USA's 10 Best Places to Buy A Vacation Rental Property in 2023
In recent years, investing in vacation rentals has become a popular real estate trend. The short-term rental industry's annual revenue in the U.S. is expected to reach $20 billion by 2025 as more and more travelers choose to stay in vacation homes instead of hotels. Therefore, many investors are considering buying a vacation home to rent out for profit.
If you want to start or scale your business, it's important to research the best short-term rental markets in advance because the property's location is key to its success. It should be where both the demand for short-term rentals and rental income are high without breaking the bank to buy the property.
What do we mean by the best places to buy vacation rental property?
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 2023.
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 of success, it is an important marker for the best vacation rental markets.
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
As the world’s travel industry opens up again, the demand for short-term rentals from investors and guests is increasing. The rising cap rates clearly demonstrate this. Overall, cap rates are anticipated to rise to 7% in 2023, according to GlobeSt.com.
Now is the time to invest in a vacation rental. Coming out of the peak season, many investors find that 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?
What is the golden number if the cap rate is considered a good metric for your investment? As with most things in vacation rental investments, it depends.
A higher cap rate, typically speaking, projects 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 5-10% cap rate. Low cap rates of 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.
Also, 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 the cap rate in your specific locality.
The market is constantly changing, and last year’s top vacation rental markets differ from this year’s. We’ve looked at the best places to invest in vacation rentals, which we’ve made easy for you to consider with this list of locations with ideal cap rates, affordable median home prices, and high vacation rental occupancy rates.
MarketCap RateMedian Home Price Vacation Rental Occupancy Gatlinburg, TN 9.2% $301,725 74%
Windham, NY 9.2% $290,295 40%
Savannah, GA 9.0% $278,598 69%
Harpers Ferry, WV 7.88% $399,075 63%
Bryson City, NC 7.8% $246,333 63%
Bar Harbor, ME 7.28% $493,800 90%
Penn Yan, NY 7.22% $260,920 67%
The Poconos, PA 6.7% $271,985 72%
Branson, MO 5.8% $237,371 54%
Granbury, TX 5.0% $394,776 55%
While there are lots of reasons to purchase a vacation rental, if ROI is your number one goal, be sure to ask your vacation rental management company for cap rates and real estate trends to ensure you make the best possible decision!