It’s common knowledge that even America’s best vacation rental investment locations have also been affected profoundly by the COVID-19 pandemic. Since the virus has caused a financial crisis, the usual places on most investors’ lists have changed dramatically.
So, is investing in vacation rentals still viable? It depends—some of the investments made last year are struggling to stay profitable, while some have seen a surge in demand. But the main takeaway is that returns are still strong, but the places you should invest in have changed.
This article explains why buying a short-term vacation rental is always a good investment to make and where some of the best locations in the US to do it are.
Owning a Vacation Rental: Why Is It a Smart Decision to Make
When you follow all the right steps in buying a short-term rental property, there’s a good chance that you’ll reap the benefits of cashing in on this opportunity. The most significant advantage of owning a vacation rental is improved cash flow. If you list your property on vacation rental platforms, like Airbnb or VRBO, you will generate a decent income if it sees enough demand.
Aside from that, the tax perks that come with vacation rentals can be beneficial. Of course, your business will be taxed. However, you can still deduct expenses, like utility costs, occupancy taxes, property management fees, and mortgage interest from it.
The Best Vacation Rental Markets in the US in 2020
If you read most of the reports made this year about the best places to invest in vacation rentals, you will see a huge change. A good article on the best place to own a vacation rental will most likely recommend you to invest in locations away from cities to rural areas since the coronavirus cases are lower in these places. Here are 5 of the best places in the US to invest in vacation rentals in 2020:
1. Surfside Beach, Texas
This quaint town on the Texas coast can be reached after driving an hour from Galveston. It offers visitors the standard beach fare. But the sea and the wildlife in the nearby Brazoria National Wildlife Refuge are perfect for surfing and birdwatching. So, the town is a unique and family-friendly destination.
Most of the properties with high demand in Surfside Beach usually have an inviting outdoor area, as families often prefer to have a space for barbecue and dinner on the deck. Also, the fantastic views of the sunset and the access to the beach will surely make your property sought-after by tourists. But finding a property in the area won’t be hard, since it is located in a narrow tract of land, so beachfront property is very common.
Average rental revenue: $24,000
Average listing price: $110,000
2. McGaheysville, Virginia
If Virginia is a famous destination for romantics, McGaheysville is perfect for nature lovers. Found in the middle of the Shenandoah Valley, this community is known for extreme outdoor activities, like hiking, canoeing, skiing, rafting, and kayaking. Tourists can also explore the Massanutten Resort in the north and the Appalachian Trail in the south, so a rental property in McGaheysville is perfect for them.
If you want to invest in this area, try to find one near Massanutten Resort or Shenandoah National Park. Doing so will make your property very convenient for guests to explore both areas. You should also offer amenities, such as an outdoor area, a game room, a private hot tub, etc.
Average rental revenue: $50,000
Average listing price: $289,000
3. Gatlinburg, Tennessee
Gatlinburg is a mountain resort destination perfect for families, friends, couples, bachelors, and bachelorettes. Tourists come to this place for ten months out of the year to visit Ripley’s Aquarium of the Smokies and Dollywood, to see the stunning wilderness of the Great Smoky Mountain National Park, and to ski at Ober Gatlinburg. So, the closer your property is to these places, the better.
Although the median yearly rental revenue in the area hovers around $45,000, some investors earn more than $150,000 each year. Most rentals here offer essential amenities, like gas grills, hot tubs, fire pits, and game rooms.
Average rental revenue: $45,000
Average listing price: $320,000
4. Broken Bow, Oklahoma
Boasting several historical sites and lush flora and fauna, Broken Bow is located in southeast Oklahoma. Situated between the Ouachita and Kiamichi Mountains, the town is the gateway to the Beavers Bend State Park, which is home to bald eagles and black bears. The park also has numerous forest trails.
Broken Bow also allows tourists to go boating on the nearby lake, fish in the Lower Mountain Fork River, hike the numerous trails, and ride horses through the David Boren Hiking Trail.
Since outdoor buffs want to be closer to the action, investing in a vacation rental property close to these locations is essential. A rustic-looking (yet contemporary) cabin is one of the most popular accommodation choices for tourists in town. If this is what you’re looking for, you should consider buying a property close to the Broken Bow Lake and offer amenities, such as a furnished outdoor space, a fireplace, a fire pit, and a private hot tub.
Average rental revenue: $40,000
Average listing price: $400,000
5. Davenport, Florida
Although it is a quaint town, Davenport is rapidly growing despite the recession because it is very close to the Disney World theme park. But that’s not the town’s only selling point for tourists; it also hosts several popular golf courses, a lot of shopping centers, and must-visit attractions, like the Lake Kissimmee State Park and the Bok Tower Gardens. If you want to have a very good ROI, though, you should consider looking for properties close to Disney World.
But if you want to attract all types of guests, the property you should invest in must have a game room, outdoor deck, several bedrooms, and additional sleeping areas to accommodate larger groups. Most of the in-demand listings in the area can host 22 guests—perfect for families on vacation.
Average rental revenue: $33,000
Average listing price: $255,000
How to Select Good Vacation Rentals to Buy
These are some of the factors that you need to consider before buying a vacation rental property:
- Rental income: If you own a property in the best vacation rental markets, your rental income will surely be steady and sustainable. But not all markets can be conducive to a steady income stream that can also cover the overhead costs. If your main purpose in investing is to maintain a positive cash flow, you should consider buying a property in one of the areas mentioned above or in a traditional rental property.
- Appreciation: Aside from rental income, you should consider another essential factor—the property’s appreciation. As an investor, you should look out for predictions in the real estate market because many markets can have significant price swings that are directly related to the economic conditions. If you carefully research your target market, you will be able to determine if the property will appreciate in the long-term so that you can build equity over time.
- Expenses: Your potential expenses can be from the usual incidentals, like fees, mortgage, utilities, and unplanned/emergency maintenance expenses. So, you need to be careful because these expenses can cost more than your cash flow. You also need to project a larger expense budget and make cash reserves in case unexpected incidents happen.
- Taxes: Taxes can be complicated in that they can either be a bane or a boon to your business. Before investing in a vacation rental, you should see if you can afford local, state, and federal property taxes, as well as other taxes that your property can incur. But you can ease this financial burden by writing off some expenses by using some tax perks for short-term rental property businesses.
- Risk: Even if you own the most attractive property in the best vacation rental investment locations, it will still have some risks, like financial loss from a recession or adverse weather conditions. To prevent your business from being subjected to risk, you should focus on these downsides and account for them while you are still in the planning stages.
If you’re going to invest in vacation rental properties, don’t just look at the usual destinations. Some towns and cities seem to be great tourist spots that can be a bad investment if the real estate prices are too steep or if there’s an oversupply of choices. Based on this list, some of the best vacation rental investment locations are in areas that aren’t visited by millions of people. Also, don’t forget to consider rental income, appreciation, expenses, taxes, and the risks before investing in a vacation rental property.
Learning how to generate additional income can be complicated, but when the cash starts flowing in, it’ll all be worth it. For more helpful tips and information, browse our site!