When it comes to investing in a vacation rental property, there are many things to consider, but one thing is for certain: beachfront properties, or those near the ocean, never go out of style.
Before you start scanning coastlines, there are a few things to think about — especially if you plan to use your new home as a short-term vacation rental.
A new report from Vacasa, North America’s largest vacation rental company, has ranked vacation rental markets based on aggregate cap rate. Capitalization rate (referred to as cap rate by most) is the ratio of a property’s net operating income over its cost.
To determine net operating income for the study, Vacasa first calculated gross rental income for each market. From there, they subtracted each market’s average operating costs — factoring in things like management fees and property tax rates. Finally, they divided those figures by the historical costs of buying a vacation rental to determine cap rates for each market.
“Familiarizing yourself with cap rate will help you make a more informed choice when deciding where to buy a beach house,” according to Vacasa.
Here are the top ten:
- Ocean Shores, WA
Topping the list is a small town on the coast of Washington State. Ocean Shores is known for its stretch of beaches and waterways, perfect for those seeking outdoor adventure in the Pacific Northwest. While the top item on travelers’ minds might be the opportunity to dig for clams in the Razor Clam capital of the West, Ocean Shores ranks #1 on our list for its strong cap rate of 7.6 percent.
Myrtle Beach, SC
This Atlantic coast gem is a popular Southeast vacation rental destination for its natural beauty and variety of activities. Myrtle Beach calls for swimming, sandcastles, deep-sea fishing, and dolphin cruises, so the region truly has something for everyone. There is a bounty of golf courses engineered by some of the world’s top golfers and architects, including Robert Trent Jones and Arnold Palmer. When searching in Myrtle Beach, look for vacation rental properties that are near water of any kind; oceanfront and channel-front homes are going to generate the most income. A boat dock is also a major plus for potential renters who want to take full advantage of the ocean blue. Myrtle Beach median home price is $249,999 and the Cap rate is 7.4 percent.
Panama City Beach and Santa Rosa Beach, FL
Panama City Beach in Northwest Florida is a popular vacation destination for those in the South and the Midwest, ensuring a steady stream of vacationers throughout the year. A surge of development meant fewer historic homes and more high-rises, but PCB remains high on the real estate investment list. Roughly 30 miles northwest lies one of Travel + Leisure’s top five favorite towns in America, Santa Rosa Beach. The median home price for PCB is $419,900 and the Cap rate is 6.1 percent.
Gulf Shores, AL
Positioned on the Florida/Alabama state line, Gulf Shores has a variety of features that draw visitors and potential vacation rental guests to the area. Gulf Shores is a year-round destination and vacation rental bookings remain high. In this area, there’s a vacation home for everyone. While median home price sits around $400,000, explore your options—a condo property could yield the returns you are seeking, but so could a three-bedroom home. The Cap rate is 5.8 percent.
Galveston Island and Port Bolivar, TX
When buying a vacation rental on Galveston Island, you better learn the lingo. Both “BOI” (born on the island) residents and “IBC” (islander by choice) residents take pride in living on the island. In both cases, locals welcome tourists, and while there are plenty of hotels on the island, vacation rentals reign supreme. With a median home price hovering around $300,000, vacation home buyers should not only act on available properties quickly, but check them out for themselves. Galveston homes bring bright colors and interesting architecture, which make for great vacation rental listing photos. The same goes for Port Bolivar, which lies just north across the water. Median home prices are $329,900. Cap rate is 5.6 percent.
Kauai, HI
Travelers flock from around the world to experience the inherent beauty of the islands and to take part in a myriad of activities and sightseeing opportunities. The Aloha State has been a dream place to invest for decades, but what makes Kauai so unique is its cap rate, which is typically around 5.4 percent. While there are regulations to consider, a two-bedroom vacation condo is a commonly sought-after accommodation among travelers, and most condos near the ocean are vacation-rental-friendly. All homes on the North Shore area of Princeville are zoned for short-term vacation rental stays. The median home price is $696,028.
Ocean City, MD
Ocean City has been on the “best beaches in America” list for years. Vacation home buyers in this market should keep one thing in mind: water. While Ocean City has a diverse inventory of vacation homes, being near the ocean or the bay is key in driving bookings. Can’t swing it? A pool or boardwalk access will help increase your stays. The median home price $285,900. Cap rate 5.4 percent.
Key West, FL
This tropical paradise, known for breathtaking sunsets and spectacular reefs, is also home to world-class kayaking and scuba diving. The vibrant nightlife and local fare also add to the draw of the area. The vacation home inventory in Key West is diverse but holds a steady cap rate at five percent. Median home price $788,500. Cap rate 5.0 percent.
Marathon to Long Key, FL
The Florida Keys are the perfect place to truly unwind. Located square in the middle of the island chain, you can find Marathon on the other end of the famous Seven Mile Bridge. There, travelers can indulge in every water sport imaginable—from paddleboarding and fishing to diving and snorkeling. Vacation rentals between Marathon and Long Key are plentiful, so if you’re looking to stand out and get the most on your vacation home investment, look for a pool, a deck, or a dock. Median home price $619,900. Cap rate 4.9 percent.
Cocoa Beach, FL
One of the most affordable beach destinations in Florida, Cocoa Beach lures travelers with unique activities and experiences. With Disney World just an hour away, search for homes with multiple bedrooms and large spaces for families to relax after a day of exploring. The median home price is $339,000 and the Cap rate is 4.7 percent.
There are two primary reasons to invest in a beach house: for personal use or for investment purposes. If you are more focused on ROI, choosing the market with the best cap rate is more likely to garner the returns you’re seeking.
If you want to use the home for family vacations, take a look at markets within a two-hour drive from home.
While relaxing on the sand may sound like a dream for most, it’s not everyone’s perfect vacation. Be sure to check out local restaurants and entertainment options.
When it comes to buying a beach house, not all real estate agents are created equal.
Find an agent who has insights on vacation rental markets and the necessary data to support your purchase, so you can make the most informed investment.
