Investors in holiday rentals are becoming more and more common in recent years. More and more individuals are opting to stay in the second homes of others to have a more comfortable stay. If you’re considering an investment, consider vacation rentals since they allow you to have a place to stay during your vacations while simultaneously earning revenue from the property by renting it out the rest of the year.
The location of your vacation rental investment should not just be based on your preferences for where you want to spend your time off. But if you have any experience in the real estate market, you know that location is critical to the success of your investment. Short-term rental demand and revenue must be strong enough to justify the purchase of a property without putting a dent in your wallet.
We’ve compiled a list of the greatest areas to own a short-term rental in the United States right now to help you decide where to purchase one in 2022 and beyond.
Is a vacation rental home a good investment or a bad one?
There are several techniques to identify the best places to invest in a vacation rental property. To maximize returns for investors, we’ve narrowed our search to the most lucrative destinations to purchase a vacation house in 2022. We’ll spotlight the US areas with the highest short-term rental cap rates using data from Mashvisor, a sophisticated real estate data analytics platform.
If you are new to the world of real estate investing, cap rate – short for capitalization rate – is an investment statistic derived by taking the property’s current market value and dividing the net operating income of a rental property by that value. Even though this isn’t the only factor in determining where to invest in vacation rental properties, it is significant.
Calculation of Cap Rate
Net Operating Income (NOI)/Present Market Value (PMV) = Cap Rate (CMV)
Real estate investors may use the cap rate to analyze the profitability of various home markets and determine which has the highest profit potential.
The cost of operating a vacation rental is rising.
After a brief hiatus due to the pandemic, short-term rentals are making a comeback as regulations ease and vacations resume. It’s easy to see this with the increasing CAP rates… According to GlobeSt.com, CAP rates are expected to grow to 6.5 percent by 2022.
Investing in a vacation property is a great idea right now. Investing in short-term rental properties is a great way to diversify your portfolio after the busy season. You should anticipate a significant return on your investment as soon as you make the large buy because of the favorable CAP rates.
What is a reasonable capitalization rate (CAP) for a holiday rental?
What is the optimal CAP rate if deemed a useful investment metric? It all depends on what you’re looking for in a vacation rental investment.
In general, a higher CAP rate indicates a better investment, but it might also indicate more risk. Whether or whether something is “good” is a matter of opinion. A decent CAP rate for a vacation rental strikes a balance between high investment and risk.
As a result, a CAP rate of 4% to 6% is a good place to aim towards. It’s possible to make money even with low CAP rates of 1% to 2%, but it’s more common to find them in highly saturated places like large metropolitan centers with a strong short-term rental market.
One of the riskiest investments is the one that has the highest capitalization-per-unit (CAP).
It’s also worth noting that CAP rates vary widely depending on where you live, whether in a city or a suburb. It’s not always possible to obtain an accurate picture of your local CAP rate if you zoom too far out and look at the whole county or city.
The city of New York is an excellent example. A few blocks away, in Queens, the CAP rate is 5.03 percent, whereas it’s 3.9% in Manhattan. To choose the optimal investment, you must take into account all of these variables since no two CAP rates are the same.
For the year 2022, below are the top vacation rental markets.
Last year’s hot spots may not be as popular this year or in the future since the market always shifts. According to statistics from Mashvisor, these are some of the greatest areas to invest in a short-term vacation rental presently, and we’ve made it simple for you with this list of some of the finest spots.
1. Florida’s Kissimmee County
As the epidemic receded, Florida gained a significant amount of momentum. Although Florida has been rediscovered as a vacation rental utopia, tourists aren’t flocking to the state’s conventional tourist destinations. Kissimmee is a popular destination for travelers looking to go off the beaten path.
Investing in vacation rental properties in Kissimmee will be one of the most popular options in 2022. You’ll never run out of reservations thanks to a wide variety of tourists from all over the country who want to see what the fuss is about in Florida. Kissimmee, like Gatlinburg, is well situated. Despite its proximity to Orlando’s amusement parks, this Florida community offers far more cheap real estate than those in the area directly close to the parks.
2. Florida’s southwest coast city of Fort Myers
One more Florida hotspot is Fort Myers. With its location on the west coast of Florida, Fort Myers enjoys the beautiful weather without the hurricane season being so harsh. Fort Myers has been spared the brunt of the hurricanes, which makes it difficult to afford hurricane protection and insurance.
The Gulf Coast, real estate market is soaring at the moment. There isn’t enough inventory to satisfy the rising demand. In Fort Myers, you should expect to pay more upfront, but this is a long-term investment in your vacation rental, and the Florida trend shows no signs of slowing down any time soon.
3. Gatlinburg, Tennessee
At the foothills of the Smoky Mountains, this beautiful Tennessee village is located. Thousands of people visit the national park each year. Investors in the Gatlinburg region have a golden chance to cash in on the influx of tourists. There is no doubt in my mind that I will have a steady flow of customers and a well-defined audience.
This is a good spot to start a company renting out cabins. There are no bureaucratic roadblocks to getting your short-term rental business up and operating in Gatlinburg because of OTA-friendly rules.
4. Colorado’s resort town of Breckenridge
Breckenridge is a great option for those who don’t want to spend their vacations on the beach or in the sun. Located in the heart of the Rocky Mountains, this town is a must-visit for anybody looking for a winter getaway.
The money you spend in a Breckenridge vacation rental pays for itself. Many tourists already know the region and seek a place to stay throughout their vacation. Breckenridge is a great place to invest in a holiday rental, whether purchasing a little log cabin or a huge property.
5. California’s Lake Tahoe region
They come in many forms and sizes, but waterfront properties are always in demand. Many people go to South Lake Tahoe for a relaxing holiday by the lake. Investing in a vacation rental directly on the ocean during the high season is a sure way to make a lot of money.
Beautiful as it is, the place sells itself. As a bonus, the property values in this location are high, so if you want to sell your vacation rental home in the future or transform it into a permanent residence, you’ll have no problem.
6. Arizona’s Lake Havasu
Choosing a vacation spot in the desert is a no-brainer. Lake Havasu is an up-and-coming market, so it’s a good place to put your money. When you buy now, you’ll be able to realize larger profit margins when you open your doors to visitors.
Like the rest of Arizona, Lake Havasu has a long snowbird season. Lake Havasu is a popular winter destination for individuals who want to avoid the cold. Those that stay longer and spend more are high-quality tourists. Lake Havasu is a great place to benefit from a mostly untapped market.
7. Fresno County, California
Fresno has a reputation for drawing a large audience. Graduations, parent visits, and other such events contribute to a low vacancy rate because of the huge student population. Additionally, Fresno is an excellent location to attract city inhabitants who want to get away from the metropolis. There are other investment possibilities in Fresno County, which may be found on the opposite side of the country.
For the price of a home in coastal California, you can’t beat it here. California doesn’t often get great marks for being a smart investment because of its higher listing costs, but Fresno stands out. There are fewer barriers to entry and better returns in Fresno’s vacation rental investing industry.
8. Raleigh-Durham, NC
It’s like trying to decide between a beach trip and a mountain getaway when it comes to the best vacation rental investments: impossible! Both cities’ real estate indicators are practically equal, placing them in a good investment range. Due to the low cost of real estate in this region, the CAP rate for these two cities is quite high, and there is little to no entry barrier.
Regardless of the numbers, the three cities that make up “The Triangle” draw many tourists. However, because of the proximity of the cities, tourists may choose to stay in any one of them when visiting Raleigh, Durham, or Chapel Hill. The increased occupancy rates of vacation rentals in these two locations show that many visitors are becoming aware of all the advantages these places offer.
9. The city of Cincinnati, Ohio
This city in the Midwest is on the rise. Vacation rentals are becoming more popular in this region because of a growing population and a thriving property market. Despite the cheaper cost of admission and affordable housing costs, Cincinnati’s occupancy rates, reservations, and average daily rate are all at an all-time high. Investors who want to launch a short-term rental company in this city have many options.
10. Baltimore, Maryland
Baltimore, Maryland, is a short drive from Washington, D.C. Recently, this metropolitan region has received a lot of attention because of its improved liveability and tourism attractiveness.
There is no doubt that Washington D.C. is a popular destination for visitors, but the cost of living inside the city boundaries may be prohibitive for most. The city is near enough for vacation rental owners in Baltimore, Maryland, who want to profit from D.C. visitors without paying a hefty fee.
Let’s see what you can do.
These 10 locations are now some of the top spots in the United States to invest in a vacation rental.
To ensure that short-term rentals are legal in your area and to learn about the taxes and fees you’ll have to pay, check the local short-term rental laws before deciding to invest in a holiday property in any of these areas.
The exciting and lucrative road of real estate investment and launching your vacation rental company may begin after you’ve resolved all legal obstacles.
A vacation rental purchase is only the beginning of a long and exciting journey. There are many benefits to owning short-term rental property, but it isn’t over when you hand over the deed. Property management software is a must for every successful vacation rental company.
You can keep track of all of your reservations from a single location, link with popular online travel agencies like Airbnb and Vrbo, and operate your website. To get started, you’ll need to buy the property and then use Lodgable’s cutting-edge vacation rental software.