Best Places To Buy Vacation Rental Property [Updated 2020]

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For many, the idea of investing in a vacation rental investment property sounds enticing, and looking into the best places to buy vacation rental property is the best place to start. Earning equity in a property while someone else pays off the mortgage mixed with benefiting from amazing tax deductions sounds great, right?

However, you can’t simply buy a vacation rental property and hope it produces returns; there are several things you must consider beforehand, not the least of which includes a great location.

The location in which you buy your next vacation rental investment property will have a huge impact on its performance. Primary cities like San Diego and Miami, for the exact reasons you would assume, have proven to be great spots for savvy investors. However, their return on investment isn’t without a significant caveat: availability. Primary cities have proven so lucrative for vacation rental investments that opportunities in these markets have lessened as their popularity grows. That means it’s time for investors to consider alternative cities or those that are less popular but share a similar earning potential.

According to the National Association Realtors (NAR), sales of investment homes increased 4.5 percent year-over-year, a figure that has risen steadily for the past seven years. “Despite a smaller share of distressed properties coming onto the market, investment purchases reversed course after declining for four straight years,” said Lawrence Yun, NAR’s chief economist.

“Steadily increasing home prices and strong rental demand appear to be giving more individual investors assurance that purchasing real estate will diversify their portfolios and generate additional income if they decide to rent out the home.”

Read on to learn exactly what to look for when choosing the right investment property.

10 Factors To Consider Before Buying A Vacation Rental Property

  • Personal use: One of the benefits that motivate individuals to buy a vacation investment property is personal use. Many individuals enjoy being able to visit the property for vacation purposes, and also to be able to lend the property to family and friends. It is important to ask yourself if the investment is more important to you personally or financially, as the answer can affect your strategy.

  • Rental income: If you own property in one of the best vacation rental markets, then perhaps rental income will be produced in a steady stream. However, not all markets will be conducive to creating an income stream that will consistently cover all expenses. If creating cash flow is your primary motivation behind investing in a vacation rental investment property, then it is worthwhile to consider one of the top vacation rental markets or investing in a traditional rental property.

  • Appreciation: In addition to rental income, an important factor to consider is property appreciation. Although real estate market predictions are predominantly speculations, investors should keep in mind that many markets can have big price swings in correlation with the current economic landscape. Investors who carefully research markets that are conducive to property appreciation in the long-run will be best prepared to build equity over time.

  • Expenses: Expenses can range anywhere from routine incidentals such as the mortgage, fees, and utilities to unplanned repairs and emergencies. These expenses add up quickly, and can overtake your cash flow if you are not careful. Experienced investors will often advise beginners to over-project their expense budget, as well as create cash reserves for unplanned incidents.

  • Taxes: Taxes are a complex vehicle that can be perceived as both an advantage and disadvantage, simultaneously. First, those considering investing in a vacation rental should ask themselves if they will be able to afford local, state, and federal property taxes, as well as taxes assessed on any income made from rentals. Some of this financial pressure, however, can be relieved in the form of tax write-offs that apply specifically to vacation rental property businesses.

  • Risk: Owning even the most lucrative beach investment properties can be subject to risks, such as adverse weather or financial loss from a market crash. Although any type of investment is subject to risk, vacation rental owners should remain mindful of these potential downsides that can turn an investment strategy upside down.

  • Insurance: One of the best ways to plan for risk is by taking out an insurance policy that best fits your circumstances. Aside from homeowner’s and liability insurance, it is important to consider if you need to take out additional policies that will help protect you from specific types of natural disasters or emergencies.

  • Legality: The best place to own a vacation rental is a location where the property can be rented out to guests legally. Before investing, be sure to double-check local zoning laws, as well as any homeowner association rules as applicable.

  • Property management: Deliberating on whether or not to hire a property management company is a big decision for any type of rental property. Working with a property manager will be an added expense, but doing so can make your life much easier. Property managers can accomplish a range of tasks from handling tenant turnover and overseeing cleaning and maintenance services to marketing your listing. Also, allowing a professional to handle these tasks can provide ease of mind, especially if you do not live in the same area as your property.

  • Partnerships: Working with a partner, including friends or family members, can often open up a lot of opportunities in real estate investing. However, if you would like to acquire a vacation investment property with a partner, be sure to treat the venture just as you would in business. This includes forming an LLC or another type of entity, as well as having a lawyer create clear contracts.

Now that you know the most important factors to consider before purchasing a vacation rental property, let’s dive into where exactly you should be investing.


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best vacation rental markets

Best Vacation Rental Markets 2020

The qualifications used to determine the best places to buy vacation rental property are, at the very least, subjective. If for nothing else, people choose to vacation in many different parts of the world for many different reasons. What one person may deem the perfect vacation rental, another may completely disregard. However, there are a few market factors that can help investors take a more objective approach in determining the best vacation rental markets. This includes looking at statistics on property price, average rental income, occupancy rates, and cash on cash returns.

According to a recent Mashvisor analysis, data released from Airbnb is also crucial in determining the potential success of a vacation rental market—as it remains one of the most popular platforms for short term rentals. All things considered, the following markets are predicted to be among the best vacation rental markets of 2020:

  1. Huntington, Vermont

  2. Tuscaloosa, Alabama

  3. Sevierville, Tennessee

  4. Buffalo, New York

  5. Gatlinburg, Tennessee

Huntington, Vermont

A small town in the mountains of Vermont may not be what investors first picture when looking for a vacation rental property, but the proof is in the numbers. Located south of Burlington, Huntington is known for its charming views and hiking spots. Many travelers venture to Huntington each year to see the fall leaves change colors, or to simply get outside. Check out the metrics that make this town so attractive to real estate investors:

  • Median Property Price: $155,745

  • Price/Square Foot: $79

  • Airbnb Rental Income: $1,995

  • Airbnb Occupancy Rate: 45.1%

  • Airbnb Cash On Cash Return: 8.3%

  • Airbnb Cap Rate: 8.3%

  • Traditional Rental Income: $1,024

  • Traditional Cash On cash Return: 3.2%

  • Traditional Cap Rate: 3.2%

Tuscaloosa, Alabama

Tuscaloosa is known to many for its athletics, in large part because of the University of Alabama. The university is responsible for bringing in a fair deal of visitors annually, but Tuscaloosa also has a lot to offer outside of football. The city has museums, unique restaurants, and historical sightseeing. According to a local study, tourism grew almost 10 percent in recent years. This bodes well for real estate investors hoping to find a profitable market for short term rentals. Check out the stats on Tuscaloosa to help decide for yourself if this is the right city for your next investment:

  • Median Property Price: $328,238

  • Price/Square Foot: $188

  • Airbnb Rental Income: $3665

  • Airbnb Occupancy Rate: 39.3%

  • Airbnb Cash On Cash Return: 7.7%

  • Airbnb Cap Rate: 7.7%

  • Traditional Rental Income: $915

  • Traditional Cash On cash Return: 0.6%

  • Traditional Cap Rate: 0.6%

Sevierville, Tennessee

The population of Sevierville is only around 16,000; but that is precociously the reason it draws so many tourists each year. Each year visitors flock to the area because of its proximity to the Great Smoky Mountains. Sevierville offers numerous outdoor activities for adventure seekers, including canoeing, horseback riding and more. Real estate investors interested in learning more about this Tennessee town should read into the following numbers:

  • Median Property Price: $385,527

  • Price/Square Foot: $180

  • Airbnb Rental Income: $3,521

  • Airbnb Occupancy Rate: 72.8%

  • Airbnb Cash On Cash Return: 7.7%

  • Airbnb Cap Rate: 7.7%

  • Traditional Rental Income: $1,300

  • Traditional Cash On cash Return: 1.4%

  • Traditional Cap Rate: 1.4%

Buffalo, New York

Buffalo is a common tourist destination thanks to Niagara Falls, which brings in over 15 million visitors annually. This city also boasts numerous restaurants, museums, and historical tourist attractions that keep tourists coming back for more. As the second largest city in New York, Buffalo is great for real estate investors hoping to maximize affordability and occupancy potential. With a wide array of waterfront properties to offer, this vacation rental hot spot boasts the following metrics for investors:

  • Median Property Price: $186,125

  • Price/Square Foot: $101

  • Airbnb Rental Income: $2,282

  • Airbnb Occupancy Rate: 58.7%

  • Airbnb Cash On Cash Return: 7.6%

  • Airbnb Cap Rate: 7.6%

  • Traditional Rental Income: $1,018

  • Traditional Cash On cash Return: 1.8%

  • Traditional Cap Rate: 1.8%

Gatlinburg, Tennessee

This is the second rental market located in Tennessee, and more specifically the Great Smoky Mountains. For investors unfamiliar with the southern states, Tennessee brings in more than 11 million tourists each year. Gatlinburg is most commonly known for its outdoor activities and country singer Dolly Parton’s theme park: Dollywood. The mountain views are great for visitors as well. Review these numbers before searching for your next vacation rental, and you may just find yourself looking at property in Gatlinburg:

  • Median Property Price: $393,935

  • Price/Square Foot: $204

  • Airbnb Rental Income: $3,800

  • Airbnb Occupancy Rate: 70.1%

  • Airbnb Cash On Cash Return: 7.5%

  • Airbnb Cap Rate: 7.5%

  • Traditional Rental Income: $1,642

  • Traditional Cash On Cash Return: 2%

  • Traditional Cap Rate: 2%

best places to buy vacation rental property

Impact Of COVID-19 On Vacation Rentals

Beginning in March, COVID-19 had a detrimental impact on the world, and the vacation rental market is no exception. Any form of travel came to a sudden halt, and almost all of the best places to buy vacation rental properties were either closed or had to implement severe restrictions. As these restrictions slowly began to lift across the world, vacationers rebooked their trips at an alarming rate. Many of the initial declines in the best vacation rental markets happened during March and April but soon began to boom again in May, June, and July. It is clear that once the pandemic ends, the most profitable vacation rental locations will rebound quickly in terms of rental rates and occupancy.

Travel in 2020 has changed as vacationers shift toward driving rather than flying to their locations. As a result, significant increases for vacation rental properties began in areas closer to suburbs and urban areas. The best places to buy a vacation rental property in 2020 have proven to be these close-by, drive-to destinations. Even after the pandemic, properties around 2-3 hours away from metropolitan areas will be popular among all travelers.

Best Vacation Rental Markets 2019

  1. Dubuque, Iowa

  2. Portsmouth, Virginia

  3. Bainbridge Island, Washington

Real estate markets are constantly changing, as are the metrics we use to evaluate them. However, with the help ofMashvisor and Rented.com, we identified the vacation rental markets with the most promise in 2019. Keep in mind these markets were chosen based on the previous year’s data, and any market should be thoroughly evaluated by the investor before choosing. That being said, the following three locations were among 2019’s top-performing vacation rental markets.

Dubuque, Iowa

Located along the Mississippi River, Dubuque is best known for its thriving port and close proximity to several institutions of higher education. Perhaps even more importantly, is the city’s central location to three states: Iowa, Illinois and Wisconsin. Bordering each of these states, Dubuque has become a popular destination for those looking to visit each area. Vacation rental property owners, on the other hand, like the area for several entirely different reasons:

  • Median Property Price: $138,600

  • Airbnb Rental Income: $3,050

  • Airbnb Cash On Cash Return: 10.2%

  • Airbnb Cap Rate: 10.2%

  • Airbnb Occupancy Rate: 45.8%

  • Traditional Rental Income: $1,100

  • Traditional Cash On Cash Return: 3.1%

  • Traditional Cap Rate: 3.1%

Portsmouth, Virginia

Located close to downtown Norfolk, Virginia Beach and Colonial Williamsburg, Portsmouth has become a central location for anyone looking to visit the best places Virginia has to offer. Not only that, but Portsmouth awards visitors with more than three centuries of historic neighborhoods, the famous Seawall, breathtaking views and some of the region’s best restaurants; it’s no wonder the city has become a popular vacation destination. Real estate investors, on the other hand, like Portsmouth for the following indicators:

  • Median Property Price: $189,600

  • Airbnb Rental Income: $2,750

  • Airbnb Cash On Cash Return: 9.6%

  • Airbnb Cap Rate: 9.6%

  • Airbnb Occupancy Rate: 63.0%

  • Traditional Rental Income: $1,190

  • Traditional Cash On Cash Return: 2.4%

  • Traditional Cap Rate: 2.4%

Bainbridge Island, Washington

Located across the Puget Sound from Seattle, Bainbridge Island has become a popular destination for travelers who enjoy both the business of large cities and the secluded outdoors. Consequently, Bainbridge Island is a short ferry ride to downtown Seattle, where visitors can take in everything the Emerald City has to offer, or they can relax on a secluded “beachfront” property. Meanwhile, vacation rental investors can enjoy the fundamentals of a popular city without having to live in the middle of a major metropolitan area. Here’s what investors can expect from rental properties of their own:

  • Median Property Price: $387,000

  • Airbnb Rental Income: $5,020

  • Airbnb Cash On Cash Return: 9.3%

  • Airbnb Cap Rate: 9.3%

  • Airbnb Occupancy Rate: 53.9%

  • Traditional Rental Income: $1,960

  • Traditional Cash On Cash Return: 2.3%

  • Traditional Cap Rate: 2.3%

Best Vacation Rental Markets 2018

  1. Memphis, Tennessee

  2. Panama City Beach, Florida

  3. Tulsa, Oklahoma

  4. Chicago, Illinois

  5. Napa, California

Best places to buy vacation rental property

Napa, California

Of the best places to buy vacation rental property, Napa, California may come as a bit of a surprise. High property price tags can be a barrier to entry for many investors, rendering the market inaccessible. However, the recent wildfires in California have created a shortage in supply, while the demand for tourism demand for Napa and its beautiful wineries stays strong year-round.

Chicago, Illinois

The “Windy City” represents a recent trend in the rising popularity of non-traditional vacation locales. Although the cost of homeownership in Chicago is relatively high, experts believe that the short-term vacation rental potential outweighs this factor. On average, properties in Chicago enjoy an 8 percent gross rental yield, a 62 percent occupancy rate, and an uptick in property value year-over-year.

Tulsa, Oklahoma

Tulsa, Oklahoma may not inspire images of vacation, but is quickly gaining recognition as one of the most “livable” cities in the U.S., such as by Forbes, Relocate America, and BusinessWeek. Vacation property owners are currently enjoying an average rental yield of 9.1 percent, while property values increased a significant 7.7 percent in just the past year.

Panama City Beach, Florida

Panama City Beach currently serves as the leader for the best beach investment properties of 2018. Bordering on the Gulf of Mexico, this Florida resort town features miles of white-sand beaches with clear, calm waters. As one of the most popular spring break destinations in the nation, Panama City Beach offers property owners, on average, a strong 13.5 percent rental yield, as well as an impressive 11.5 percent increase in property values in the last year.

Memphis, Tennessee

Out of the best places to buy vacation rental property in 2018, Memphis, Tennessee topped the list. With a low median home price of $125,000 and home values increasing at a pace of 10.9 percent annually, the “Home of the Blues” and “Birthplace of Rock ‘n’ Roll” proves to be an attractive marketplace for property investors. In Memphis, the average monthly rental rate for traditional passive income properties is $890, yet the average monthly rental revenue brought in by vacation rental properties is $2,080. Based on these figures, this tourist destination currently offers an average gross rental yield of 20 percent, setting itself apart from its contenders.

Summary

While a great vacation rental investment market does not guarantee success, the best places to buy vacation rental property continue to generate positive signals for investors. Those who understand the benefits of a vacation rental property should at the very least consider the factors mentioned above. A lot goes into determining a bustling real estate market, and while you may not find your perfect investment in one of the cities above perhaps the market factors open your eyes to a similarly positioned area.

Are you considering purchasing an investment property? Be sure to bookmark this page for an annual update on the best vacation rental property markets and tips.

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