Why You Should Get Involved in Vacation Rental Investing
Vacation rentals are a type of short-term rental properties which have the added benefit of acting as your second home. They can make for very profitable investments for the following reasons:
Easy entry into real estate investing
Becoming a full-time investor requires time and effort. It isn’t a career choice for just anyone.
Investing in the vacation rental market offers the option of being a part-time property investor without the stress of being a landlord.
Renting out your investment property (as a vacation rental) will bring you a steady flow of rental income. Make sure to choose a top tourist destination with high demand and relatively low supply.
During peak seasons, your rental income can skyrocket due to the heightened occupancy rates. Peak seasons allow you to charge higher nightly rates. Overtime, you will earn back the initial vacation rental investment.
A vacation home is a real estate property, which means that its value is likely to go up over time.
In the short-term, you can enjoy the investment’s rental income. Also in the long-term are the financial benefits of appreciation. If you decide to sell in the future, you are likely to profit from your original investment.
When filing taxes, vacation rental investors should ensure that they are compensated for time and investments in their vacation rental property. For example, if there is a deduction for the number of days they occupy a property per year.
Rental investors should make sure that when they file their business taxes that they don’t leave money on the table.
It is possible to earn passive income using vacation rental properties. With the recent surge in professional property management services, you can work your full-time job – or rest on the beach – while running a vacation rental business.
Are you ready for a successful vacation rental investment? Let’s talk about the best U.S. market to invest in.
How to Determine the Best Location for Vacation Rental Investing
The vacation rental investing business has become competitive in recent years. It is not enough to look for hot tourist locations to succeed. You have to rely on solid data when deciding where to buy a short-term rental property.
Here we define the best rental markets for vacation homes as the locations across the U.S. which will bring you the highest return on investment.
Return on investment is measured by the capitalization rate, which is a real estate metric calculated by dividing the net operating income (NOI) of your rental property by its current market value (CMV).
Cap Rate Formula:
Cap Rate = Net Operating Income (NOI)/Current Market Value (CMV)
Data from Mashvisor, an advanced real estate data analytics tool, informs the 8 markets with the highest cap rates in 2018 for short-term rentals.
The Best U.S. Vacation Rental Locations in 2018
1. Key West, FL | Cap Rate: 7.6%
As an island city in Florida, Key West has much to offer to its tourists. From the beautiful beaches and water activities to historical museums, it comes as no surprise that this is one of the most profitable locations in the U.S. to invest.
Keep in mind, the average Key West property price is $1,065,400.
2. Joshua Tree, CA | Cap Rate: 6.7%
The Joshua Tree National Park is home to two distinct desert ecosystems: the Mojave and Colorado. The rock formations and desert landscapes along with the twisted Joshua trees promise to give visitors a unique experience. No wonder that Joshua Tree has been gaining popularity with tourists in recent years.
An average Joshua Tree real estate property sells for $281,300 at the moment. This is an added benefit for new vacation rental investors. Joshua Tree offers affordable real estate.
3. Nashville, TN | Cap Rate: 5.4%
Travelers are guaranteed to have a once-in-a-lifetime experience in Nashville. Music lovers can visit the Grand Ole Opry or the Country Music Hall of Fame. Fans of Greek history and culture will enjoy the full-size replica of Athen’s Parthenon.
Why not invest in such a well-known location?
4. Palm Springs, CA | Cap Rate: 4.2%
With gorgeous weather, hot springs, and spas, Palm Springs is a great location for vacation rental investing.
Travelers also visit Palm Springs for their events, such as the Palm Springs International Film Festival, Modernism Week, Coachella, and Stagecoach Music Festivals.
5. Gulf Shores, AL | Cap Rate: 4.2%
Gulf Shores is famous for its white sand beaches, trails, pier, and Coast Zoo. It is the ideal combination for a fun and relaxing vacation under the Alabama sun. A great location for vacation rental investing.
6. Delray Beach, FL | Cap Rate: 3.4%
Delray Beach is a diverse, vibrant coastal town in South Florida with shores on the Atlantic Ocean.
A few years ago Delray Beach was named Most Fun Small Town in America by Rand McNally and USA Today. This sounds like one of the best vacation rental markets, right?
7. Virginia Beach, VA | Cap Rate: 3.2%
With its oceanfront, culinary scene, rich history, arts, and other family attractions, Virginia Beach attracts tourists year-long. Vacation rental investments in this coastal town will enjoy high occupancy rates throughout the year.
8. Savannah, GA | Cap Rate: 3.2%
If you like historic districts and cobblestoned parks, Savannah is the right place for vacation rental investing. In 2016 alone, Savannah had 13.9 million visitors. For the year, $962 million was spent on lodging in Savannah. Not bad for rental owners in the area!
Are you ready to invest?
Whether you’re starting your rental investment for the first time or looking to expand your properties, choosing the best location is essential for success.
To help you with your decision, we presented you with some of the top tourist destinations across the U.S. which also benefit from the highest return on investment for short-term rentals.
You can start your vacation rental property search with confidence in these top locations.
Guest Post by Daniela Andreevska | Edited by Kristen Martinelli
Daniela is the 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 3 months now can take 15 minutes. Mashvisor provides all the real estate information in easy to understand visualizations.