Investing in vacation rentals has become a popular real estate trend in recent years. More and more travelers are choosing to stay in other people’s second homes to benefit from a cozy experience. When thinking about investing, vacation rentals give you the advantage of having a place to spend your vacations, while also renting out the property for the rest of the year to make extra income to cover the running costs – and even profit from it!
However, as anyone who has ever dealt with any form of real estate investing, you must know that location is of utmost importance for the success of your endeavor in this industry. When deciding where to invest in a vacation rental, you should remember that it cannot simply be your favorite spot for spending holidays. The location also has to be where both the demand for short-term rentals and rental income are high without breaking the bank to buy the property.
In order to help you decide where to buy a vacation rental home in 2022 and beyond, we have put together a list of the best places to own a short-term rental in the US at the moment.
What Do We Mean by the Best Places to Buy a Vacation Rental Home?
There are many ways to define the top locations to own a short-term vacation rental. Since the ultimate goal of any real estate investor is to generate revenue, here we focus on the most profitable places for buying and owning a vacation home in 2022. Using data fromMashvisor, an advanced real estate data analytics tool, we’ll highlight the US markets with the highest cap rates for short-term rentals.
For those of you who might be relatively new to the real estate investing world,cap rate – short for capitalization rate – is a real estate metric that is calculated by dividing the net operating income of a rental property by the current market value of the property. Although not the only indicator for vacation rental success, it is an important marker for which locations you should invest in.
Cap Rate Formula:
Cap Rate = Net Operating Income (NOI)/Current Market Value (CMV)
The cap rate is a relatively simple real estate profitability metric that allows investors to compare different housing markets and decide which offers the best opportunities to make money.
Vacation Rental CAP rates are on the rise
Vacation rentals took a pause in the midst of the pandemic, but as restrictions start to loosen and holidays return, short-term rentals are making their debut once again. The rising CAP rates clearly demonstrate this… Overall, it’s anticipated that CAP rates will rise to 6.5% by 2022, according to GlobeSt.com.
Now is the time to invest in a vacation rental. Coming out of the peak season, many investors find that the fall is the best time to buy up and invest in short-term rental real estate. With the CAP rates in your favor, you can expect a good return on your investment as soon as you make the big purchase.
What CAP rate is a good investment for vacation rentals?
If the CAP rate is considered a good metric for your investment, then what is the golden number? As with most things in vacation rental investments: it depends.
A higher CAP rate, typically speaking, projects for a better investment, but it could also mean that it’s riskier. “Good” depends on how you’d like to define it. Striking a balance between high investment and risk is what will really determine what a good CAP rate for your vacation rental is.
With that in mind, it’s advisable to hover between a 4-6% CAP rate. Low CAP rates around 1 to 2% could still be profitable, but they’re typically found in highly saturated areas like bigger cities with a well-established short-term rental market.
On the other hand, a high CAP rate could be a good investment, but it’s better suited for the gambler willing to take more of a risk.
Keep in mind too, that CAP rates can be very specific to neighborhoods, boroughs, and particular areas. Sometimes if you zoom too far out and look at an entire county or city, you’re not going to get an accurate representation of what the CAP rate in your specific locality would be.
Take New York City, for example. Manhattan’s CAP rate came in at 3.9%, while just a stone’s throw away in Queens, the CAP rate is 5.03%. Your best investment should consider all these factors as no two CAP rates are created equal.
Best vacation rental property markets for 2022
The market is always changing and last year’s hot locations are different from this year and the next. We’ve looked at the best places to invest in a vacation rental now and we’ve made it easy for you with this list of some locations with the best cap rate for short-term rentals, according to data from Mashvisor.
Median Home Price
Vacation Rental Occupancy Rate
Fresno County, CA
Fort Myers, FL
Lake Havasu, AZ
South Lake Tahoe, CA
1. Gatlinburg, TN
This quaint Tennessee town sits at the foothills of the Smoky Mountains. The national park brings in thousands of visitors each year. With each visitor comes a need for lodging, which is a perfect opportunity for investors in the Gatlinburg area. The clientele is a given and the audience is quite defined, as you can easily target those looking to visit the national park.
If you’re looking to start a cabin rental business, this might be your place. Gatlinburg benefits from OTA-friendly laws, so you won’t have to fight through bureaucracy to get your short-term rental up and running.
2. Kissimmee, FL
It’s no secret that Florida has been gaining some serious momentum as the pandemic started to recede. Florida has been seen as a rediscovered haven for all things vacation rentals, but travelers aren’t flocking to the typical Floridian cities. Most vacationers are heading a little out of the way to locations like Kissimmee.
Kissimmee vacation rental investments are easily one of the top choices in 2022. With a wide array of state travelers and Americans from all over trying to see what all the talk is about in Florida, you’ll never be short on bookings. Much like Gatlinburg, Kissimmee is extremely well located. This Floridian city is right outside of Orlando making it a popular destination for families and park-goers, but with much more affordable investment prices than properties immediately adjacent to the theme parks.
3. Fresno County, CA
Out on the other coast, Fresno County presents its own investment opportunities. Fresno is known for attracting a number of crowds. There’s a large university population which helps to keep your vacancy rates low with graduations, visiting parents, and the like. Fresno is also a convenient escape from San Francisco, so you’ll find it a marketable opportunity to attract city dwellers looking to step outside the urban zones.
As compared to coastal California, the housing prices are unbeatable. With its higher listing prices, California isn’t always in the spotlight for a good investment, but Fresno makes a clear exception. The vacation rental investment market isn’t quite as hard to break into in Fresno and also offers consistent bang for your buck.
4. Fort Myers, FL
Another Florida favorite is Fort Myers. Located on the west side of Florida, Fort Myers benefits from the marvelous weather without such an extreme hurricane season. Protection and insurance against hurricane damage can be pricey in such affected areas, but, luckily, Fort Myers is spared from some of the worst storms.
Right now, the real estate market on the Gulf Coast is hot. Supply can’t meet demand. Be ready for a higher sticker price if you’re planning to buy in Fort Myers now, but you can rest easy knowing that this is a long-term investment in your vacation rental and the Florida trend won’t stop anytime soon.
5. Breckenridge, CO
Not everyone is looking for sand and sun during their vacation and that’s where Breckenridge comes in. This town is a Colorado classic, as it has all the great things of a wintery escape like well-known ski spots, picturesque shops, and snowy scenery.
Breckenridge vacation rental investment is a great idea as the money earns itself. Travelers already know the area well, they’re just looking for accommodation to accompany their trip. Whether you buy a smaller log cabin or a large-scale vacation rental, Breckenridge is bound to get you many bookings.
6. Lake Havasu, AZ
You can’t go wrong with a desert destination. Lake Havasu is an upcoming market, making it both a safe investment and a smart one. Buying now while the housing prices are perfect, will help you to see higher profit margins once you start accepting guests.
Lake Havasu, like most of Arizona, holds a strong snowbird season. All those travelers looking to escape the fright of cold in the winter come to places like Lake Havasu. These are quality travelers as they typically stay longer and spend more. Lake Havasu allows you to tap into a profitable, passive market.
7. South Lake Tahoe, CA
Waterfront property can take all shapes and sizes, but one thing remains constant: their popularity. South Lake Tahoe is a hotspot for many tourists looking for a vacation by the water. The peak season is incredibly profitable here, especially if you manage to score a vacation rental investment property right on the water.
The area is so stunning that it practically sells itself. Beyond that, the property appreciation is excellent in this area, so if you intend to sell your vacation rental property down the road or turn it into your permanent residence, you’ll be set.
8. Raleigh-Durham, NC
Choosing between Raleigh or Durham for top vacation rental investments is much like choosing between beach or mountain holidays: impossible! Both cities have nearly identical real estate metrics, both falling into a solid investment range. The CAP rate is excellent for these two cities and without much of a barrier to entry as the property prices are rather reasonable in this area.
Many travelers realize all the positives that these two cities have to offer, which is reflected in the rising vacation rental occupancy rates. Beyond statistical proof, “The Triangle,” as the area is famously called, attracts many travelers to the three cities it’s comprised of, but due to its small distance between each city, vacationers can take a pick at any one of these cities while visiting all that Raleigh, Durham or Chapel Hill.
9. Baltimore, MD
Just a step outside of the nation’s capital, you’ll find Baltimore, Maryland. This metropolitan area has been gaining a lot of attention in recent years as the city continues to improve its liveability and attraction towards tourists.
Washington D.C. is a guaranteed hotspot for bookings, but the housing prices can be quite steep inside the city limits. Baltimore, Maryland is close enough to where vacation rental owners would benefit from getting D.C. tourists without such a steep price tag.
10. Cincinnati, OH
This midwest city is on the rise. With a population boom and a healthy housing market, vacation rentals are gaining popularity in this area. This city is up-and-coming for investors looking to start a short-term rental business. The entry cost is much lower, with still reasonable housing prices, but the numbers for bookings, occupancy rates, and average daily rate are looking great for Cincinnati.
Over to you
Promising some of the highest return on investment nationwide, these 10 destinations are currently some of the best places in the US to buy a vacation rental.
However, before you decide to become a vacation home investor in any of them, make sure to check the local short-term rental legislation to assure that vacation rentals are legal and to familiarize yourself with the taxes and fees that you will need to pay.
Once you have all legislation issues covered, you can embark on the exciting and profitable journey of investing in real estate and starting your vacation rental business!
Buying the vacation rental is only the beginning of the adventure that lies ahead. Owning a short-term rental is a great investment, but it doesn’t end once you sign the deed. Any good vacation rental business needs property management software.
Manage your bookings, connect with major OTAs like Airbnb and Vrbo, and run your own website from one convenient place. The first step is to buy the property and the immediate second is to implement Lodgify’s state-of-the-art vacation rental software.
Daniela Andreevska is Content Marketing Director at Mashvisor, a real estate analytics tool which helps real estate investors quickly find traditional and Airbnb investment properties. A research process that’s usually three months now can take 15 minutes.
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