high-end accommodations that offer guests more amenities, space, privacy, and convenience than traditional hotels or rentals. They can also generate higher income and occupancy rates for hosts, as well as increase the value of their properties over time. However, not all locations are equally suitable for investing in luxury Airbnb properties. Some factors to consider are the demand and supply of luxury rentals, the average daily rate (ADR) and revenue per available room (RevPAR), the regulations and taxes on short-term rentals, the competition and market saturation, and the potential for capital appreciation and return on investment (ROI). Based on these criteria, here are the five best cities to invest in luxury Airbnb properties in California and why they are worth investing in.
1. San Francisco: San Francisco is one of the most iconic and dynamic cities in California, with a rich history, culture, and innovation. It attracts millions of visitors every year who want to experience its landmarks, such as the Golden Gate Bridge, Alcatraz Island, Fisherman's Wharf, Chinatown, and more. It also has a strong economy, driven by the tech industry, finance, tourism, and education. San Francisco is a prime market for luxury Airbnb properties, as it has a high demand and low supply of upscale accommodations. According to AirBnb, a data analytics platform for short-term rentals, San Francisco had an average ADR of $247 and a RevPAR of $179 for luxury rentals in August 2021, which were among the highest in the state. San Francisco also has relatively favorable regulations for short-term rentals, allowing hosts to rent out their primary residences for up to 90 days per year without a permit, or unlimited days with a permit. However, hosts must pay a 14% hotel tax and register with the city. San Francisco is also one of the most expensive real estate markets in the country, with a median home value of $1.4 million as of July 2021, according to Zillow. This means that investing in a luxury Airbnb property in San Francisco requires a large upfront capital and a long-term horizon to achieve a positive ROI. However, given the strong demand and appreciation potential, San Francisco is still a worthwhile option for investors who can afford it.
2. Los Angeles: Los Angeles is another global city that draws millions of tourists every year with its diverse attractions, such as Hollywood, Beverly Hills, Disneyland, Universal Studios, Santa Monica Pier, Venice Beach, and more. It also has a robust economy, based on entertainment, media, fashion, aerospace, trade, and education. Los Angeles is a large and diverse market for luxury Airbnb properties, with different neighborhoods catering to different types of travelers and preferences. According to AirDNA, Los Angeles had an average ADR of $216 and a RevPAR of $152 for luxury rentals in August 2021, which were slightly lower than San Francisco but still above the state average. Los Angeles also has complex and varying regulations for short-term rentals depending on the location and zoning. In general, hosts can only rent out their primary residences for up to 120 days per year without a permit or registration fee or unlimited days with a permit or registration fee. Hosts must also pay a 14% transient occupancy tax (TOT) and comply with other rules such as noise limits and parking requirements. Los Angeles is also an expensive real estate market, with a median home value of $859k as of July 2021, according to Zillow. This means that investing in a luxury Airbnb property in Los Angeles requiresa significant initial investment and a moderate to long-term outlook to achieve a positive ROI. However, given the size and diversity of the market and the appeal of the city, Los Angeles is still a viable option for investors who can find the right location and niche.
3. Palm Springs: Palm Springs is a resort city in the Coachella Valley that is known for its sunny weather, mid-century modern architecture, golf courses, spas, and festivals. It attracts visitors who want to relax, enjoy nature, and experience the desert lifestyle. Palm Springs is a hot spot for luxury Airbnb properties, as it has a high demand and low supply of upscale accommodations. According to AirDNA, Palm Springs had an average ADR of $433 and a RevPAR of $329 for luxury rentals in August 2021, which were the highest in the state. Palm Springs also has relatively lenient regulations for short-term rentals, allowing hosts to rent out their properties for up to 32 days per year without a permit or unlimited days with a permit. Hosts must also pay a 11.5% TOT and a $25 per night fee for each rental. Palm Springs is also a more affordable real estate market, with a median home value of $496k as of July 2021, according to Zillow. This means that investing in a luxury Airbnb property in Palm Springs requires a moderate initial investment and a short to medium-term outlook to achieve a positive ROI. However, given the high demand and rates, Palm Springs is still a profitable option for investors who can offer a unique and quality experience to their guests.
4. Napa: Napa is a city in the Napa Valley that is famous for its wine industry, culinary scene, and scenic landscapes. It attracts visitors who want to taste, learn, and explore the world of wine, as well as enjoy other activities such as biking, hiking, golfing, and shopping. Napa is a niche market for luxury Airbnb properties, as it has a high demand and low supply of upscale accommodations. According to AirDNA, Napa had an average ADR of $403 and a RevPAR of $281 for luxury rentals in August 2021, which were the second highest in the state. Napa also has strict and varying regulations for short-term rentals depending on the location and zoning. In general, hosts can only rent out their primary residences for up to 60 days per year with a permit and registration fee. Hosts must also pay a 14% TOT and comply with other rules such as occupancy limits and guest screening. Napa is also an expensive real estate market, with a median home value of $726k as of July 2021, according to Zillow. This means that investing in a luxury Airbnb property in Napa requires a large initial investment and a long-term outlook to achieve a positive ROI. However, given the niche demand and rates, Napa is still an attractive option for investors who can cater to the wine lovers and enthusiasts.
5. San Diego: San Diego is a coastal city that is known for its mild climate, beaches, parks, zoo, museums, and military presence. It attracts visitors who want to enjoy the sun, surf, culture, and history of the city, as well as its proximity to Mexico and other attractions. San Diego is a competitive market for luxury Airbnb properties, as it has a high demand but also a high supply of upscale accommodations. According to AirDNA, San Diego had an average ADR of $211 and a RevPAR of $147 for luxury rentals in August 2021, which were slightly lower than Los Angeles but still above the state average. San Diego also has complex and varying regulations for short-term rentals depending on the location and zoning. In general, hosts can only rent out their primary residences for up to six months per year with a permit and registration fee or unlimited days with a permit and registration fee plus an additional tax. Hosts must also pay a 10.5% TOT and comply with other rules such as noise limits and insurance requirements. San Diego is also an expensive real estate market, with a median home value of $741k as of July 2021, according to Zillow. This means that investing in a luxury Airbnb property in San Diego requires a significant initial investment and a moderate to long-term outlook to achieve a positive ROI. However, given the popularity and diversity of the city, San Diego is still an appealing option for investors who can stand out from the crowd and offer a memorable experience to their guests.
