Hello spring, hello new investment property!
The second quarter of the year comes with new opportunities for real estate investing. If you’ve been in the real estate investing business for a while, you’d know that spring is typically the best time of year to buy a house for most people. A savvy real estate investor will take advantage of the warmer season and buy a second home as an investment property. Now, if you’re wondering which type of investment properties you should buy, our answer is vacation home rentals!
Related: Vacation Home Rentals: All You Need to Know as a Real Estate Investor
Why You Should Invest in Vacation Home Rentals
Buying vacation home rentals is a smart investment decision, especially for beginner property investors. These investment properties serve as your own getaway property or a place to stay in during your annual vacation. Moreover, it’ll be your money making machine if you put it on the market as an Airbnb rental property when it’s unoccupied.
Now is the best time of year to invest in vacation home rentals because it is a peak tourist season. These days, tourists prefer staying in a vacation rental over a hotel suite. For property investors, this means a large pool of short-term tenants, high turnover as well as high occupancy rate – which are important factors for a successful short-term investment property.
Vacation home rentals are great investment properties also thanks to the tax advantage associated with them. However, this tax treatment depends on the number of days property investors stay in their second home (personal use), and the number of days they rent it out as a rental property.
To further clarify, if a real estate investor rents out his vacation home for more than 14 days, the real estate property is considered a business. Thus, the real estate investor must report all rental income to the IRS and he/she gets to deduct rental expenses like repairs, property management fees, utilities, etc. However, if the vacation home is rented out for less than 14 days, it’s considered a personal residence and the real estate investor can’t deduct rental expenses.
Related: Your Guide to Short-Term Rental Property Tax Deductions
So, whether you are a beginner real estate investor searching for your first rental property or an experienced real estate investor looking for a new investment property to grow your portfolio, you should definitely consider vacation home rentals in the second quarter of 2018.
What Makes the Best Places for Vacation Home Rentals
Location plays an important role in a successful real estate investing business – this is especially true for vacation home rentals. Some locations yield a high traditional (long-term) rental income and return on investment, while others yield a high Airbnb (short-term) rental income and return on investment.
In order to fully benefit from vacation home rentals, it is important for property investors to identify the best places to buy this type of investment property so they can rent it out for maximum Airbnb rental income. So, what makes certain locations attractive for vacation home rentals?
The first factor is the tourism industry in the real estate market. As we already mentioned, property investors make money from their vacation homes through renting them out to short-term tenants, and these are typically travelers and tourists. Therefore, you’ll notice that real estate markets with a strong tourism industry – such as the Florida real estate market, for example – are among the best places to invest in vacation home rentals. In these locations, both turnover and occupancy rates are high, leading to a good Airbnb rental income and return on investment.
The second important factor to keep in mind when searching for a location to buy vacation home rentals is Airbnb laws and regulations. Airbnb laws are not universal; instead, they’re determined city-by-city. To date, some cities across the US housing market prohibit short-term rentals. Other cities set limits on the number of days the investment property can be rented or limit vacation home rentals to specific neighborhoods. Furthermore, each city has different tax treatments which could ultimately affect your profit margin and return on investment. Thus, it’s crucial that property investors check Airbnb laws and regulations in their real estate market of choice.
Related: Buying a Short-term Rental Property? Invest in the Most Airbnb Friendly Cities
What are the Best Places to Buy Vacation Home Rentals in the US Housing Market Now?
So, after determining what makes a certain location profitable to invest in vacation home rentals, here’s a list of the best places to buy this type of investment properties in the US housing market during the second quarter of 2018.
This information is according to data analysis provided by Mashvisor’s rental property calculator – a real estate investing tool that allows property investors to search for investment properties based on specific criteria, such as finding properties of a certain type, in a certain neighborhood, or with a certain cap rate. To learn more about our product, click here.
NOTE: this list consists of 20 cities which we’ve divided into two articles. To go to part 2, click here.
Vacation Home Rentals in Sonoma, CA
- Median Property Price: $1,355,975
- Airbnb Rental Income: $7,257
- Airbnb Cap Rate: 5.27%
- Airbnb Cash on Cash Return: 5.27%
- Airbnb Occupancy Rate: 59.86%
Vacation Home Rentals in Cathedral City, CA
- Median Property Price: $314,840
- Airbnb Rental Income: $3,050
- Airbnb Cap Rate: 5.26%
- Airbnb Cash on Cash Return: 5.26%
- Airbnb Occupancy Rate: 42.19%
Vacation Home Rentals in Key West, FL
- Median Property Price: $948,095
- Airbnb Rental Income: $7,659
- Airbnb Cap Rate: 5.22%
- Airbnb Cash on Cash Return: 5.22%
- Airbnb Occupancy Rate: 66.78%
Vacation Home Rentals in Lake Worth, FL
- Median Property Price: $305,070
- Airbnb Rental Income: $2,243
- Airbnb Cap Rate: 4.54%
- Airbnb Cash on Cash Return: 4.54%
- Airbnb Occupancy Rate: 51.36%
Vacation Home Rentals in North Miami, FL
- Median Property Price: $385,473
- Airbnb Rental Income: $2,435
- Airbnb Cap Rate: 4.21%
- Airbnb Cash on Cash Return: 4.21%
- Airbnb Occupancy Rate: 59.49%
Vacation Home Rentals in Blacksburg, VA
- Median Property Price: $441,998
- Airbnb Rental Income: $2,407
- Airbnb Cap Rate: 3.79%
- Airbnb Cash on Cash Return: 3.79%
- Airbnb Occupancy Rate: 31.86%
Vacation Home Rentals in Oakland Park, FL
- Median Property Price: $262,887
- Airbnb Rental Income: $2,143
- Airbnb Cap Rate: 3.68%
- Airbnb Cash on Cash Return: 3.68%
- Airbnb Occupancy Rate: 48.7%
Vacation Home Rentals in Dubuque, IA
- Median Property Price: $240,562
- Airbnb Rental Income: $1,588
- Airbnb Cap Rate: 3.47%
- Airbnb Cash on Cash Return: 3.47%
- Airbnb Occupancy Rate: 38.67%
Vacation Home Rentals in Beaufort, SC
- Median Property Price: $288,716
- Airbnb Rental Income: $1,909
- Airbnb Cap Rate: 3.38%
- Airbnb Cash on Cash Return: 3.38%
- Airbnb Occupancy Rate: 50.6%
To start looking for and analyzing the best investment properties in your city and neighborhood of choice, click here.
To Sum Up
This time of year is the best for property investors considering vacation home rentals. If you’re interested in finding an investment property in any of the top cities mentioned above, start your property search with Mashvisor! Just sign up and make use of Mashvisor’s investment property finder and Mashvisor’s investment property calculator. These real estate investing tools provide property investors with data analysis for both traditional and Airbnb rentals to help them find the best investment property in the best real estate markets!
To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
NOTE: This is part 1 of The Best Places to Buy Vacation Home Rentals in the US at the Second Quarter of 2018. To go to part 2, click here.