Real Estate

The Top 10 Most Lucrative Markets To Buy A Vacation Rental

Domestic travel has been surging over the past few months as the vaccine becomes widely available and travel restrictions ease.

In July, The New York Times reported that the number of domestic travelers had exceeded surge forecasts. According to the report, Delta Air Lines expects domestic business trips to hit about 60 percent of its 2019 levels by September.

With traveling on the rise, short-term rentals could be a sound way to produce profit. 

In July, demand for second homes fell 21 percent year over year, according to a Redfin analysis released Tuesday. The decrease in demand means less competition and more affordable prices for those looking to grab a slice of the vacation-rental pie.

But which markets should investors pour their money into?

Vacation rental management giant Vacasa released its 2021 ranking of the best places in the U.S. to buy a vacation rental

“Market conditions are always shifting, but the accelerated and lasting adoption of short-term rentals during the pandemic has had a clear impact on second home sales. The spike in guest demand and preference for new, more remote destinations is changing where prospective buyers can find the best investment properties,” said Shaun Greer, Vacasa’s VP of sales and marketing.

“According to our 2021 Vacation Rental Buyer Report, more people are looking to capitalize on the opportunity too, with 70 percent of current buyers looking to invest in their first rental property – a significant jump from the 46 percent who were first-time buyers in 2019,” Greer added.

To find the top markets, Vacasa looked at home sales and rental data from July 2020 through July 2021 in markets where it manages rentals. Each market was ranked according to the cap rate, median home sale price, and annual gross rental revenue. 

The cap rate, which is the expected rate of return on an investment, was determined by gathering the average property taxes, utilities, HOA fees, insurance, and property management fees in each market.

From Vacasa’s list of the top 25 markets, Inman rounded up the top 10. 

1. Gatlinburg, Tennessee 

Cap rate: 8.6%

Median home sale price: $320,111

Annual gross rental revenue: $47,328

Population as of 2019: 4,004

Gatlinburg’s second-home market has been growing in popularity in recent years. Per Vacasa, it secured the number four spot in its 2020 ranking. 

The mountain town sits near the eastern edge of the state and serves as a gateway to the Great Smoky Mountains National Park. It’s also a destination hotspot for skiers and is home to Ober Gatlinburg, a popular amusement park and ski area.

St. Augustine, Florida. benedek/Getty Images

2. St. Augustine, Florida

Cap rate: 7.4% 

Median home sale price: $365,576

Annual gross rental revenue: $46,557

Population as of 2019: 15,415

St. Augustine sits on the northeastern coast of Florida. Per Vacasa, this is the the first time the market has made the list. 

St Augustine is the oldest city in the U.S. It’s home to Castillo de San Marcos, the oldest masonry fort in the country, and the number one whiskey tour in North America.

3. Gulf Shores, Alabama

Cap rate: 6.8%

Median home sale price: $402,905

Annual gross rental revenue: $46,107

Population: 12,757

Gulf Shores sits on Alabama’s Gulf Coast.

 In addition to its famous white-sand beaches, Gulf Shores is home to the Alabama Gulf Coast Zoo as well as an array of famous restaurants like Lulu’s, a town favorite owned by Jimmy Buffett’s sister.

Dauphin Island, Alabama. Andy Mcbee / EyeEm/Getty Images

4. Dauphin Island, Alabama

Cap rate: 6.8% 

Median home sale price: $382,699

Annual gross rental revenue: $43,371

Population as of 2019: 1,324

Like Gulf Shores, Dauphin Island sits on Alabama’s Gulf Coast. Per Vacasa, the market is a kid-friendly vacation spot known for the Dauphin Island Sea Lab and the Audubon Bird Sanctuary.

Dauphin Island has only recently started growing in popularity, making it an ideal place for a low-profile getaway. Per Vacasa, the beaches are relatively quiet and uncrowded.

5. Norris Lake, Tennessee

Cap rate: 6.2%

Median home sale price: $343,907

Annual gross rental revenue: $43,371

Norris Lake is about 56 miles from Knoxville, the third largest city in Tennessee. According to Vacasa, the reservoir boasts 52 square miles of freshwater. There, vacationers are able to enjoy water activities as well as Gibbs Ferry and Cove Lake State Park.

Earlier this year, Norris Lake was ranked number two in Vacasa’s Best Places to Buy a Lake House report. 

6. Blue Ridge, Georgia 

Cap rate: 6.1%

Median home sale price: $290,934

Annual gross rental revenue: $38,266

Population as of 2019: 1,157

Blue Ridge is located in northern Georgia and borders Tennessee. In addition to its hiking trails, the mountain town is known for its orchard festivals which attracts droves of visitors each year, according to Vacasa.

Palm Springs, California. Barry Winiker/Getty Images

7. Palm Springs, California

Cap rate: 5.9%

Median home sale price: $539,370

Annual gross rental revenue: $52,784

Population as of 2019: 47,897

Palm Springs is the first West Coast market on Vacasa’s list. Located in the Sonoran Desert in southern California, Vacasa has called the city one of the top vacation destinations in the state.

Per a report by TimeOut, some of Palm Springs’ biggest attractions are its dry landscape, mid-century vacation homes, golf courses, and buoyant dining scene.

8. Deep Creek Lake, Maryland

Cap rate: 5.7%

Median home sale price: $439,367

Annual gross rental revenue: $51,031

Deep Creek Lake is a popular vacation spot in both the summer and winter months, according to Vacasa.

Located near the western end of Maryland, summer visitors can enjoy water activities like boating and tubing, and winter visitors are able to ski or snowboard at the Wisp Resort.

9. Seaside, Oregon

Cap rate: 5.2%

Median home sale price: $466,086

Annual gross rental revenue: $45,249

Population in 2019: 6,892 

Located on the edge of Oregon, Seaside is a popular vacation spot for those looking to spend some time on the West Coast. Per Vacasa, the entire town is walkable and is home to the Seaside Promenade, a boardwalk that stretches along the Pacific Ocean

Ludlow, Vermont. Courtesy of Vacasa

10. Ludlow, Vermont

Cap rate: 5.2%

Median home sale price: $346,950

Annual gross rental revenue: $42,638

Population as of 2019: 688

Ludlow is a popular winter getaway in Vermont and ranked number one in Vacasa’s recent Best Places to Buy a Winter Vacation Home report.

There, vacationers can enjoy skiing and snowboarding at the Okemo Mountain Resort. The area is also known for its swimming holes and waterfalls at Buttermilk Fall

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