The best place to buy vacation rental property are not always the ones that you might expect, so let’s talk about it.
Table of Contents
- Should You Invest in Vacation Rental Properties by 2023?
- Why Should You Invest in a Vacation Rental?
- Choosing the Best Place to Buy a Vacation Rental
- Top 8 Cities for Investing in Vacation Rentals Before 2023
In recent years, there has been a massive increase in the number of people who own a secondary residence. Most of these new secondary residence owners bought their properties during the COVID-19 lockdown and temporarily moved to live in them.
Now, as they’re returning to their primary residences, the owners of these properties have been using them as vacation rentals to make extra profit.
Today, we will talk about vacation rentals, the best places to invest in a vacation rental in 2022, and how Mashvisor is helping thousands of investors make a profit.
Should You Invest in Vacation Rental Properties by 2023?
With the market trends that came to be during the peak of the COVID-19 pandemic, vacation rentals have become one of the most popular types of investment among beginner investors. During the past few years, there has been a surge in secondary homeowners in the suburbs.
When the time came for normal life to resume and for these secondary homeowners to return to their primary homes in the cities, their new properties presented them with profitable opportunities.
The trend continues to this day, despite the inventory shortage that has been the prominent characteristic of the market in the past few years.
But if you’re interested and wondering if you can still join in on this excellent type of investment before 2023, we’re here to answer your questions.
So, let’s delve into all the details that will help you make your decision and see the best places to buy vacation rental property in 2022 to start making a profit in 2023.
Learn More: How to Buy a Vacation Rental in 7 Easy Steps
But First – 2023 Real Estate Market Predictions
Before talking about vacation rentals and why you should invest in one before 2023, let’s first talk about a few concerns that most people have about 2023.
Due to the real estate market trends of inventory shortages, increased demand, and inflated prices, many people fear the market may crash in 2023. However, recent trends in the first half of 2022 indicate that the market isn’t going to crash in 2023 or anytime soon. In fact, the market is already showing signs of recovery, although it is slow.
But it is expected that by 2023, the inventory will have started to recover. Price growth will continue to slow down in 2023 at a somewhat similar rate as in 2022.
So, if you’re hesitating out of fear that the market will crash in 2023, it will help you to know that most experts and recent 2023 forecasts do not predict a crash.
Why Should You Invest in a Vacation Rental?
Vacation rentals are a type of short-term rental property. While vacation rentals were rare and were limited to niche markets in the past, they’ve risen in popularity during the past decade.
Unlike traditional rentals, the income generated by short-term rental properties can change depending on the season.
So, to understand why short-term rentals, and vacation rentals, in particular, appeal to investors, let’s look at the main differences between them and traditional rentals.
Vacation Rentals vs. Traditional Rentals
The main difference between the two types of rental properties is the duration for which the property gets rented out to the same guest or tenant.
Traditional rentals refer to long-term rental properties, meaning guests usually rent them out for several months or years at a time. Vacation rentals, on the other hand, accommodate guests for a few days or up to two weeks.
While long-term rentals provide stability and require very little management from the investor, short-term rentals offer superior benefits for investing. Since you’re renting out for a short term, it allows you to constantly adjust your rental rates according to seasonality and the market’s demands.
Although rental rate adjustments require effort on the part of the investor, adjusting rates allow them to maximize their profits. They can do so by either raising their rent as the demand increases or lowering it as the demand goes down.
Additionally, one of the biggest advantages of vacation rentals is that you can use them as your secondary or vacation home when they’re not being rented out.
This brings us to the second point below, which is tightly related to vacation rentals in particular.
Rent Out Fully vs. Partially
In theory, short-term rentals can be rented out for the entire year if there is enough demand and not much competition in the market. In practice, however, there are limitations that you need to consider.
Mainly, you will want to look into the laws and regulations that might affect short-term rentals in the market that you want to invest in.
Florida, for example, is a very popular market when it comes to vacation rentals because the laws there are not very restrictive. Other cities or states, however, may have regulations that make it extremely challenging to operate a vacation rental.
Such regulations will typically limit the number of days during a year that a property can be rented out as a vacation rental. In some places, the owner of the property is even required to live in the property for a specific amount of time during a year in order to be able to rent it out for a limited time.
While the restrictions represent one of the biggest challenges of investing in short-term rentals, it does not benefit beginner investors who might not want to rent out an entire property.
Instead, beginner investors in recent years have been buying vacation rentals and using them as their primary residence while renting out a part of the property to short-term guests.
What’s Unique About Vacation Rentals?
Vacation rentals are short-term rental properties that are considered secondary residences for the owner. It means that vacation rentals need to qualify as a secondary residence where the owner of the property resides for a number of days in a year.
Other than that, vacation rentals are just like any other short-term rental in that the owner can rent them out on a daily or weekly basis. It can be done using platforms such as Airbnb in order to generate an extra income or cover the running costs of the property for the remainder of the year.
Additionally, despite the ongoing pandemic, vacation rentals remain very popular among people who were looking for a secondary residence to spend their time at during the lockdown. It played a major role in the COVID-19 real estate market trends seen in the US housing market in the past couple of years.
We saw the demand for secondary homes, especially in suburban areas, rise through the roof. It led to supply shortages and inflated prices that continue to this day.
So, if you’re looking to join in on the trend of buying a secondary residence in one of the best vacation rental markets before 2023 in the US, consider buying a vacation rental. It will help generate an extra income stream and help build up your financial future.
Choosing the Best Place to Buy a Vacation Rental
When you decide to buy a vacation rental property, and you’re looking for the best place to buy vacation rental property before 2023, there are a number of things that you need to consider, such as:
- The appeal of the location
- The amount of money it will generate
The appeal of the location depends on a number of factors, depending on your personal taste and how you want to use the property. But while it’s tempting to choose a property based on its appeal or its location, it’s important to keep in mind that your goal is to make a profit.
So, while locations with a high appeal will attract a lot of tourists and vacationists, they’re not always the most profitable when looking at market data. It is why you will need to take both sides into consideration and reach a conclusion about the future of your investment and the vacation property you’re buying.
Choosing Based on Location Appeal and Tourism
When it comes to choosing the best place to buy a vacation rental based on the location’s appeal, there are two things to consider.
Firstly, you need to keep in mind that it is a property that you may want to use as a vacation retreat occasionally. So, it’s important that it is a property that you like and enjoy spending time at and that the location is somewhere that you like going to.
Secondly, you also need to remind yourself that it isn’t just a secondary residence. While it’s important that you enjoy the location, it’s also important that it’s a profitable location in order to run a vacation rental there.
Thirdly, taking both of the above aspects into consideration, you need to find a balance between what you enjoy and what actually makes sense financially. If you think you’re going to be spending a lot of time on the property, maybe you should prioritize a location that you enjoy over another location that promises a better return on investment but that you enjoy less.
Choosing a location based on its appeal is a matter of personal preference and is a decision that people can make on their own after researching different locations; assessing a particular location based on its performance for short-term rentals is a whole different deal.
Finding the Best Place to Buy a Vacation Rental Property Using Data
If you’re looking for the best place to buy a vacation rental property before 2023, you will want to use a long-term return on investment metric to analyze your investment.
While vacation rentals aren’t strictly investment properties, to maximize your potential income, you need to analyze them like any other rental investment property.
While the appeal of the location depends on personal taste and other uncontrollable factors, market data is something that you can use to calculate your chances of success. By using data and analytics, you can make assumptions about each market that you’re exploring to see how much money can be made there.
So, let’s take a look at one of the most commonly used metrics in real estate that you will be using to analyze rental markets and ultimately find the best place to buy a vacation rental.
Using the Cap Rate Metric to Find Investment Properties
Rental properties are long-term investments with a net operating income and running costs. It is important to know what to expect before committing to buying the property.
You will want to use data and run the math to determine whether you will be making money or losing it. It usually means using metrics such as cap rate or CoC (cash on cash return) to see how much income the property will generate in relation to the money you’re investing in it.
In this guide to the best place to buy vacation rental property in 2022, we will be using the capitalization rate or cap rate. Cap rate is the calculated return on investment based on the net operating income divided by the property’s market value:
Cap Rate = Net Operating Income / Property’s Value
Using the cap rate metric, we can project each property’s return on investment to see how it will perform in the future.
Additionally, after gathering enough market data, you can analyze the market to see its average performance. You can then compare the properties with the average to see which ones are the best to invest in.
However, it seems like a lot of work, especially considering how hard it is to get your hands on reliable and up-to-date real estate data and property listings. You may need to browse through several lists of the best vacation rental markets to invest in before finding one that best suit your preferences and requirements.
For this reason, homebuyers and investors usually use online tools and platforms, as well as hire real estate agents, to help them find good investments.
Using Mashvisor to Find the Best Vacation Rental Markets
Mashvisor is a real estate platform that was designed to help real estate investors and homebuyers find the most suitable investment properties anywhere in the US.
The platform offers a number of excellent tools to help you search through different markets. You can also look for properties with specific traits or based on specific criteria and analyze each property and market based on the latest data.
Using Mashvisor, you can easily find vacation rental properties that you can own based on the best rental strategy to use.
Whether you’re looking for a property in a beautiful location and a high Walk Score, or if you’re looking for a property that will generate a lot of rental income, our platform lists all kinds of properties for sale. The properties not only include listings from the MLS but also off-market properties, for-sale-by-owner, and foreclosures.
And now, using Mashvisor’s data and machine learning AI, these are the best places to buy a vacation rental property in 2022.
Top 8 Cities for Investing in Vacation Rentals in 2023
When it comes to the criteria for choosing the best cities for investing in vacation rental properties, the following criteria were used:
- Markets with median property prices that are below $500,000 (making them affordable to most beginner investors)
- An active short-term rental market with a sufficient number of for-sale listings
- An average vacation rental occupancy rate of above 50%
- An average cash on cash return of 2% or above for short-term rentals
The following data was taken from Mashvisor’s nationwide monthly rental report as of July 2022. The platform regularly collects data from several sources, including the MLS and the Airbnb database.
Without further ado, here are the eight best cities for investing in vacation rentals in 2023 if you want to maximize your profits during the vacation season:
1. Anchorage, Alaska
- Median Property Price: $373,120
- Average Price per Square Foot: $205
- Days on Market: 39
- Monthly Airbnb Rental Income: $3,532
- Airbnb Cash on Cash Return: 6.53%
- Airbnb Cap Rate: 6.73%
- Airbnb Daily Rate: $148
- Airbnb Occupancy Rate: 69%
- Walk Score: 26
While it may come as a surprise to many, the number one city when it comes to the best places to buy a vacation rental is a city in Alaska.
Although Alaska isn’t known as a prime vacation location, there are plenty of people who travel there year-round, mostly for business purposes. Owning a vacation rental in the state and renting it out to business travelers in the city of Anchorage is one of the best investment decisions that you can make.
One thing to keep in mind if you do buy a vacation rental in Alaska is that the walk score is extremely low, which is to be expected.
2. Pittsburgh, Pennsylvania
- Median Property Price: $392,863
- Average Price per Square Foot: $408
- Days on Market: 60
- Monthly Airbnb Rental Income: $2,865
- Airbnb Cash on Cash Return: 5.12%
- Airbnb Cap Rate: 5.29%
- Airbnb Daily Rate: $131
- Airbnb Occupancy Rate: 63%
- Walk Score: 50
Pittsburgh’s rental market doesn’t really stand out in any way other than being very well-rounded across the board. When looking at the market stats, you will see that everything about the city looks solid for investment.
The one downside of the Pittsburgh market is that property sizes are small, as is evident from the relatively high price per square foot.
However, it is the market with the highest traditional cash on cash return on this list, making it a safe investment as it gives you the option to switch to a traditional rental while still making profits.
3. Albuquerque, New Mexico
- Median Property Price: $392,688
- Average Price per Square Foot: $211
- Days on Market: 68
- Monthly Airbnb Rental Income: $2,870
- Airbnb Cash on Cash Return: 4.86%
- Airbnb Cap Rate: 5.00%
- Airbnb Daily Rate: $125
- Airbnb Occupancy Rate: 66%
- Walk Score: 41
Similar to the previous market, Albuquerque is a good option for investment across the board.
Although most market stats are slightly lower than Pittsburgh’s market stats, the occupancy rate in Albuquerque is only second to Anchorage’s in this list. If you want to buy a vacation rental in the Albuquerque market, you won’t encounter any problems finding guests for it.
5. Mesa, Arizona
- Median Property Price: $471,862
- Average Price per Square Foot: $292
- Days on Market: 19
- Monthly Airbnb Rental Income: $3,565
- Airbnb Cash on Cash Return: 4.70%
- Airbnb Cap Rate: 4.79%
- Airbnb Daily Rate: $178
- Airbnb Occupancy Rate: 60%
- Walk Score: 35
Mesa is one of the priciest markets on this list, but it is also the market with the highest monthly Airbnb rental income.
Additionally, although properties aren’t as cheap as some of the other markets we’ve listed here, the price per square foot is very good.
With a high Airbnb daily rate and a solid occupancy rate, Mesa offers a lot of potential for short-term rental investments. It is probably why properties are selling extremely fast in Mesa, with the average property spending 19 days on the market before it’s sold.
5. Tucson, Arizona
- Median Property Price: $443,499
- Average Price per Square Foot: $251
- Days on Market: 56
- Monthly Airbnb Rental Income: $2,918
- Airbnb Cash on Cash Return: 4.61%
- Airbnb Cap Rate: 4.73%
- Airbnb Daily Rate: $121
- Airbnb Occupancy Rate: 63%
- Walk Score: 41
Tucson is an interesting market that presents a lot of opportunities for beginner investors looking to enter the market in the near future. However, the market stats don’t really show it, as most numbers are average compared to other entries on this list.
What makes Tucson a great place for investing, especially in the near future, is the sheer number of Airbnb listings that exist there. With more than 1,800 vacation rentals listed for sale, any smart investor would know that prices will probably come down in the future. It would make Tucson an even better market for investing.
6. St. Louis, Missouri
- Median Property Price: $346,849
- Average Price per Square Foot: $173
- Days on Market: 54
- Monthly Airbnb Rental Income: $2,473
- Airbnb Cash on Cash Return: 4.31%
- Airbnb Cap Rate: 4.46%
- Airbnb Daily Rate: $119
- Airbnb Occupancy Rate: 59%
- Walk Score: 58
When it comes to the best place to buy a vacation rental based on property prices, then St. Louis can be the market for you. It is the cheapest out of all markets on this list, with a very low average price per square foot.
Additionally, both rental strategies seem to be performing well in the St. Louis market, which makes it a relatively safe and flexible place to invest in a vacation rental.
7. Fort Worth, Texas
- Median Property Price: $486,050
- Average Price per Square Foot: $236
- Days on Market: 94
- Monthly Airbnb Rental Income: $3,371
- Airbnb Cash on Cash Return: 4.00%
- Airbnb Cap Rate: 4.09%
- Airbnb Daily Rate: $166
- Airbnb Occupancy Rate: 56%
- Walk Score: 36
Fort Worth is a great place for investing if you do not worry about the budget. It is the most expensive market on this list in terms of median property prices. On the other hand, it is one of the cheapest when it comes to price per square foot.
It means that properties in Fort Worth are big, but their prices are cheap for their size. Larger properties make excellent vacation rentals, especially in popular vacation states like Texas.
Additionally, listings are selling 94 days after being listed on average. The market isn’t highly competitive, and you will have plenty of time to analyze your investment and negotiate a great deal.
8. Orlando, Florida
- Median Property Price: $462,114
- Average Price per Square Foot: $280
- Days on Market: 67
- Monthly Airbnb Rental Income: $2,743
- Airbnb Cash on Cash Return: 2.61%
- Airbnb Cap Rate: 2.67%
- Airbnb Daily Rate: $131
- Airbnb Occupancy Rate: 52%
- Walk Score: 42
Of course, Florida makes it on this list, with Orlando as its best place to invest in a vacation rental in 2022.
However, since it is one of the most popular vacation destinations in the US, Orlando is also one of the most expensive markets here. Still, it is considered affordable compared to other markets in Florida, and a median property price below $500,000 is considered cheap in 2022.
Learn More: Airbnb Orlando—Is It Worth Investing in 2022?
So, while Orlando, Florida isn’t the best in any category compared to other cities on this list, investing in a vacation rental in Florida is always an excellent idea, and Orlando is your best option.
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
Bottom Line: Should You Invest in a Vacation Rental by 2023?
If you want to buy a vacation rental property by 2023 and don’t know where to look, keep in mind that finding the best location can take time.
Take your time to find the best place based on research and analysis. It means researching the best tourist and travel places with cheap properties to buy and that show promising returns on investment.
Of course, if you’re looking for the best tool to use for finding profitable locations, Mashvisor is your best bet. It can help you find out where the best vacation rentals are and where you can buy them from, all based on data gathered from the MLS and Airbnb.
You can use Mashvisor to find the best place to buy vacation rental in 2023 based on the property’s projected return on investment and rental comps.
To access Mashvisor’s real estate investment tools, click here to sign up for a 7-day free trial today, followed by 15% off for life.