Best Places To Buy Vacation Rental Investment Property This Year

Key Takeaways

  • Buying a vacation rental property is a great move if you mind due diligence and buy a great property in an even better location.
  • With vacation rental demand where it’s at in today’s investor landscape, where you buy a vacation investment property is just as important as the home itself.
  • The prospect of a great vacation rental investment is so enticing in today’s market that every investor should at least consider the idea for himself or herself.

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 can be a great place to start. Together, with an array of tax deductions, earning equity in a property while someone else pays off the mortgage sounds promising to the average investor. And it should, as the trend of buying vacation rentals is beginning to heat up across the nation, but I digress.  You can’t simply buy a vacation rental property and hope it produces returns; there are a number of things you must consider beforehand, not the least of which includes a great location.

Where 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. You see, primary cities have proven so lucrative for vacation rental investments that opportunities have lessened as their popularity grows. That means it’s time for investors to consider alternative cities, or those that aren’t as popular to invest in, but nonetheless share a similar earnings potential.

According to 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.”

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 vacation rental investment property, then it is worthwhile to consider one of the top vacation rental markets or investing 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, and plan for potential market swings, are best prepared to build equity over time.
  • Expenses: Expenses can range anywhere from routine incidentals such as the mortgage, fees, 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 overproject 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 business.
  • Risk: Owning even the most lucrative, best beach investment properties can be subject to risk, 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 ahead 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, first and foremost, 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 to factor in, but on the other hand, they will execute a variety of tasks on your behalf that can make your life much easier. This can range from handling tenant turnover, overseeing cleaning and maintenance services and marketing your listing. In addition, 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 other type of entity, as well as having a lawyer create clear contracts.

[ It pays to know your numbers! Download this FREE Cashflow & ROI Calculator for rental property investments ]


Vacation rental property

Look Here For Your Next Vacation Rental Investment Property

  1. Memphis, Tennessee
  2. Panama City Beach, Florida
  3. Tulsa, Oklahoma
  4. Chicago, Illinois
  5. Napa, California

In a recent report, Rented.com cited the best places to buy vacation rental property in the nation. The list reveals a continued trend of locales that are not considered vacation destinations traditionally, which is perhaps an impact of the popularity of business and leisure in some urban centers such as Chicago and Memphis. The list of best places to buy vacation rental property included some surprises as well. The following ranking of “The 5 Hottest Vacation Rental Property Markets in 2018” below was calculated using the following indicators: median home price, average monthly revenue, annual gross rental yield, year-over-year property value appreciation, average monthly occupancy rates. Data regarding median home prices and property value appreciation were pulled from Trulia.com and Zillow.com. Vacation rental revenue and occupancy rate data were sourced from Airdna.co, which aggregates data from all actively listed Airbnb vacation rental properties. Note that it is important for investors to mind their due diligence and research different markets before they list a vacation rental on Airbnb. The rules and regulations of Airbnb are different in ever city and sometimes, renting on Airbnb can be volatile due to the fact that some cities are outlawing the practice

Feel free to explore the guide below on the best vacation rental markets of 2018:

Best places to buy vacation rental property

More About The Best Vacation Rental Markets

With rental prices near all-time highs, it stands to reason that vacation homes could benefit investors savvy enough to break into the industry sooner rather than later. If for nothing else, the higher rents we are seeing across the country will very easily translate in the the vacation rental market. What’s more, the economy continues to strengthen in lieu of job growth and confidence in the marketplace. That means we could expect more people to look towards vacation rentals for their next vacation.

Vacation rentals are expected to fly off the market in record numbers. Investors looking to gain an edge should consider the following alternative cities, which are forecast to see strong home value gains and good rental income potential in coming years:

5. Napa, California

Vacation investment property

Median Home Price: $608,500/Average Monthly Revenue: $3,510

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 as inaccessible. However, the recent wildfires in California has created a shortage in supply, while the demand for tourism demand for Napa and its beautiful wineries stays strong year-round.

4. Chicago, Illinois

Best place to buy a vacation rental

Median Home Price: $305,800/Average Monthly Revenue: $2,050

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.

3. Tulsa, Oklahoma

Best vacation rental markets

Median Home Price: $163,740/Average Monthly Revenue: $1,248

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.

2. Panama City Beach, Florida

Best beach investment properties

Median Home Price: $237,000/Average Monthly Revenue: $2,660

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 stront 13.5 percent rental yield, as well as an impressive 11.5 percent increase in property values in the last year.

1. Memphis, Tennessee

Best place to own a vacation rental

Median Home Price: $125,000/Average Monthly Revenue: $2,080

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.

While a great vacation rental investment property won’t pop up everyday, the best places to buy vacation rental property continue to generate positive signs for investors. If you are able to break into the industry sooner rather than later, buying a vacation rental property could pay huge dividends. Be sure to check back annually for an update on the latest and best vacation rental property markets and tips. Are you considering purchasing an investment property? 

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