[Updated 2019] Best Places To Buy Vacation Rental Property

Key Takeaways

  • Buying a vacation rental property is a great move in 2019 if you mind due diligence and buy in a great location.
  • With vacation rental demand as high as it is in 2019, where you buy a vacation investment property is just as important as the home itself.
  • The prospect of a great vacation rental investment is so enticing in today’s market that every investor should at least consider the idea for himself or herself.

For many, the idea of investing in a vacation rental investment property sounds enticing, and looking into the best places to buy vacation rental property is the best place to start. Earning equity in a property while someone else pays off the mortgage mixed with benefiting from amazing tax deductions sounds great, right?

However, you can’t simply buy a vacation rental property and hope it produces returns; there are a number of things you must consider beforehand, not the least of which includes a great location.

The location in which you buy your next vacation rental investment property will have a huge impact on its performance. Primary cities like San Diego and Miami, for the exact reasons you would assume, have proven to be great spots for savvy investors. However, their return on investment isn’t without a significant caveat: availability. Primary cities have proven so lucrative for vacation rental investments that opportunities in these markets have lessened as their popularity grows. That means it’s time for investors to consider alternative cities, or those that are less popular, but nonetheless, share a similar earning potential.

According to the National Association Realtors (NAR), sales of investment homes increased 4.5 percent year-over-year, a figure that has risen steadily for the past seven years. “Despite a smaller share of distressed properties coming onto the market, investment purchases reversed course after declining for four straight years,” said Lawrence Yun, NAR’s chief economist.

“Steadily increasing home prices and strong rental demand appear to be giving more individual investors assurance that purchasing real estate will diversify their portfolios and generate additional income if they decide to rent out the home.”

Read on to learn exactly what to look for when choosing the right investment property.

10 Factors To Consider Before Buying A Vacation Rental Property

  • Personal use: One of the benefits that motivate individuals to buy a vacation investment property is personal use. Many individuals enjoy being able to visit the property for vacation purposes, and also to be able to lend the property to family and friends. It is important to ask yourself if the investment is more important to you personally or financially, as the answer can affect your strategy.

  • Rental income: If you own property in one of the best vacation rental markets, then perhaps rental income will be produced in a steady stream. However, not all markets will be conducive to creating an income stream that will consistently cover all expenses. If creating cash flow is your primary motivation behind investing in a vacation rental investment property, then it is worthwhile to consider one of the top vacation rental markets or investing a traditional rental property.

  • Appreciation: In addition to rental income, an important factor to consider is property appreciation. Although real estate market predictions are predominantly speculations, investors should keep in mind that many markets can have big price swings in correlation with the current economic landscape. Investors who carefully research markets that are conducive to property appreciation in the long-run will be best prepared to build equity over time.

  • Expenses: Expenses can range anywhere from routine incidentals such as the mortgage, fees, and utilities to unplanned repairs and emergencies. These expenses add up quickly, and can overtake your cash flow if you are not careful. Experienced investors will often advise beginners to over-project their expense budget, as well as create cash reserves for unplanned incidents.

  • Taxes: Taxes are a complex vehicle that can be perceived as both an advantage and disadvantage, simultaneously. First, those considering investing in a vacation rental should ask themselves if they will be able to afford local, state and federal property taxes, as well as taxes assessed on any income made from rentals. Some of this financial pressure, however, can be relieved in the form of tax write-offs that apply specifically to vacation rental property businesses.

  • Risk: Owning even the most lucrative beach investment properties can be subject to risk, such as adverse weather or financial loss from a market crash. Although any type of investment is subject to risk, vacation rental owners should remain mindful of these potential downsides that can turn an investment strategy upside down.

  • Insurance: One of the best ways to plan ahead for risk is by taking out an insurance policy that best fits your circumstances. Aside from homeowner’s and liability insurance, it is important to consider if you need to take out additional policies that will help protect you from specific types of natural disasters or emergencies.

  • Legality: The best place to own a vacation rental is a location where the property can be rented out to guests legally. Before investing, be sure to double-check local zoning laws, as well as any homeowner association rules as applicable.

  • Property management: Deliberating on whether or not to hire a property management company is a big decision for any type of rental property. Working with a property manager will be an added expense, but doing so can make your life much easier. Property managers can accomplish a range of tasks from handling tenant turnover and overseeing cleaning and maintenance services to marketing your listing. In addition, allowing a professional to handle these tasks can provide ease of mind, especially if you do not live in the same area as your property.

  • Partnerships: Working with a partner, including friends or family members, can often open up a lot of opportunities in real estate investing. However, if you would like to acquire a vacation investment property with a partner, be sure to treat the venture just as you would in business. This includes forming an LLC or other type of entity, as well as having a lawyer create clear contracts.

Now that you know the most important factors to consider before purchasing a vacation rental property, let’s dive into where exactly you should be investing.

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Vacation rental property

Best Vacation Rental Markets 2019

  1. Dubuque, Iowa
  2. Portsmouth, Virginia
  3. Bainbridge Island, Washington

The qualifications used to determine the best places to buy vacation rental property are, at the very least, subjective. If for nothing else, people choose to vacation in many different parts of the world for many different reasons. What one person may deem the perfect vacation rental, another may completely disregard. Therefore, we have decided to take a more objective approach in determining some of the best places to buy vacation rentals in the coming year — this includes looking at statistics like property price, average rental income, occupancy rates, and cash on cash returns. With help from MashVisor’s recent study, here are the 3 markets we predict will show the most promise in 2019.

Dubuque, Iowa

Located along the Mississippi River, Dubuque is best known for its thriving port and close proximity to several institutions of higher education. Perhaps even more importantly, is the city’s central location to three states: Iowa, Illinois and Wisconsin. Bordering each of these states, Dubuque has become a popular destination for those looking to visit each area. Vacation rental property owners, on the other hand, like the area for several entirely different reasons:

  • Median Property Price: $138,600
  • Airbnb Rental Income: $3,050
  • Airbnb Cash on Cash Return: 10.2%
  • Airbnb Cap Rate: 10.2%
  • Airbnb Occupancy Rate: 45.8%
  • Traditional Rental Income: $1,100
  • Traditional Cash on Cash Return: 3.1%
  • Traditional Cap Rate: 3.1%

Portsmouth, Virginia

Located close to downtown Norfolk, Virginia Beach and Colonial Williamsburg, Portsmouth has become a central location for anyone looking to visit the best places Virginia has to offer. Not only that, but Portsmouth awards visitors with more than three centuries of historic neighborhoods, the famous Seawall, breathtaking views and some of the region’s best restaurants; it’s no wonder the city has become a popular vacation destination. Real estate investors, on the other hand, like Portsmouth for the following indicators:

  • Median Property Price: $189,600
  • Airbnb Rental Income: $2,750
  • Airbnb Cash on Cash Return: 9.6%
  • Airbnb Cap Rate: 9.6%
  • Airbnb Occupancy Rate: 63.0%
  • Traditional Rental Income: $1,190
  • Traditional Cash on Cash Return: 2.4%
  • Traditional Cap Rate: 2.4%

Bainbridge Island, Washington

Located across the Puget Sound from Seattle, Bainbridge Island has become a popular destination for travelers who enjoy both the business of large cities and the secluded outdoors. Consequently, Bainbridge Island is a short ferry ride to downtown Seattle, where visitors can take in everything the Emerald City has to offer, or they can relax on a secluded “beachfront” property. Meanwhile, vacation rental investors can enjoy the fundamentals of a popular city without having to live in the middle of a major metropolitan area. Here’s what investors can expect from rental properties of their own:

  • Median Property Price: $387,000
  • Airbnb Rental Income: $5,020
  • Airbnb Cash on Cash Return: 9.3%
  • Airbnb Cap Rate: 9.3%
  • Airbnb Occupancy Rate: 53.9%
  • Traditional Rental Income: $1,960
  • Traditional Cash on Cash Return: 2.3%
  • Traditional Cap Rate: 2.3%

Best Vacation Rental Markets 2018

  1. Memphis, Tennessee
  2. Panama City Beach, Florida
  3. Tulsa, Oklahoma
  4. Chicago, Illinois
  5. Napa, California

Best places to buy vacation rental property

Napa, California

Of the best places to buy vacation rental property, Napa, California may come as a bit of a surprise. High property price tags can be a barrier to entry for many investors, rendering the market as inaccessible. However, the recent wildfires in California has created a shortage in supply, while the demand for tourism demand for Napa and its beautiful wineries stays strong year-round.

Chicago, Illinois

The “Windy City” represents a recent trend in the rising popularity of non-traditional vacation locales. Although the cost of homeownership in Chicago is relatively high, experts believe that the short-term vacation rental potential outweighs this factor. On average, properties in Chicago enjoy an 8 percent gross rental yield, a 62 percent occupancy rate, and an uptick in property value year-over-year.

Tulsa, Oklahoma

Tulsa, Oklahoma may not inspire images of vacation, but is quickly gaining recognition as one of the most “livable” cities in the U.S., such as by Forbes, Relocate America and BusinessWeek. Vacation property owners are currently enjoying an average rental yield of 9.1 percent, while property values increased a significant 7.7 percent in just the past year.

Panama City Beach, Florida

Panama City Beach currently serves as the leader for the best beach investment properties of 2018. Bordering on the Gulf of Mexico, this Florida resort town features miles of white-sand beaches with clear, calm waters. As one of the most popular spring break destinations in the nation, Panama City Beach offers property owners, on average, a stront 13.5 percent rental yield, as well as an impressive 11.5 percent increase in property values in the last year.

Memphis, Tennessee

Out of the best places to buy vacation rental property in 2018, Memphis, Tennessee topped the list. With a low median home price of $125,000 and home values increasing at a pace of 10.9 percent annually, the “Home of the Blues” and “Birthplace of Rock ‘n’ Roll” proves to be an attractive marketplace for property investors. In Memphis, the average monthly rental rate for traditional passive income properties is $890, yet the average monthly rental revenue brought in by vacation rental properties is $2,080. Based on these figures, this tourist destination currently offers an average gross rental yield of 20 percent, setting itself apart from its contenders.


While a great vacation rental investment property won’t pop up everyday, the best places to buy vacation rental property continue to generate positive signs for investors. If you are able to break into the industry sooner rather than later, buying a vacation rental could pay huge dividends. Be sure to check back annually for an update on the latest and best vacation rental property markets and tips.

Are you considering purchasing an investment property? Let us know where you would like to invest in the future in the comments below:

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