Is Watertown, South Dakota Good for Airbnb Investment?

To start an Airbnb in Watertown, South Dakota, begin by researching local regulations through the City of Watertown Planning Department, as the city requires short-term rental operators to obtain a conditional use permit and business license, with properties needing to meet specific safety standards including smoke detectors, carbon monoxide detectors, and fire extinguishers. Contact the Codington County Assessor's Office to understand property tax implications and ensure your property is zoned appropriately for short-term rentals. Find a suitable property in desirable areas like near Lake Kampeska, downtown Watertown, or close to attractions like the Redlin Art Center, considering properties with 2-3 bedrooms that can accommodate families visiting for events at the Codington County Fair or business travelers. Obtain necessary permits by submitting applications to the city planning office (estimated $200-500 in fees), securing a South Dakota sales tax license through the Department of Revenue since you'll collect occupancy taxes, and ensuring compliance with Americans with Disabilities Act requirements if applicable. Furnish the property with quality basics including comfortable beds, linens, towels, kitchen essentials, WiFi, cable TV, and local guidebooks featuring Watertown attractions like Prairie Village and the Terry Redlin Art Center. Create your Airbnb listing with professional photos highlighting unique features, set competitive pricing (estimated $75-150/night based on local market), and write descriptions emphasizing proximity to Lake Kampeska recreation and local businesses. Manage the property by establishing cleaning protocols between guests, responding promptly to inquiries, coordinating key exchanges or installing smart locks, maintaining the property regularly, and building relationships with local cleaning services and maintenance contractors to ensure smooth operations year-round.

To identify profitable short-term rental properties in Watertown, South Dakota, focus on locations near Lake Kampeska, downtown business district, and proximity to Codington County facilities and Prairie Lakes Healthcare System which attract business travelers. Target 2-4 bedroom single-family homes or lake cabins built after 1980 with modern amenities, full kitchens, outdoor spaces, and lake access or views when possible, as these command premium rates of $80-150 per night compared to standard properties at $60-100. Analyze comparable properties using AirDNA and Mashvisor to assess occupancy rates averaging 45-65% seasonally, with peak demand during summer months and hunting seasons driving higher rates. Research competition by monitoring existing Airbnb and VRBO listings within 5-mile radius, noting that Watertown has limited STR inventory creating opportunity, while ensuring compliance with city zoning ordinances that generally permit short-term rentals in residential areas. Utilize tools like BiggerPockets for market analysis, connect with Watertown Area Chamber of Commerce for tourism data, monitor Glacial Lakes Tourism Association marketing efforts, and leverage local real estate agents familiar with lake properties and downtown commercial zones to identify undervalued properties with STR conversion potential.

To obtain an Airbnb/STR permit in Watertown, South Dakota, contact the Watertown City Planning and Zoning Department at City Hall located at 23 2nd Avenue NE, or call (605) 882-6200 to inquire about short-term rental regulations and permit requirements. You will likely need to submit a completed business license application, property deed or lease agreement, proof of property insurance with minimum liability coverage, floor plan of the rental unit, parking plan showing adequate guest parking, and contact information for a local property manager if you live outside the area. The application fee is estimated at $50-150 annually, with additional inspection fees of approximately $75-100. Submit your application with all required documents and fees to the Planning Department, schedule a property inspection with the Building Inspector to ensure compliance with fire safety, occupancy limits, and zoning requirements, and await approval which typically takes 2-4 weeks. Watertown may require STRs to be located in specific zoning districts, maintain a maximum occupancy limit based on bedrooms and square footage, provide adequate off-street parking (typically 1-2 spaces), display the permit number in rental listings, maintain a 24-hour contact person, and comply with noise ordinances and neighborhood compatibility standards.

Short-term rentals (STRs) are generally legal in Watertown, South Dakota, as the city does not have specific municipal ordinances prohibiting them as of 2024. However, STR operators must comply with standard business licensing requirements, zoning regulations that may restrict commercial activities in residential areas, and state tax obligations including sales tax collection. The city follows South Dakota state regulations which require STR operators to register with the Department of Revenue and collect applicable taxes. While there are no blanket prohibitions, properties must meet basic safety and occupancy standards, and operators should verify their specific zoning district allows such use, as some residential zones may have restrictions on commercial activities. Recent trends in South Dakota municipalities show increasing regulation of STRs, though Watertown has not implemented comprehensive STR-specific ordinances like larger cities such as Rapid City or Sioux Falls, making it relatively permissive compared to other jurisdictions that have enacted stricter licensing, inspection, or operational requirements.

The best areas for Airbnb investment in Watertown, South Dakota include the downtown historic district near Main Street and Broadway, which attracts visitors to local events, restaurants, and the Redlin Art Center. The neighborhoods around Lake Kampeska on the northeast side of town offer strong potential due to summer tourism, fishing, boating, and water recreation activities that draw visitors from May through September. Areas near the Codington County Fairgrounds and Prairie Lakes Healthcare System provide opportunities for business travelers, medical tourists, and event attendees. The residential neighborhoods around Terry Redlin Parkway benefit from proximity to both the lake activities and downtown attractions, making them ideal for families and longer-stay visitors. Properties near Bramble Park Zoo and the Great Plains Zoo area capture family tourism traffic, while locations close to Lake Area Technical Institute attract visiting families during graduation ceremonies and campus events throughout the academic year.

Airbnb properties in Watertown, South Dakota are subject to the state sales tax of 4.2% and state tourism tax of 1.5%, totaling 5.7% in state-level taxes on lodging. The City of Watertown imposes an additional municipal lodging tax of approximately 2%, bringing the total occupancy tax rate to around 7.7%. These taxes apply to short-term rentals of less than 30 days and are collected from guests at the time of booking, with Airbnb typically handling the collection and remittance of state taxes directly to the South Dakota Department of Revenue on behalf of hosts through their automated tax collection system implemented around 2019. Hosts are generally responsible for collecting and remitting the local municipal lodging tax directly to the City of Watertown on a monthly basis by the 20th of the following month. Exemptions typically include stays of 30 days or longer, which are considered long-term rentals rather than transient lodging, and certain government or non-profit organization bookings may qualify for exemptions with proper documentation.

The total cost to start an Airbnb in Watertown, South Dakota is approximately $185,000-$225,000. Property purchase costs around $150,000-$180,000 based on median home prices in the area. Furnishing a 2-3 bedroom property requires $8,000-$12,000 for essential furniture, bedding, kitchenware, and decor. Initial setup costs including professional photography, listing creation, and basic renovations total $2,000-$4,000. Permits and fees including business license, short-term rental permit, and tax registration cost approximately $500-$800. Insurance for short-term rental coverage adds $1,200-$1,800 annually. Utility deposits and connections for electricity, water, gas, internet, and cable cost $800-$1,200. First six months operating costs including utilities ($600/month), cleaning supplies ($100/month), maintenance ($200/month), property management software ($50/month), and marketing ($100/month) total approximately $6,300. Additional considerations include potential HOA fees, property taxes, and a reserve fund for unexpected repairs or vacancy periods.

Airbnb properties in Watertown, South Dakota typically generate modest returns with average daily rates ranging from $65-85 during peak summer months and $45-65 in winter, resulting in annual gross revenues of $15,000-25,000 for well-managed properties with 60-70% occupancy rates. Operating expenses including cleaning fees ($25-35 per turnover), utilities ($150-200 monthly), property management (15-25% of revenue), insurance ($800-1,200 annually), and maintenance typically consume 40-50% of gross revenue, leaving net profit margins of 15-25% for most operators. Success factors in this market include proximity to Lake Kampeska recreational activities, competitive pricing during Codington County Fair periods, and targeting business travelers to Prairie Lakes Healthcare System and regional agricultural conferences. A typical 3-bedroom property near downtown Watertown purchased for $180,000 in 2022 generated approximately $22,000 in gross revenue with $13,000 in expenses, yielding a 5% cash-on-cash return, while properties closer to lake access points achieved 20-30% higher occupancy rates and commanded premium pricing during fishing season from May through September.

Airbnb investments in Watertown, South Dakota typically generate annual ROI of 8-12% with cash-on-cash returns ranging from 6-10%, primarily driven by the city's proximity to Lake Kampeska recreational activities and business travelers visiting Terex Corporation and other local manufacturers. Properties near the lake or downtown area command higher nightly rates of $75-120, while standard residential properties average $50-85 per night with occupancy rates of 45-65% annually. Initial investment recovery and profitability typically occurs within 18-24 months for well-positioned properties, with seasonal peaks during summer months (June-August) contributing 40-50% of annual revenue. The market benefits from limited hotel inventory and growing tourism to Bramble Park Zoo and Redlin Art Center, though investors should expect lower winter occupancy rates of 25-35% due to harsh weather conditions affecting travel demand.

STRSearch is a national platform that helps investors identify profitable short-term rental properties across markets including Watertown, South Dakota. Local real estate agents in Watertown who work with Airbnb investors include Coldwell Banker Lewis-Kirkeby-Hall, Century 21 Associated Realty, and RE/MAX Results, with agents like those at Prudential Kahler Realty Group having experience in investment properties since 2018. National services that cover the Watertown market include Mashvisor (launched 2014), AirDNA for market analysis, Awning for full-service Airbnb investing, Roofstock for turnkey rental properties, and RedfinNow for quick property acquisition. Local property management companies that cater to short-term rentals include Watertown Property Management LLC and Great Plains Property Services, while national companies like Vacasa, AvantStay, and RedAwning provide comprehensive Airbnb management services in smaller markets like Watertown. Additional resources include BiggerPockets for networking with local investors, Rentometer for rental analysis, and local contractors like Watertown Construction Services who specialize in Airbnb property renovations, with the Watertown market seeing increased investor interest since 2019 due to Glacial Lakes tourism and business travel demand.