In recent years, investing in vacation rentals has become a popular trend in the real estate market. With the short-term rental industry's revenue expected to reach $20 billion by 2025, more and more travelers are choosing vacation homes over hotels. This has led to an increase in investors considering buying vacation properties for profitable rentals.
If you're looking to start or expand your vacation rental business, it's essential to research the best markets in advance. The location of your property plays a crucial role in its success. You want to invest in areas with high demand for short-term rentals and strong rental income potential.
To help you make an informed decision, we have researched and analyzed property data to compile a list of the USA's top 10 places to own a vacation rental property in 2023.
What Makes a Location Ideal for Vacation Rental Property?
Defining the best places to buy vacation rental property can vary depending on different factors. However, for the purpose of maximizing revenue, we focus on profitability. We have used data from experts in short-term rental analytics like AirDNA, advanced real estate data analytics tools like Mashvisor, and property management solutions like Evolve to identify markets with attractive cap rates for short-term rental investments.
Cap rate, short for capitalization rate, is a critical real estate metric that measures the profitability of an investment property. It is calculated by dividing the net operating income (NOI) of the property by its current market value (CMV). Although not the sole indicator of success, cap rate is an essential tool for evaluating vacation rental markets.
Cap Rate = Net Operating Income (NOI) / Current Market Value (CMV)
The rising cap rates in the vacation rental market indicate a growing demand for short-term rentals. Cap rates are projected to reach 7% in 2023, making it a favorable time to invest in vacation rental properties. Fall, in particular, is considered the best time to buy, as it follows the peak season and offers a good return on investment.
What Cap Rate is Ideal for Vacation Rentals?
The ideal cap rate for vacation rentals varies depending on the investor's risk tolerance and investment goals. Higher cap rates generally indicate better investment opportunities, but they can also come with increased risk. On the other hand, lower cap rates can still be profitable but are commonly found in highly saturated areas with an established short-term rental market.
To strike a balance between investment and risk, it is advisable to aim for a cap rate between 5-10%. Factors such as location, neighborhood, and specific areas within a city can significantly impact the cap rate. For instance, in New York City, Manhattan's cap rate is 3.9%, while Queens boasts a 5.03% cap rate. Each location has unique characteristics that influence its cap rate.
USA's Top Vacation Rental Property Markets for 2023
The vacation rental market is continuously evolving, with this year's top markets differing from the previous year. We have curated a list of the best places to invest in vacation rentals based on ideal cap rates, affordable median home prices, and high vacation rental occupancy rates.
1. Gatlinburg, TN
- Cap rate: 9.2%
- Median home price: $301,725
- Vacation rental occupancy rate: 74%
Gatlinburg is an enchanting destination nestled in the Great Smoky Mountains. With over 14 million visitors in 2021, it attracts outdoor enthusiasts throughout the year. Gatlinburg offers family-friendly attractions like Anakeesta Adventure Park and Ober Mountain, making it an ideal location for starting a cabin rental business.
Image: The Great Smoky Mountains
2. Windham, NY
- Cap rate: 9.2%
- Median home price: $290,295
- Vacation rental occupancy rate: 40%
Windham, located in the heart of the Catskill Mountains, is an hour's drive from Albany. It is a popular destination for New Yorkers seeking a getaway from bustling city life. The area offers ample opportunities for outdoor activities, and short-term rental properties with luxury amenities like hot tubs and fire pits are in high demand.
3. Savannah, GA
- Cap rate: 9.0%
- Median home price: $278,598
- Vacation rental occupancy rate: 69%
Savannah, Georgia, exudes Southern charm with its picturesque Spanish moss and antebellum architecture. Visitors flock to Savannah for its beautiful Forsyth Park and historic River Street waterfront. With 7.7 million overnight guests in 2020, the city's popularity is expected to grow in 2023. Investors should focus on properties that embrace the area's architectural style.
Image: Savannah, GA
4. Harpers Ferry, WV
- Cap rate: 7.88%
- Median home price: $399,075
- Vacation rental occupancy rate: 63%
Harpers Ferry, situated at the confluence of the Potomac and Shenandoah rivers, is a charming West Virginia town. It attracts thousands of visitors annually, thanks to its proximity to the Appalachian Trail and the Harpers Ferry National Historical Park. Short-term rentals in Harpers Ferry generate an average monthly revenue of $3,595, offering a lucrative opportunity for investors.
5. Bryson City, NC
- Cap rate: 7.8%
- Median home price: $246,333
- Vacation rental occupancy rate: 63%
Bryson City is a popular destination for those looking to explore the Great Smoky Mountains National Park. Outdoor enthusiasts can indulge in activities like hiking, white-water rafting, fishing, and biking. The town also offers a relaxing atmosphere with local bookstores, artisan craft shops, breweries, and festivals. Bryson City is an excellent choice for a glamping business.
6. Bar Harbor, ME
- Cap rate: 7.28%
- Median home price: $493,800
- Vacation rental occupancy rate: 90%
Bar Harbor, located on Mount Desert Island in Maine, is a breathtaking coastal destination. Visitors are drawn to its stunning views, local seafood, and proximity to Acadia National Park. Bar Harbor boasts an occupancy rate of 90%, making it one of the best places to invest in vacation rental property. Approximately 40% of rentals have a minimum night stay of 4-6 nights.
Image: Bar Harbor
7. Penn Yan, NY
- Cap rate: 7.22%
- Median home price: $260,920
- Vacation rental occupancy rate: 67%
Penn Yan, situated on the north shore of Keuka Lake, is a small town known for its upmarket wineries, vineyards, and outdoor activities. Fishing, boating, and hiking are among the attractions in the Finger Lakes region. Penn Yan saw a significant rise in the number of short-term rentals last year and offers an average monthly revenue of $5,034, making it an attractive investment option.
8. The Poconos, PA
- Cap rate: 6.7%
- Median home price: $271,985
- Vacation rental occupancy rate: 72%
The Pocono Mountains in Pennsylvania is a family-friendly destination offering a range of activities year-round, including golfing, skiing, and exploring lakes, waterfalls, and forests. The area attracts around 30 million visitors annually, making it a safe bet for your Airbnb investment. The top-performing short-term rentals in the Poconos can earn triple the median income.
Image: The Poconos
9. Branson, MO
- Cap rate: 5.8%
- Median home price: $237,371
- Vacation rental occupancy rate: 54%
Branson, Missouri, is famous for its family-friendly attractions and proximity to outdoor activities in the Ozark Mountains. Visitors come to Branson for hiking trails and various water sports on Table Rock Lake. With short-term rentals more than doubling since 2019, Branson is one of the top vacation rental markets for 2023.
10. Granbury, TX
- Cap rate: 5.0%
- Median home price: $394,776
- Vacation rental occupancy rate: 55%
Granbury, located near Lake Granbury, is a thriving short-term rental market and an ideal vacation destination from Fort Worth and Dallas. Visitors come to relax along Granbury City Beach Park and explore Historic Granbury Square. The town hosts numerous festivals and markets throughout the year. Short-term rentals in Granbury generate a median rental revenue of $28,305.
Legislation and Taxes
While these destinations offer high returns on investment, it's crucial to review local short-term rental legislation before making a commitment. Familiarize yourself with the taxes and fees associated with vacation rentals and consider states with favorable property tax rates for short-term rental investments.
Before embarking on your vacation rental journey, it's essential to have proper property management software in place. Platforms like Lodgify can help you efficiently manage bookings, connect with major OTAs like Airbnb and Vrbo, and run your own website from one convenient place. Take advantage of a no-commitment, 7-day free trial to see how Lodgify fits your needs.
Contributing Author: Daniela Andreevska
Image: Daniela Andreevska, Content Marketing Director at Mashvisor
