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Vacation Rental Bonanza: The 10 Cities Where Hosts Can Make the Biggest Profits By Evan WylogeSep 7

Vacation Rental Bonanza: The 10 Cities Where Hosts Can Make the Biggest Profits

Sep 7, 2023

The last time you stayed in a vacation rental—almost certainly booked on sites such as Airbnb, VRBO, or Vacasa—you may have thought to yourself: “I should do this.” It’s a popular notion. Some hosts living near a major entertainment venue or in a popular vacation spot rent out their whole home or just a spare room for a weekend or longer. Others purchase a property solely as an investment to be rented out by the night or week. The revenue can be a boon for homeowners or an income stream for investors. It can help some folks pay off their mortgages, fund vacations, or even help put their kids through college. Find a real estate agent A local real estate agent can answer questions, give guidance, and schedule home tours. Connect with an agent However, before you run out and buy an investment property to list as a short-term rental, it helps to fully understand the real estate market you’re targeting—how much you can charge a night, and how much money you can expect to make. Naturally, some cities are way more profitable than others. That’s where the data team at Realtor.com® comes in. We zeroed in on the markets where short-term rentals have the greatest earning potential. What we found was not surprising. Renters are looking for places with access to popular outdoor amenities like beaches, lakes, and ski resorts, says Bram Gallagher, an economist who analyzes short-term rental data at research firm AirDNA. But it’s not just the most touristy vacation spots that will make the most money, the data shows. In areas where the demand might not be sky-high, the low price of homes there can make them just as lucrative as more popular areas. “What you’ve got is places where real estate prices maybe haven’t bloomed as quickly as the rest of the nation, and yet still have some really interesting points of attraction,” says Gallagher. “There really is a wide variety of places represented here.” To figure out the places where you can buy a home to list as a short-term rental and reap the largest potential profits, we first looked at Realtor.com home price data in each metropolitan and micropolitan areas with an average of at least 25 short-term rental listings each month for the past year. We factored in a 7.4% mortgage rate (the average rate in mid-August, according to Mortgage News Daily) to come up with how much buyers would be spending each year. This calculation assumes buyers put 20% down and includes typical property taxes and insurance costs. Then we combined that info with AirDNA data on how much the average short-term property can be expected to make in revenue throughout the country. Note: These numbers don’t include property management fees. Local experts say fees can set hosts back from 10% to more than 30% of a property’s profits. Cleaning fees, maintenance, and repairs can also eat into earnings. The rapidly shifting regulatory landscape is also affecting owners of short-term rentals. Many cities, including New York City, are tightening the rules for who can—and can’t—rent out their property on a short-term basis. This comes as cities grapple with rising real estate prices caused by a shortage of year-round rentals and homes for sale. Investors need to do their homework and find out exactly what is and isn’t allowed in any given area, and be aware that regulations may change in the future. Furthermore, not every host will see the potential annual profits we list below. These are maximum earnings, Gallagher stresses. Now, let’s take a look at the places where the data shows hosts can rake in the most cash. Where short-term rentals make the most money(Realtor.com)1. Crestview, FL Median home list price in August: $725,000 Annual mortgage payment: $56,687 Annual revenue potential: $147,997 Potential annual profit: $91,310 The Crestview metro, in the state’s panhandle, includes the better-known Gulf Coast vacation town of Destin as well as a few other popular destination stops such as Santa Rosa Beach. To the west of Crestview is Pensacola, with its renowned white-sand beaches. It’s little wonder that the Crestview metro has more short-term rentals than any other areas on our list. This metro of about 293,000 residents has nearly 8,000 average monthly listings. In fact, the data says 1 in 15 households in the metro is listed as a short-term rental each month. For newcomers, the challenge is finding the right opportunity, says Mandy Reigart, a real estate agent with Realty ONE Group in Destin “If I could find properties for $725,000 that would net $91,000 a year, I would be the busiest agent in the area,” she says. The property management fees will knock 20% to 30% off of the earnings, she says. Plus, new zoning regulations mean some areas are not allowing hosts to list their properties. Reigart’s advice for those serious about getting into the short-term rental game in the area is to find an agent and a lender who understand the region’s regulations and requirements. 2. Kapaa, HI Median home list price: $1,617,500 Annual mortgage payment: $126,470 Annual revenue potential: $214,023 Potential annual profit: $87,553 Kauai is known as “The Garden Isle” due to the lush, Eden-like rainforest that covers almost all of the island. It’s the most sparsely populated island of the Hawaiian chain, and the city of Kapaa, as the largest municipality on the island, has only about 11,500 residents, according to U.S. Census Bureau figures. Besides its otherworldly beauty, what stands out here is the price of real estate. The median cost of a home in Kauai is about 3.6 times the national median of $435,450 in August. Paradise does not come cheap. On the plus side, hosts don’t need to worry about finding renters. The portion of available nights that a short-term rental in Kauai is booked is almost 80%, higher than any other on our list. For most of the areas we’re highlighting, the portion is closer to 60%. Before investors rush to purchase properties, there are restrictions on where short-term rentals can be located. They must be in designated Visitor Destination Areas on the island. 3. Roanoke Rapids, NC Median home list price: $214,000 Annual mortgage payment: $16,732 Annual revenue potential: $100,306 Potential annual profit: $83,574 Tucked into the northern part of North Carolina, just south of the Virginia border, is a scattering of small towns that make up the Roanoke Rapids micropolitan area. The area is densely forested and offers ample opportunity to enjoy the Roanoke River, which transects the area, as well as the human-made Roanoke River Lake. The area’s towns all offer classic, small-town, Main Street charm. “There’s definitely a lot of natural beauty there,” says AirDNA’s Gallagher. It’s also one of the most affordable places on our list, with home prices about half of the national average and the lowest number of short-term rental listings. This means there is less competition from other hosts. Investors can check out this two-bedroom home with a remodeled kitchen for only $160,000 and about a quarter-mile from the Roanoke River. 4. Ellensburg, WA Median home list price: $749,950 Annual mortgage payment: $58,637 Annual revenue potential: $139,070 Potential annual profit: $80,433 If you were to put a pin in the center of Washington state, it would be fairly close to Ellensburg, about 100 miles southeast of Seattle. This lightly populated micropolitan area sits just east of the Cascade Range and its ski resorts, lakes, and hiking trails. The area has traditionally been a hub for the state’s agriculture, timber, and mining industries. Now it’s more well known as the home of Central Washington University. But it’s also celebrated for its ski areas Mission Ridge and The Summit at Snowqualmie Pass, considered low-cost alternatives to the big resorts out west. The more famous ski hubs “like Big Bear, Breckenridge, Park City have probably hit their capacity,” Gallagher says. This means areas like Ellensburg could be ripe for short-term rentals, which are inexpensive by comparison. But another data point that jumps out is the increase in the number of short-term listings in the area. It’s grown by almost 40% from 2022 to 2023, so the secret of this area might already be out of the bag. For less than the median home price in Ellensburg, buyers can snag this four-bedroom, three-bathroom home that’s just 1,000 feet from the Yakima River Keep up with key real estate trends Sign up now 5. Georgetown, SC Median home list price: $462,400 Annual mortgage payment: $36,154 Annual revenue potential: $106,438 Potential annual profit: $70,284 Straddling South Carolina’s Winyah Bay, directly south of Myrtle Beach, the Georgetown micropolitan area makes sense as a travel destination. The area provides easy access to small beach towns like Pawleys Island, Litchfield Beach, and Murrells Inlet. And when hanging on the beach gets old, there are a number of sand-free attractions in the area, including the Waccamaw National Wildlife Refuge and the Tom Yawkey Wildlife Center, which offer birding, field trips, scenic tours, and any number of outdoor activities. With the mild, mid-Atlantic climate, this area offers lots to visitors, particularly when the densely populated Northeast is blanketed in cold. It’s worth noting that short-term occupancy has dropped in the area, coming down about 10% from 2022 to 2023, so it’s possible that demand in the area has waned. The city is also considering new regulations that could affect where investors purchase properties. This two-bedroom home on stilts is a stone’s throw from Winyah Bay and has a price tag that’s below the area’s median and the national median. 6. Kalamazoo, MI Median home list price: $325,000 Annual mortgage payment: $25,411 Annual revenue potential: $93,485 Potential annual profit: $68,074 Kalamazoo is a fun name to say out loud. (Go ahead, try it.) It’s also a fun and increasingly popular area for vacationers, thanks to its abundance of nearby lakes and the college town vibes that keep the area filled with youthful vigor and visiting parents. Kalamazoo is home to both Western Michigan University and Kalamazoo College. Plus, the area is about a 2.5-hour drive from Chicago, which ensures a steady stream of city dwellers looking for a getaway, says Ashley Sayles, a local real estate agent with Berkshire Hathaway HomeServices Michigan Real Estate. All of this, she says, has made short-term rental properties in the area attractive to buyers. However, there’s a lack of inventory. “A lot of houses on lakes in Southwest Michigan are being bought and then rented out on a short-term basis,” she says. As with many places, the regulations on such rentals are a patchwork from one community to the next. “Some places and townships in Southwest Michigan allow it, and some don’t,” she adds. 7. Cambridge, MD Median home list price: $275,000 Annual mortgage payment: $21,502 Annual revenue potential: $84,056 Potential annual profit: $62,554 Along the Choptank River on Maryland’s eastern shore, Cambridge is the sort of seaside town that inspires painters to capture its vibrant blue waters and pink sunsets. It’s one of the oldest Colonial cities in Maryland, dating to the mid-17th Century. Now it’s a tourism (and seafood) haven, with summer and fall festivals celebrating the bounty of crab and oysters, served with a dash of Old Bay and wordplay, from the Seafood Feast-I-Val in August to the Crabtoberfest held, for some reason, in late September. Something that differentiates Cambridge from other places on our list is the lower-than-average number of short-term rental listings recorded in AirDNA’s data. Combined with lower-than-average home prices, Cambridge could be attractive to potential investors. A two-bedroom condo that sits next to Cambridge Creek is listed right now for only $175,000 8. Daphne, AL Median home list price: $525,000 Annual mortgage payment: $41,049 Annual revenue potential: $102,936 Potential annual profit: $61,887 One of only two Southern metros on our list, Daphne boasts bay and gulf shorelines. The city sits on the Mobile Bay, just across the Jubilee Parkway from Mobile, AL. The metro area also stretches all the way south to the Gulf Shores, where visitors from across the South flock for long weekends and holidays to water-ski, dolphin watch, and otherwise play in the water. A two-bedroom condominium within 500 feet of Mobile Bay can be found now for just under $250,000. Gallagher of AirDNA cautions that beach towns can have swings in demand, which can be a challenge for investors. “There will be months that you might see a low number of listings and low demand,” he says. 9. Olean, NY Median home list price: $142,500 Annual mortgage payment: $11,142 Annual revenue potential: $72,371 Potential annual profit: $61,229 About 90 minutes south of Buffalo, in western New York, you’ll find Olean. This small town of a little over 13,000 residents, nestled against Allegany State Park, is the anchor for the Olean micropolitan area, which also includes the small towns of Salamanca, Ellicottville, and Gowanda. The real estate in Olean is the least expensive of any place on our list, with a median list price of only $142,500. Even with today’s high interest rates, the monthly payment should come out to a little less than $1,000, with 20% down. Olean has a lot to offer people looking to enjoy the great outdoors, from rafting in the Allegany River, fishing at Red House Lake, and hiking Mount Irvine in the summer to carving fresh tracks at HoliMont Ski Club near Ellicottville in the winter. Paul Pezzimenti, an associate real estate broker at Howard Hanna Professionals, in Olean, says bringing in $72,000 is a bit higher than he would expect. “That sounds like it’s definitely on the high end of what you could get,” he says. Olean does have one of the lower annual occupancy rates among the areas on our list. But the affordability there is what drives the earning potential. Pezzimenti stresses the importance of having the right property management company and other professionals in place when you need them: “You have to have people who can handle the things that need handling, whether it’s a pool or the plumbing or if you need an electrician.” In a smaller town, he says, having those people in place can make all the difference for an owner’s bottom line. 10. State College, PA Median home list price: $450,000 Annual mortgage payment: $35,185 Annual revenue potential: $95,778 Potential annual profit: $60,593 State College is one of America’s quintessential college towns, famous as the home of Pennsylvania State University, which dominates just about every aspect of life in the area for most of the year. The school’s longstanding tradition of blowout football weekends draws alumni and the families of students to this central Pennsylvania area. It also makes the area highly attractive to potential short-term rental owners—as long as they can work within the area’s tight new regulations, that is. Mallory Meehan, an associate clinical professor of real estate at Penn State, explains the new regulations in the area might prevent out-of-town investors from simply owning and operating short-term rentals. “In order to even apply for that, the property has to either be your primary residence, or you have to have a long-term lease tied to that property and you’re allowed to rent it for 120 days,” she says. The new rules came in response to what was perceived as too many investors buying properties, just to run them as short-term rentals, and they might be onerous enough to force some people out of the game.


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