2020 is almost here and savvy real estate investors have already started preparing for their next purchase. Of course, the first thing any investor would want to know is where the best places to invest in real estate are. Identifying these locations is especially important if you’re thinking of buying a vacation home rental.
While this is considered one of the best investment strategies for making money in real estate, buying a vacation home to rent out on short-term rental sites like Airbnb requires more than simply choosing your favorite vacation destination as your investment location. After all, not all short-term rental markets are created equal.
So, if you want to maximize your Airbnb return on investment, you need to know which rental markets have a strong rate of return, high Airbnb occupancy rate, and favorable short-term rental regulations. These are the best places to buy a vacation rental property as a real estate investor.
In this article, we’ll explain exactly why you should invest in a vacation home in 2020 – whether you’re thinking of buying your first rental property investment or expanding your vacation rental portfolio. We’ll also teach you about the factors to take into consideration which will help you identify the best places to invest in vacation homes.
Finally, we’ll list our top 10 locations for buying a vacation home in the US housing market in 2020 according to Airbnb rental data from Mashvisor’s Investment Property Calculator. To learn more about our tool, click here.
Why Should You Invest in Vacation Homes?
From a real estate investor’s point of view, buying and owning a vacation home rental comes with many benefits. Here are some of the most important reasons to consider investing in these properties:
#1. They Serve a Dual Purpose
The idea of having a dual-use property sounds very appealing. First, you will have your own place in your favorite location to stay in during your holidays and vacations. Meaning, you’ll have a homey environment that you’ll personally enjoy and never have to worry about booking an expensive hotel room or an Airbnb.
Second, you can make money from renting out the vacation property for the rest of the year! Many real estate investors invest in multiple vacation rental properties in sought-after destinations around the world and build a portfolio of income-generating assets.
After all, one reason for the growth in the short-term rentals industry is the fact that Airbnb rentals can generate higher rental income than traditional rentals. So, buying a vacation home in 2020 will not only be an enjoyable investment but a financially rewarding one as well.
#2. They Are Considered a Low-Risk Real Estate Investment
Any investor (whether he/she is investing in rental properties or other options) hopes to find low-risk investment opportunities that allow him/her to accumulate money over time without the chance of losing that hard-earned cash.
When it comes to real estate investing, buying a vacation rental property is considered one of the best low-risk investments with high returns! Of course, to make sure that this investment will bring high returns, you’ll have to do a real estate market analysis as well as a rental property analysis.
But, if for some unexpected reason this investment turned out to be not as profitable as you initially estimated, you can always switch your rental strategy – turn it into a traditional rental and lease it out to long-term tenants.
And in any case, this is still your second house which you can keep for your own purposes. If you don’t like the idea of someone else renting your property for the long-term, you can simply hold on to it and let real estate appreciation do its magic.
Over time, the value of your investment property will increase and, when the time comes to sell it, you can list it for a higher price and get a good return on investment. The worst-case scenario would be if you sell the vacation home right away and use whatever profit you got as a down payment on a new real estate investment property.
Note: You’ll always ensure that buying a vacation home is a profitable, low-risk investment when using the right tools. Click here to check out Mashvisor’s tools and learn how we’ll help you make faster and smarter real estate investment decisions.
#3. They Come With Tax Benefits
One of the many benefits of real estate investing, in general, is the tax deductions available to investors which allows them to increase their cash flow and make more money. If you own a vacation home that you rent out on the short-term rental market, you too may be in better tax shape than you thought when income tax time comes.
First off, hosts are allowed to deduct “ordinary and necessary” expenses related to their vacation rental business. There’s also plenty of other deduction opportunities that may apply to you depending on how many days a year the property is rented by guests and how many days it’s used by you for your personal stays.
Many short-term rental hosts and owners miss out on these tax benefits simply because they’re not aware of them. Therefore, it pays to do a little research and study the regulations before buying a vacation home to rent out in 2020. Both knowing what you can deduct from along with keeping track of these expenses can help real estate investors take maximum advantage of tax savings on their vacation rental properties.
How to Identify the Best Places to Buy a Vacation Home
As a real estate investor, you can’t simply buy vacation rental property and hope it produces a good return on investment. There are a number of things you must consider beforehand to find out what makes a desirable vacation rental market. If you’re already convinced that investing in vacation homes in 2020 is a great idea, then take a closer look at some of the most important factors that make for the best places to own a vacation home.
#1. Airbnb Rental Regulations
The first question to ask yourself when choosing a short-term rental market is: Can I run an Airbnb business here without getting into legal trouble? Many cities and towns across the US implement strict short-term rental laws or outright ban non-owner occupied Airbnb rentals.
Los Angeles, for example, could make for a great place to invest in Airbnb rentals if it wasn’t for the fact that it only allows primary residences to be listed on the site. Moreover, while some cities allow investors to rent out on Airbnb, they often require obtaining a permit first. So, make sure you learn about short-term regulations in your housing market of choice before buying a vacation home.
#2. Demand for Airbnb Rentals
The next important factor that determines whether or not a certain market is good for Airbnb real estate investing is the demand for these rentals. Research how often vacation rental properties are booked using sites like Airbnb throughout the year.
Finding the Airbnb occupancy rate and Airbnb listing growth rate is a good way to see whether or not the housing market draws short-term rental demand. Naturally, the best places to buy vacation rental property will have a high Airbnb occupancy rate suggesting that the demand for Airbnb rentals is strong.
#3. Airbnb Rental Income
Ask yourself: How much do Airbnb hosts earn on a monthly basis from renting out their vacation homes in this market? If creating positive cash flow is your primary motivation behind buying a vacation home in 2020, then you’ll want to invest in locations and properties that generate a steady stream of rental income that will consistently cover all rental expenses.
Hence, the best places to invest in vacation rental property will not only have a high occupancy rate, but a high nightly rate as well. In turn, this will translate into a high Airbnb rental income.
#4. Real Estate Property Prices
This is an important factor, especially for beginner investors or those investing in real estate on a budget. The property sale price is one of the main factors that will determine your return on investment, in terms of both cap rate and cash on cash return.
While you do have a wide range of financing options for buying a vacation property, investing in a market where home prices are reasonable and affordable is always a smart move. After all, the less you put in of your own cash for short-term rental properties, the better your return on investment will be.
#5. Airbnb Return on Investment
Whether you’re a beginner or seasoned investor, you must be seeking a high return on investment. If you’re thinking of buying a vacation home to rent out in 2020, it’s important to take into account not just the appeal of the location, but also how profitable the real estate investment will be.
In other words, you have to find a top location that yields high returns if you want to make money with this rental strategy. A good Airbnb return on investment is the result of a high Airbnb occupancy rate, high Airbnb rental income, and affordable property prices. If you found a location with these three characteristics, then you have found the most profitable Airbnb locations!
What Are the Best Places to Buy Vacation Rental Property in 2020?
We know that having to gather and analyze all of this information sounds like a daunting task for investors. As such, we’ve done the research for you and put together a list of the 10 best places for buying a vacation home in the US in 2020.
To create this list, we took the previous factors as our search criteria. Meaning, the following cities offer investors the highest cash on cash return, along with a better cap rate, Airbnb rental income, and occupancy rate.
Property prices in these locations are also reasonable and some are even below the US median according to Mashvisor’s Airbnb Profitability Calculator. This real estate investment tool provides readily calculated Airbnb rental data on investment opportunities in the US housing market 2020, making it a must-have for Airbnb investors looking to save time, effort, and money.
Note: The cap rate and cash on cash return below are equal because Mashvisor assumes all-cash property payments by default. However, if you plan to take out a mortgage loan to buy a rental property, as most investors do, simply plug in your financing details and the calculator will adjust the return on investment figures immediately. Read more about our tool here: Airbnb Profit Calculator: The Ultimate Real Estate Investment Tool.
To get access to our real estate investment tools, sign up for a 7-day free trial of Mashvisor today, followed by 15% off for life.
This real estate infographic was created by Venngage Infographic Maker.
#1. Huntington, Vermont
- Median Property Price: $155,746
- Price/Square Foot: $79
- Airbnb Rental Income: $1,996
- Airbnb Occupancy Rate: 45.1%
- Airbnb Cash on Cash Return: 8.3%
- Airbnb Cap Rate: 8.3%
- Traditional Rental Income: $1,024
- Traditional Cash on Cash Return: 3.2%
- Traditional Cap Rate: 3.2%
To start searching for profitable Huntington vacation homes, click here.
#2. Tuscaloosa, Alabama
- Median Property Price: $328,238
- Price/Square Foot: $188
- Airbnb Rental Income: $3,665
- Airbnb Occupancy Rate: 39.3%
- Airbnb Cash on Cash Return: 7.7%
- Airbnb Cap Rate: 7.7%
- Traditional Rental Income: $915
- Traditional Cash on Cash Return: 0.6%
- Traditional Cap Rate: 0.6%
To start searching for profitable Tuscaloosa vacation homes, click here.
#3. Sevierville, Tennessee
- Median Property Price: $385,527
- Price/Square Foot: $180
- Airbnb Rental Income: $3,521
- Airbnb Occupancy Rate: 72.8%
- Airbnb Cash on Cash Return: 7.7%
- Airbnb Cap Rate: 7.7%
- Traditional Rental Income: $1,300
- Traditional Cash on Cash Return: 1.4%
- Traditional Cap Rate: 1.4%
To start searching for profitable Sevierville vacation homes, click here.
#4. Buffalo, New York
- Median Property Price: $186,125
- Price/Square Foot: $101
- Airbnb Rental Income: $2,282
- Airbnb Occupancy Rate: 58.7%
- Airbnb Cash on Cash Return: 7.6%
- Airbnb Cap Rate: 7.6%
- Traditional Rental Income: $1,018
- Traditional Cash on Cash Return: 1.8%
- Traditional Cap Rate: 1.8%
To start searching for profitable Buffalo vacation homes, click here.
#5. Gatlinburg, Tennessee
- Median Property Price: $393,935
- Price/Square Foot: $204
- Airbnb Rental Income: $3,800
- Airbnb Occupancy Rate: 70.1%
- Airbnb Cash on Cash Return: 7.5%
- Airbnb Cap Rate: 7.5%
- Traditional Rental Income: $1,642
- Traditional Cash on Cash Return: 2.0%
- Traditional Cap Rate: 2.0%
To start searching for profitable Gatlinburg vacation homes, click here.
#6. Memphis, Tennessee
- Median Property Price: $213,220
- Price/Square Foot: $66
- Airbnb Rental Income: $1,822
- Airbnb Occupancy Rate: 61.8%
- Airbnb Cash on Cash Return: 7.3%
- Airbnb Cap Rate: 7.3%
- Traditional Rental Income: $988
- Traditional Cash on Cash Return: 2.1%
- Traditional Cap Rate: 2.1%
To start searching for profitable Memphis vacation homes, click here.
#7. Marana, Arizona
- Median Property Price: $349,974
- Price/Square Foot: $153
- Airbnb Rental Income: $3,898
- Airbnb Occupancy Rate: 49.6%
- Airbnb Cash on Cash Return: 7.2%
- Airbnb Cap Rate: 7.2%
- Traditional Rental Income: $1,400
- Traditional Cash on Cash Return: 1.1%
- Traditional Cap Rate: 1.1%
To start searching for profitable Marana vacation homes, click here.
#8. Hutchinson, Kansas
- Median Property Price: $186,729
- Price/Square Foot: $80
- Airbnb Rental Income: $2,286
- Airbnb Occupancy Rate: 56.1%
- Airbnb Cash on Cash Return: 7.1%
- Airbnb Cap Rate: 7.1%
- Traditional Rental Income: $1,078
- Traditional Cash on Cash Return: 1.8%
- Traditional Cap Rate: 1.8%
To start searching for profitable Hutchinson vacation homes, click here.
#9. Springfield, Missouri
- Median Property Price: $212,686
- Price/Square Foot: $94
- Airbnb Rental Income: $1,922
- Airbnb Occupancy Rate: 55.0%
- Airbnb Cash on Cash Return: 7.0%
- Airbnb Cap Rate: 7.0%
- Traditional Rental Income: $972
- Traditional Cash on Cash Return: 1.4%
- Traditional Cap Rate: 1.4%
To start searching for profitable Springfield vacation homes, click here.
#10. Jonesboro, Arkansas
- Median Property Price: $255,204
- Price/Square Foot: $107
- Airbnb Rental Income: $2,165
- Airbnb Occupancy Rate: 58.4%
- Airbnb Cash on Cash Return: 7.0%
- Airbnb Cap Rate: 7.0%
- Traditional Rental Income: $1,068
- Traditional Cash on Cash Return: 0.7%
- Traditional Cap Rate: 0.7%
To start searching for profitable Jonesboro vacation homes, click here.
Final Words for Real Estate Investors
Thinking of buying a vacation home to rent out on Airbnb as a strategy for making money in real estate? According to our Airbnb rental data and analysis, these are the best places to buy vacation rental property in 2020 in the US housing market. The top things that these cities have in common include reasonable prices, high rental income, occupancy rate, and overall return on investment.
While it’s generally legal to start an Airbnb business in these cities, it pays to do more research and check the specific laws and regulations surrounding short-term rentals such as permitting and zoning requirements in your market of choice. The last thing you want as a real estate investor is to get in trouble with the law.
Have you decided on which market you want to own a vacation home in 2020? You can start your property search as well as property analysis on Mashvisor today! Mashvisor allows you to not only find the best Airbnb properties for sale in your city and neighborhood of choice but also to use the Airbnb Profitability Calculator and analyze the rate of return you’ll get from buying a vacation home as an investment.
To start searching for and analyzing rental properties for sale with high returns, sign up for Mashvisor now.