The 150 Best Places to Buy a Vacation Rental Property in 2018
Welcome to Rented.com’s Third Annual Short-Term Rental Income Report
With the passage of the new federal tax law by Congress in December 2017 and multiple states debating changes to state tax laws, there are more questions than ever about buying, owning or keeping a vacation home.
These can be difficult questions to answer even in a more static economic environment. For those thinking about buying a home, those who own a home now, and those considering selling a vacation home, this report can provide some valuable answers.
Best Places to Buy in 2018
The 2018 top five Best Places to Buy contained some surprises and include:
- Panama City Beach, Florida
- Chicago, Illinois
- Napa, California
- Tulsa, Oklahoma
- Memphis, Tennessee
The inclusion of Chicago, Tulsa and Memphis continue the trend of more locations that are not typically considered “vacation destinations” being represented, as noted in the 2017 report. Chicago and Napa are somewhat surprising; given the generally high cost of home ownership in these markets, which we suspect was outweighed by strong short-term rental potential.
For these two locations, demand and demand growth have outpaced supply and supply growth, which pushes up occupancy and nightly rental rates. In turn, this increases ROI for both property managers and homeowners. This is especially true for Napa, where the October fires diminished the rental supply significantly, while demand to visit Napa decreased less.
Best Places to Buy Often in the South
Of the 25 Best Places to Buy list for 2018, 15 were located in the Southeastern U.S. In the three reports issued to date, nearly three times as many Florida cities are included versus the next closest state, Tennessee with Texas following closely behind.
Many of these locations have reasonable real estate prices but strong rental potential for several reasons, such as attractiveness as a winter destination. Also, states like Florida, for example, have embraced the short-term rental market at the state level, and this reflects in our Best Places to Buy Reports. In addition, because short-term and vacation rentals inject funds into the community, local regulations are less harmful to short-term rentals than in other markets.
Business and Leisure Continue to Impact Destination Popularity
In 2017, three of the top 25 Best Places cities was a major urban center. In this year’s study, seven urban centers made the top 25 list. Ranked by highest to lowest score, these included Chicago, Memphis, Nashville, Seattle, Atlanta, San Antonio and Savannah.
Trends to Note Within the Worst Places to Buy a Vacation Property
When comparing the 20 Worst Places to Buy a Vacation Rental Property for the past three years certain trends are seen year over year.
The worst places to buy a second home typically include multiple cities within states with housing shortages (California, Massachusetts, Utah, Colorado and New York) and states with the highest costs of living (Utah, Delaware, Colorado, Massachusetts, New York, California, Hawaii and Virginia).
Five Colorado cities appear in the bottom 20 in 2018 and four states have appeared in the bottom 20 all three years: California, New York, Massachusetts and Colorado. Differing combinations of factors are typically responsible. In markets such as the Hamptons, New York and Nantucket, Massachusetts, high asset prices along with tough rental regulations and generally high property taxes drove down the ratings. In other locations, such as Oklahoma City and Palo Alto, the abundance of attractive job opportunities depressed property availability.
How We Developed the Report
There are many reports available that outline top vacation rental and short-term rental markets based on attributes such as consumer demand and anticipated gross rental revenue. Our focus goes beyond these limited results and attempts to answer the ultimate ROI question, “When buying a rental property for investment purposes, what are the best markets?”
The report focuses on150 U.S. markets and compares two figures, costs of home ownership and short-term rental potential. Costs of home ownership include a variety of factors such as purchase price, local property taxes, home insurance and maintenance. Short-term rental potential taps into multiple sources including actual Rented.com demand from management companies in these markets, as well as Everbooked and Airdna occupancy and rental rate projections, and the current legal situation in each market.
We also factor in short-term rental regulations and these can have a significant impact on a vacation homeowner’s bottom line.
In addition, we create a weighted “Revenue” number and “All in Cost” number for each market, and then index the ratio between markets on a scale of 0 to 100, with 100 being a perfect score.
Based on these factors, Rented.com gave out scores on a scale from 0 to 100, with the goal of objectively providing potential vacation homeowners the information necessary to select the best destination for their personal needs.
Alternative accommodations have gone mainstream and are here to stay as part of the sharing economy. It has rapidly expanded from visitors seeking low-cost accommodation to people eager for an experience more personal than a traditional hotel room.
That said, consumers considering a second home purchase to be used as a rental still must carefully do their homework. While no analysis will provide a surefire answer to whether a consumer will meet their ROI goals through renting their property, below are several guidelines to maximizing the probability of success:
- Purchase homes in lower cost markets to reduce income the home must generate to achieve financial goals
- Have a clear understanding of necessary improvements, as well as maintenance, property tax, insurance, HOA and other costs
- Seek out markets with a strong vacation and/or rental history
- Learn about the prospective community’s regulations regarding rental properties
For an individual assessment of your short-term or vacation rental property, please use Rented.com’s investment property calculator or reach out to the Rented.com team at (844) 736-8334.
The Rented.com Team