Buying a vacation home comes with many important advantages in 2021. While some real estate professionals expected the short-term rental industry to collapse as a result of the global pandemic when it started last year, this didn’t happen. Following an initial decline, Airbnb rentals quickly picked up in performance and were already on the road to recovery by September 2020. The rollout of the Covid-19 vaccines brought new hope in late 2020 and early 2021 and further supported the growth of vacation rental properties.
What all this means for investors is that buying a vacation home to rent out is still one of the best real estate investment strategies this year.
However, in order to be able to generate positive cash flow and a good return on investment with this strategy, there are a number of things to consider before buying a vacation home. For one, the location of your short-term rental property is of crucial importance as it will determine not only the Airbnb laws and regulations that you need to comply with but also the profitability that you can expect. Buying an investment property in your favorite travel destination does not suffice if you want to be a successful real estate investor. Furthermore, you should choose a vacation property for sale which has the features and amenities of a money-making Airbnb rental. Not all properties within the same US housing market bring the equal short-term and long-term rate of return.
So, the first steps towards buying a profitable vacation house is knowing which real estate markets comprise the best locations for this real estate investment strategy. That’s why in this article we will take a look at the best places for buying a vacation home in 2021 based on Mashvisor’s robust Airbnb data and nationwide real estate market analysis. In this way, both beginner investors and experienced ones will know where to focus their investment property search this year.
The Benefits of Buying a Vacation Rental Property
But first things first. Before we look at the best cities to buy a house to rent out on a short-term basis in 2021, let’s summarize why you should be considering vacation rental property investing.
1. Dual Purpose
While one of the most significant advantages of this strategy has always been the dual purpose that vacation homes serve, this is even more important in 2021 than ever before. Amid the uncertainty of the global Coronavirus pandemic and the travel restrictions, it’s a great idea to have a second home away from home where you can spend holidays with your family. And during the time that you don’t stay at your vacation home, you can easily rent it out by listing it on Airbnb, VRBO, HomeAway, or any other vacation rental website.
Provided that you choose the location and the property smartly, you can have your Airbnb guests pay not only for your vacation home loan but also for all other expenses related to buying a second home.
2. Tax Benefits
Real estate investing comes with major tax advantages, and savvy investors make sure to be aware of and benefiting from all of them.
Moreover, vacation homes provide additional tax benefits which depend on various factors. Most importantly, these depend on how many days per year you spend on the property and for how many days a year you rent it out.
So, you should study the tax implications carefully before investing in a vacation home rental and include those in your investment property analysis.
3. Low-Risk Real Estate Investment Strategy
Mostly because buying a rental vacation house serves a dual purpose, it is considered one of the least risky investments. Even if you don’t manage to rent out your property as much as you wish and you retain a low Airbnb occupancy rate, you still have a second home where to spend time with your family and friends.
Furthermore, even if you’re not making as much money as expected in the short term, you will still benefit from long-term profit through real estate appreciation. To make the most money from your vacation rental property in the long term, consider investing in one of the best cities for real estate appreciation in 2021.
In addition, a great thing about investing in an income property is that you can always switch between rental strategies. In case owning an Airbnb investment property turns out less profitable or more arduous than you thought, you can start renting it out on a long-term basis, like a traditional rental.
4. High Return on Investment
Last but not least, Mashvisor’s real estate data analysis reveals that short-term rental properties remain the more profitable rental strategy in 2021. Despite the initial negative impact of the Covid-19 pandemic, the Airbnb industry is recovering well and is expected to emerge as strong as ever. Indeed, in 2021 and beyond many leisure and business travelers are expected to choose the comfort and safety of private homes such as single-family homes, townhouses, and condos where they can stay alone with their family, over the busyness and insecurity of hotels.
And since the ultimate goal of any real estate investor is to make money from his or her income property, you should look into this investment strategy.
What to Know About Buying a Vacation Home
Now that you know why you should be thinking about investing in a short-term rental property in 2021, it’s time to have a look at what things you need to consider before moving forward. Giving enough thought and consideration to the following factors will ensure that you land a profitable real estate investment deal and start generating positive cash flow from your rental property right away.
1. Location
If you’ve started your real estate education or have previously bought investment properties, you know that the US housing market in which you invest is arguably the single most important factor for your success – or failure – as an investor.
Location will play a crucial role in determining the sale price of your investment property, the vacation home mortgage that you can get, the other startup costs, the optimal rental property type, the rental income that you can earn, the recurring monthly rental expenses, the occupancy rate, and ultimately – the cash flow and the return on investment, in terms of both cap rate and cash on cash return.
When investing in short-term rentals, location becomes even more important because it also sets the Airbnb laws and rules that you will need to follow. Many major US cities, which used to make up the best cities for Airbnb investment a few years ago, have become virtually illegal for buying a vacation rental property for the main purpose of renting it out. These include Airbnb Los Angeles, Airbnb New York, Airbnb Boston, and Airbnb Chicago, to name a few.
If you’re a new investor and don’t know where to start your search for the best places for buying a vacation home in 2021, just go for one of the markets listed below. These locations have been short-listed based on detailed real estate data analysis conducted by Mashvisor’s investment property calculator.
2. Neighborhood
In real estate investing, location is not limited to the city only, the neighborhood is equally important. This is because even adjacent areas in the same city or town can yield very different rates of return for investors.
This means that smart investors need to conduct diligent neighborhood analysis in real estate before deciding on the best place for buying an Airbnb rental property in 2021.
While this process would normally entail collecting data on Airbnb rental comps in the area and running tons of calculations in an Airbnb spreadsheet for analysis, this is no longer the case. Along with other must-have real estate investment tools, Mashvisor has created a real estate heatmap which helps investors analyze the investment potential of all neighborhoods in any US market within a few clicks of a button.
Mashvisor’s Real Estate Heatmap
Our heatmap is a color-coded representation of the listing price, Airbnb income, Airbnb occupancy rate, and Airbnb cash on cash return which you can expect in a city. This helps you as an investor to focus your research on the areas which promise the highest return while still offering home values within your budget.
Once you’ve selected a few areas which match your criteria and expectations, you should deepen your research of them. You can do that easily and efficiently with Mashvisor’s neighborhood analysis pages. There you will find all the real estate data and analytics to confirm that this is the right location for buying a vacation home that will meet all your investor needs and help you make money in 2021 and beyond.
Mashvisor’s Neighborhood Analysis Pages
3. Financing
Since a vacation home is neither a home only nor a pure investment property, financing its purchase follows slightly different rules. That’s why you should study well what real estate investment loans apply and how they work. Getting a vacation home mortgage loan is absolutely doable, but it might follow different requirements from a conventional mortgage.
Once you know how you will pay for your Airbnb property, it’s essential that you include the one-time costs and the recurring expenses associated with this in your rental property analysis. If you go for a conventional mortgage, you can use Mashvisor’s mortgage calculator. If not, you can simply enter your custom expenses in our investment property calculator.
Mashvisor’s Investment Property Analysis
4. Airbnb Occupancy Rate and Airbnb Daily Rate
As you are buying a vacation home to generate profit, you should definitely look at the Airbnb profitability of both the area you are focusing on and the vacation homes for sale you are considering.
Finding reliable and accurate Airbnb data is challenging, unless you are ready to spend weeks or even months analyzing the performance of comparable rental properties in your market. But in 2021 you’re in luck. Mashvisor brings you industry-leading data and analytics that no other software platform does. For each residential property within the US market that you want to analyze, we will provide you with the Airbnb data that you need to make a smart and profitable real estate investment decision. This data comes directly from Airbnb.com and is based on the actual performance of all Airbnb listings in the area.
Two of the main factors which determine the profitability of a short-term rental property include the Airbnb occupancy rate and the Airbnb daily rate. That’s how you can calculate what Airbnb rental income to expect, which – combined with your expenses – results in the Airbnb cash flow, the Airbnb cap rate, and the Airbnb cash on cash return.
So, if you’re looking how to make money on vacation rental property, focus on locations and properties which promise a high Airbnb occupancy rate and a high Airbnb daily rate.
5. Short-Term Rental Regulations
Another major factor to consider when choosing where to invest in a vacation rental is the laws and regulations which control the Airbnb industry. Conduct detailed research on the state, county, and city legislation to ensure that owning a non-owner occupied short-term rental property is legal and unrestricted. Being able to rent out your second home for as many days a year as you want without you being present on the property is crucial for starting a successful Airbnb business.
The general lack of strict Airbnb rules is what makes buying a vacation home in Florida a great choice.
Best Places for Investing in a Vacation Rental Home in 2021
It’s time for the most exciting part of this article. Below we have listed the 10 best places for buying a vacation home this year. We’ve defined the most profitable Airbnb locations in 2021 as the markets which offer the highest cash on cash return for short-term rentals. All figures presented below are provided by Mashvisor and are based on reliable real estate data and sturdy analysis.
Importantly, we show you data not only on the performance of vacation home rentals but also traditional rentals in each of these markets. In this way you can ensure that you will still get a high return on investment if you decide to switch your real estate strategy down the road and convert your short-term rental into a long-term rental.
1. Berkeley, NJ
- Airbnb Cash on Cash Return: 9.2%
- Airbnb Daily Rate: $283
- Airbnb Occupancy Rate: 59%
- Airbnb Rental Income: $4,479
- Median Property Price: $243,475
- Average Price per Square Foot: $190
- Average Days on Market: 61
- Traditional Cash on Cash Return: 3.2%
- Traditional Rental Income: $1,376
- Price to Rent Ratio: 15
2. Eaglewood, CO
- Airbnb Cash on Cash Return: 8.2%
- Airbnb Daily Rate: $124
- Airbnb Occupancy Rate: 59%
- Airbnb Rental Income: $5,263
- Median Property Price: $459,000
- Average Price per Square Foot: $396
- Average Days on Market: 99
- Traditional Cash on Cash Return: 2.7%
- Traditional Rental Income: $1,853
- Price to Rent Ratio: 21
3. Levittown, PA
- Airbnb Cash on Cash Return: 8.0%
- Airbnb Daily Rate: $104
- Airbnb Occupancy Rate: 78%
- Airbnb Rental Income: $3,987
- Median Property Price: $292,897
- Average Price per Square Foot: $218
- Average Days on Market: 30
- Traditional Cash on Cash Return: 3.4%
- Traditional Rental Income: $1,660
- Price to Rent Ratio: 15
4. Covington, GA
- Airbnb Cash on Cash Return: 7.3%
- Airbnb Daily Rate: $164
- Airbnb Occupancy Rate: 61%
- Airbnb Rental Income: $2,619
- Median Property Price: $266,353
- Average Price per Square Foot: $1,789
- Average Days on Market: 79
- Traditional Cash on Cash Return: 4.0%
- Traditional Rental Income: $1,386
- Price to Rent Ratio: 16
5. Abilene, TX
- Airbnb Cash on Cash Return: 7.1%
- Airbnb Daily Rate: $172
- Airbnb Occupancy Rate: 67%
- Airbnb Rental Income: $2,845
- Median Property Price: $275,725
- Average Price per Square Foot: $130
- Average Days on Market: NA3.0
- Traditional Cash on Cash Return: 3.0%
- Traditional Rental Income: $1,364
- Price to Rent Ratio: 17
6. Toledo, OH
- Airbnb Cash on Cash Return: 7.0%
- Airbnb Daily Rate: $108
- Airbnb Occupancy Rate: 62%
- Airbnb Rental Income: $1,671
- Median Property Price: $101,667
- Average Price per Square Foot: $88
- Average Days on Market: NA
- Traditional Cash on Cash Return: 6.5%
- Traditional Rental Income: $909
- Price to Rent Ratio: 9
7. Beaumont, TX
- Airbnb Cash on Cash Return: 7.0%
- Airbnb Daily Rate: $105
- Airbnb Occupancy Rate: 51%
- Airbnb Rental Income: $2,254
- Median Property Price: $297,068
- Average Price per Square Foot: $128
- Average Days on Market: 95
- Traditional Cash on Cash Return: 2.6%
- Traditional Rental Income: $1,269
- Price to Rent Ratio: 20
8. Cornwall, NY
- Airbnb Cash on Cash Return: 7.0%
- Airbnb Daily Rate: $504
- Airbnb Occupancy Rate: 41%
- Airbnb Rental Income: $4,965
- Median Property Price: $407,414
- Average Price per Square Foot: $196
- Average Days on Market: 80
- Traditional Cash on Cash Return: 2.1%
- Traditional Rental Income: $2,146
- Price to Rent Ratio: 16
9. Anchorage, AR
- Airbnb Cash on Cash Return: 7.0%
- Airbnb Daily Rate: $137
- Airbnb Occupancy Rate: 65%
- Airbnb Rental Income: $2,633
- Median Property Price: $252,900
- Average Price per Square Foot: $179
- Average Days on Market: NA
- Traditional Cash on Cash Return: 4.2%
- Traditional Rental Income: $1,555
- Price to Rent Ratio: 14
10. Rancho Cordova, CA
- Airbnb Cash on Cash Return: 6.9%
- Airbnb Daily Rate: $156
- Airbnb Occupancy Rate: 72%
- Airbnb Rental Income: $3,190
- Median Property Price: $338,800
- Average Price per Square Foot: $213
- Average Days on Market: 34
- Traditional Cash on Cash Return: 5.2%
- Traditional Rental Income: $2,312
- Price to Rent Ratio: 12
So, if you’re looking for the best places to buy a vacation home to rent out in 2021, now you know where to look. But before you start your investment property search and analysis, it’s important to remember that while short-term rentals are generally legal in these top locations, each market has its own specific rules and regulations. That’s why you should study the local short-term rental legislation carefully before buying a vacation home property to make sure that you don’t break any laws.
According to Mashvisor’s national real estate market analysis, these 10 markets offer the highest cash on cash return for Airbnb rentals. In general, they have affordable property prices which makes them good for beginner investors. If you want to be buying a vacation home to make money from real estate in 2021, what is left is to choose the best neighborhood within one of those locations and find a top-performing property. To start searching for and analyzing vacation rentals quickly and efficiently, sign up for a 7-day free trial of Mashvisor followed by a 15% discount on quarterly and annual subscriptions for life.
