Minneapolis, Minnesota

Minneapolis, Minnesota, a progressive city known for its cultural diversity, lakes, and year-round recreational opportunities, is increasingly becoming a sought-after destination for short-term rental investments. The landscape for short-term rentals has evolved significantly, driven by both local economic factors and the broader trends in travel and tourism. The city features a mix of urban and suburban environments, allowing for a range of investment opportunities from chic downtown apartments to serene lakeside cabins.

The Minneapolis short-term rental market is predominantly supported by its rich arts scene, corporate visitors, and a robust event calendar. As of October 2023, short-term rental platforms like Airbnb and VRBO have expanded the accessibility of accommodations in the city, catering to a diverse demographic, ranging from tourists to business travelers and families.

Understanding the performance metrics of the Minneapolis short-term rental market is essential for making informed investment decisions. The current Average Daily Rate (ADR) in the city stands at $191.66, indicative of the potential income that property owners can expect.

Beyond ADR, key metrics to consider include:

• Occupancy Rate: The average occupancy rate in Minneapolis is approximately 60%, which is competitive compared to similar markets.
• Revenue Per Available Room (RevPAR): This metric averages around $115, providing an additional layer of insight into property performance.
• Average Length of Stay: Travelers in Minneapolis typically book an average length of stay of 3-4 nights, which can influence pricing strategies and turnover costs.
• Number of Active Listings: The market has approximately 2,500 active short-term rental listings, with a healthy mix of entire homes and private rooms.

Over the past decade, the Minneapolis short-term rental market has witnessed significant growth, shaped by various factors, including increased tourism, a surge in events, and a shift towards alternative accommodations.

• Tourism Trends: Visitor numbers have risen, contributing to a nearly 40% increase in short-term rentals since 2012. Major events, such as the Super Bowl in 2018 and ongoing conventions and festivals, serve as substantial drivers.
• Market Adaptation: The market has seen a strong adaptation to changes in visitor preferences, particularly the rising demand for properties catering to group stays and families.
• Impact of Pandemic: The pandemic initially disrupted the market in 2020, but the subsequent recovery has accelerated growth, with a marked increase in summer bookings and a diversification of listing types.

Investors looking at Minneapolis can expect favorable conditions characterized by a healthy ROI. Given the average ADR of $191.66, along with the approximately 60% occupancy rate, the annual gross revenue potential for a property can be calculated.

For instance, a property with an ADR of $191.66 and a consistent 60% occupancy could yield around $41,000 annually. This calculation does not account for additional expenses like management fees, cleaning costs, and utilities, which vary but often total around 30-40% of revenue.

Based on property values in Minneapolis, which average $350,000 for a decent short-term rental, the expected cap rate is approximately 8-10%, depending on location and property type. This return is competitive compared to traditional long-term rentals in the area.

Minneapolis showcases distinct seasonal trends, impacting the short-term rental market profoundly.

• High Season (May – September): The summer months see the highest occupancy rates, often exceeding 70%. Events such as the Minnesota State Fair, local festivals, and various outdoor activities draw visitors.

• Shoulder Seasons (March – April & October – November): These months witness moderate occupancy. Travelers often include those visiting for business conferences. Pricing strategies should adapt by offering competitive rates and promotions during these times to attract more bookings.

• Low Season (December – February): Winter brings a dip in occupancy, lessened by negative weather conditions. However, cultural events, such as winter sports and holiday celebrations, can provide niche opportunities for short-term rentals.

In Minneapolis, different property types yield varying performance based on location, amenities, and target demographics.

• Entire Homes: These rentals often appeal to families and larger groups, with higher ADR and occupancy rates. They present significant income potential, especially in residential neighborhoods close to tourist attractions.

• Private Rooms: Popular among solo travelers and budget-conscious guests, these options typically attract longer stays and lower ADR. They remain a viable investment strategy for owners seeking to enter the market with lower costs.

• Unique Stays: Listings that offer distinctive accommodations, such as converted warehouses or cabins near lakes, can command a premium. These niche properties often face lower competition, allowing for differentiated marketing strategies.

Successful short-term rentals in Minneapolis cater to guest preferences, heavily influenced by local culture, activities, and amenities.

• Key Amenities: Wi-Fi, parking, and kitchen facilities are among the most requested amenities. Properties that offer outdoor access or proximity to parks tend to attract more guests, particularly in the summer months.

• Marketing Attributes: Cleanliness, safety, and responsive communication have become defining factors for guest satisfaction. Properties that invest in thorough cleaning and transparent communication often receive better reviews and retain repeat visitors.

• Local Experiences: Guests increasingly seek local experiences that reflect Minneapolis's culture. Rentals that provide local guidebooks, recommendations for neighborhoods, and nearby attractions can enhance the guest experience and result in positive reviews.

The regulatory landscape surrounding short-term rentals in Minneapolis requires close attention.

• Licensing Requirements: All short-term rental hosts must obtain an operating license, which includes requirements such as fire safety inspections, minimum insurance coverage, and registration with the city.

• Occupancy Limits: To maintain affordable housing in the city, the Minneapolis ordinance limits short-term rentals to specific numbers of days when the owner is not present (currently set at 90 days for non-owner-occupied rentals).

• Market Compliance: Investors must ensure their properties comply with all local laws, zoning requirements, and HOA guidelines, which can vary significantly between neighborhoods. Non-compliance can result in hefty fines and operational suspensions.

Certain neighborhoods in Minneapolis exhibit stronger performance for short-term rentals than others, influenced by location, demographics, and nearby attractions.

• Downtown Minneapolis: The central business district attracts corporate travelers and tourists alike due to its proximity to conference centers, shopping, and nightlife.

• Uptown: Known for its vibrant cultural scene, Uptown tends to attract younger travelers and families, leading to higher occupancy rates, especially in the summer months.

• North Loop: This neighborhood is becoming increasingly popular due to its unique blend of modern development and historical significance, making it appealing to visitors seeking urban experiences.

• Minnehaha: Located near parks and outdoor activities, this residential area attracts families looking for space and scenic environments, thus making it highly competitive during peak seasons.

As of 2023, the Minneapolis short-term rental market is poised for continued growth, driven by emerging trends and evolving travel behavior.

• Sustainability: With growing concerns regarding climate change, eco-friendly properties that offer sustainable practices are becoming more attractive to guests. Investors who adopt green technologies may see increased bookings.

• Technology Integration: Properties that incorporate modern technology for self-check-ins and communication can enhance operations and streamline guest experiences.

• Remote Work Influence: The rise of remote work is prompting longer stays in short-term rentals, as professionals seek accommodations that can serve as temporary home offices, particularly in scenic or urban locations.

1. What is the average income for short-term rentals in Minneapolis?

   • The average annual income, based on current ADR and occupancy rates, can be estimated around $41,000 for a property with good performance.

2. Is it necessary to obtain a permit for short-term rentals?

   • Yes, all short-term rental hosts in Minneapolis must secure an operating license to comply with local regulations.

3. What types of properties perform best in the short-term rental market?

   • Entire homes generally perform best due to their appeal to families and larger groups. Unique stays also tend to fetch higher ADRs.

4. Are there any restrictions on short-term rental usage?

   • Yes, there are occupancy limits for non-owner-occupied rentals, along with various health and safety regulations that must be followed.

5. How can investors assess the best neighborhoods for short-term rentals?

   • Investors should consider factors like area demographics, proximity to attractions, historical occupancy rates, and property types when evaluating neighborhoods.

By understanding the dynamics of the Minneapolis short-term rental market and analyzing key performance indicators, trends, and regulations, investors can make well-informed decisions that align with their investment goals and leverage opportunities in this evolving landscape.