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Best Places To Invest In Vacation Rental Property

Bryson City North Carolina

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Small-town charm meets laidback mountain vibes in Bryson City, a place that still feels a bit undiscovered. This North Carolina neighbor to the Great Smoky Mountains is a quieter alternative to Sevierville and other Eastern Tennessee hotspots that border the tourist-heavy national park.

With a population of just 1,300, Bryson City has an arts-centric, walkable downtown with local bookstores, murals, galleries, and breweries. The Tuckasegee River also cuts through downtown, and is a spot to kayak, paddleboard, or fly fish.

The average listing price for homes in Bryson City sits right around $195,000, making it an ideal consideration for new vacation rental investors. Plus, our RES team says smaller cabins have the potential to perform well here, which means homebuyers can turn a hideaway cabin into a short-term rental gem.

If inventory is limited in Bryson City, our RES team also recommends checking out nearby Maggie Valley, a special spot where the Smoky and Blue Ridge Mountains meet.

Is Buying A Vacation Rental Property A Good Investment

In general, property investment brings a number of advantages:

1) Generate Passive Income: Owning a property allows you to rent it out, long-term or short-term, and generate passive cash flows from the asset for your troubles. However, as the owner, you are responsible for maintaining the property, paying obligations like mortgage payments and property taxes, and ensuring it stays occupied.

2) Capital Appreciation: The price of any property can vary with larger macro factors such as economic growth, inflation, housing supply and demand and interest rates, and at a local level due to location-specific factors. Overall, its fair to say house prices in general tend to rise over the long-term, although there are frequent slumps in the housing market which can cause large drops in prices. Owning an asset that mostly appreciates in value over the long-term is an obvious plus.

Figure 1: All-Transactions House Price Index for the United States over the last 40+ years

3) Tax Advantages: Theres a huge variety of tax benefits to be gained when investing in a property. These can include a wide variety of deductions, the ability to write off the depreciation of the property value and other capital investments, pass-through deductions on rental income, paying capital gains rather than income tax on appreciation gains when selling a property, and the option to invest tax-free or tax-deferred when using schemes like 1031 exchanges.

Understand The Rhythm Of Vacation Rentals

Earlier, we touched on the ebbs and flows of demand, which deserves an even closer look. Vacation properties are much different than traditional rentals: the income generated is often dependent on the season. A house near the water will attract more interest in the summer. A house near a ski resort will thrive during the winter months. You need to know what you can expect during both the peak seasons and off months. You also need to have an idea of what the overall monthly expenses will be. You need to factor in that you will have to furnish the property and clean it every few weeks. The homeowners insurance may be increased, and there will be flood insurance if the house is near water. If you plan on buying the property, you will need at least a 25 percent down payment, and you can expect a higher interest rate.

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Variety Of Amazing Amenities & Services

Tourism has long been one of the states top industries, and the infrastructure and services are designed to accommodate vacationers and part-time residents. For instance, utilities and other services offer packages for part-time residents, and there are many property management companies that maintain, secure and market vacation properties.

Choosing The Best Market In Which To Buy An Airbnb Property/vacation Rental

Best Places to Buy a Vacation Home

So in order to find the best Airbnb or Vacation Rental property to buy, we need to calculate some Cap Rates at a the market level.

As described above, you need the following components to calculate the Cap Rate of a property:

1) Annual Rental Income The estimate of how much short-term rental income a property can generate on an annual basis.

2) Annual Expenses All the expenses involved in maintaining the property and offering it as a short-term rental property.

3) Property Value How much you will need to pay to buy the property

To get started on picking a market to invest in, we calculated cap rates for every town and city in the United States with at least 50 active short-term rentals in it.

For annual rental income , we used the median annual revenue per available listing from our database. For annual expenses , we assume a flat percentage of annual rental income of 30% would cover all expenses, and for property value we used the Zillow Home Value Index , which gives the median house price in each area.

Then we calculated our cap rates heres the top 10 cities in the United States for vacation rental real estate.

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Why You Should Invest In Vacation Rental Property During Covid

Purchasing a vacation home can prove to be a wise investment during a recession, even a pandemic such as Covid-19. The novel coronavirus will change how people travel for years to come. If you are a homebuyer trying to get ahead of the curve, investing in a vacation home could prove to be a smart option. One of the untapped gems of southern Oklahoma is a development of luxury cabins called Pine Lake in Broken Bow.

Covid-19 has changed travel. Has your investment strategy adapted to that yet?

Pine Lake is only a few hours from several major metropolitan cities throughout TX, OK, AR, LA.

Even in a pandemic, families still vacation. More and more families are choosing road trips as a safer alternative to flying. Having a vacation property in close proximity to the Dallas-Ft. Worth metroplex, Oklahoma City, Tulsa, Shreveport and Little Rock means there are plenty of vacationers to rent your cabin. Pine Lake is close enough that you can easily take advantage of your second home when you desire, and earn passive income the rest of the time. Pine Lake takes care of the cleaning, marketing, maintenance, and booking of its cabins. You can be as involved or as hands off as you want to be.

A Well-Established Vacation Hotspot:

Looking Ahead, When Covid-19 is in the Review Mirror:

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 its riskier. Good depends on how youd 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, its advisable to hover between a 4-6% CAP rate. Low CAP rates around 1 to 2% could still be profitable, but theyre 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 its 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, youre not going to get an accurate representation of what the CAP rate in your specific locality would be.

Take New York City, for example. Manhattans CAP rate came in at 3.9%, while just a stones 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.

Also Check: Best Website To Rent A House For Vacation

The Importance Of Cash Flow

If you are indeed using mortgage financing to buy a property, this leverage allows you to amplify your returns. In our above example, you could buy the property in cash for $300,000 and achieve a rate of return equal to the Cap Rate of 10%.

Alternatively, you could finance your purchase with a mortgage and only pay upfront 20% of the property value . You will then be earning the CoC Return of 33.3%, being sure to include your mortgage payments in your operating expenses.

Its clear the main advantage of mortgage financing is that with a smaller initial investment, you can secure much higher rates of annual returns on the same property.

The downside with using mortgage financing for a short-term rental investment is that you will then have the risk of foreclosure if you dont keep up with your mortgage payments. This can happen for a number of reasons, but the most obvious would be if your average occupancy rate was lower than you expected and your property didnt generate the rental income needed for you to be able to meet your mortgage repayment obligations.

Thats where cash flow comes in. Your monthly rental income minus your monthly expenses is the cash that is generated each month to help you pay these obligations. Choosing a property with enough positive cash flow is crucial.

Lake Havasu City Arizona

Invest In Vacation Rentals in Arizona (Top 4 Locations)

Another great place to buy a vacation rental is Arizonas very own Lake Havasu City. The area has many beautiful attractions, such as the famed London Bridge draws both historians and explorers. You can expect a constant stream of visitors, thanks to its goldmine of water-based and hiking activities. Its the perfect oasis for anyone looking for a weekend getaway or a couple of weeks to recharge.

Moreso, because its in Arizona, property owners enjoy relatively lax regulations regarding fees and taxes on short-term rentals.

Estimated cap rate = 9%

Also Check: Jz Vacation Rentals St Louis

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, its 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.

You Make Extra Income

The biggest perk of owning a vacation property is simple: You make money. Airbnb hosts alone earn upwards of $900 per month on average, while hosts in the most in-demand cities can make four times that or more. And thats only on one platform. Dozens of other vacation rental sites exist, opening the door to even more earnings if you play your cards right.

Here are some of the best vacation rental platforms you might want to consider listing on:

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Is Airbnb Legal In The Tennessee Real Estate Market

The elephant in the room whenever discussing short-term rentals and vacation homes is their legality. So, is Airbnb legal in Tennessee? Recently, legislation was passed which limits the ability of local cities to ban the use of Airbnb investment properties and non-owner occupied rental properties. In other words, Tennessee cities are the primary influencers of local Airbnb regulations. Fortunately, the majority of cities do not criminalize Tennessee vacation home rentals. However, it is ultimately up to the real estate investor to understand the Airbnb regulations of an investmentâs location. Rest assured though, that the cities to be mentioned in this blog do not criminalize Airbnb and non-owner occupied rental properties. Speaking of which, what are the best cities to invest in Airbnb in Tennessee? According to Mashvisor, the 4 best cities for Tennessee vacation home rentals are Red Bank, Pegram, Tallassee, and Nashville.

  • Price Per Square Foot: $136
  • Airbnb Rental Income: $2,658
  • Airbnb Cap Rate / Cash on Cash Return: 10.4%

Airbnb Investment: The Guide To Buying A Vacation Rental Property

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With the rise of the short-term rental industry, buying a property for the purpose of putting it on the vacation rental market is an increasingly appealing option to a variety of investors. Airbnb real estate investing can be a lot of fun, but is not without its challenges.

Here at AllTheRooms, we talk to people looking to invest in an Airbnb property every day. Were constantly listening to their feedback and working on new tools and features to help them find the right vacation rental market and a profitable Airbnb rental property.

When buying a short-term rental investment property, people tend to fall into one of two groups:

Group 1: Investors Who Know What Market They Want To Invest In The vast majority of investors we talk to already know where they want to buy a vacation rental and they just need to work out which property to buy. These investors typically buy an Airbnb property in a market in which they want to own a vacation home for their own use either now or in the future, or in a market they feel they know well.

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Whats Not So Great About Vacation Rental Investments

Its not good news across the board. As with any investment property, there are costs, hurdles, and drawbacks when it comes to buying and operating a vacation rental. They deserve equal consideration, too — especially if you want a healthy bottom line after diving in.

Here are a few disadvantages to consider:

Investing In Vacation Rental Cabins Builds Wealth And Peace Of Mind

The Loft Blog Team is doing a series of investment newsletters. Our first topic is vacation rental cabins. Be sure to share what you think in the . This type of investment shows great returns. Some cabins rent out for up to $1,500 per day or more, and are within 1-2 hours of driving distance from L.A. or closer.

Rental property of any kind are often some of the best investment, but investing in a cabin rental has a particular appeal. As of 2019, 82% of the North American population lived in cities. The urban population is enormous and continues to rapidly grow every year. The growing popularity of nature retreats makes a cabin rental investment an enticing endeavor.

The biggest perk of owning a vacation cabin is simple: You make money. Dozens of other vacation rental sites exist, opening the door to even more earnings if you play your cards right. Having a vacation rental means you get to vacation there, too. Use the property for your friends bachelor party, host a girls weekend, take your kids for a summer vacation, or host the annual family reunion. Quick tip, just like you want to buy your home where you want to live, make sure you buy your vacation rental cabin where you want to visit more than once.

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The 15 Best Places To Buy Vacation Rental Property In Europe

In the past few years, short-term rentals have taken off worldwide, with both traditional resort markets and urban areas becoming hot spots for investment. While we’ve traditionally focused on the best places to buy a vacation rental property in the U.S., if you want to buy vacation rental property in Europe to expand an existing rental portfolio or kick off a short-term rental business, its important to understand that multiple factors come into play when choosing the right property.

Best Florida Cities For Investing In Vacation Properties

Top 10 Best Countries To Buy A Vacation Home for Retirement or Investment

So youre ready to buy vacation rental property in Florida, but youre undecided about where to find the perfect property. And who can blame you? The Sunshine State is home to plenty of beautiful cities that attract vacationers throughout the year. According to Forbes, 6.6 million people booked a short-term vacation home via Airbnb in 2019, with hosts generating total revenue of $1.2 billion. To get the best ROI on your property, its essential to remember that short- and long-term renters alike crave unique experiences combined with incredible locations. While there are undoubtedly many good options, these four cities are at the top of our list.

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Take The Next Step With Evolve

Investing in a vacation rental property is a personal decision, but you dont have to navigate your options alone. Whether youre drawn to one of our tried-and-true hotspots or enticed by the untapped potential of an up-and-comer, our Real Estate Services team can help you take the next step.

We have the data to help identify your investment opportunities and financial goals, preferred local real estate agents who specialize in vacation rental purchases, and a team of experts available to manage your property once youve closed on your vacation home and are ready to jumpstart your business.

Best Places To Own Rental Property: Large Markets

Although the markets in this final category have over 1,000 active vacation rentals, itd be unfair to call them large cities. No Boston, no Chicago, no Seattle — these markets are still a ways from any urban metropolis.Many of these top destinations have been on the vacation rental investment radar for quite some time. Even in the face of the 2020 pandemic, theyre proving to be dependable refuges for travel-hungry Americans.

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