Smart investors are drawn to the lucrative potential of short-term rental properties as the popularity of vacation rentals continues to soar. The appeal of owning a vacation home for lucrative rental income has never been greater with the short-term rental industry predicted to generate a staggering $20 billion in annual revenue by 2025. The location of the investment, however, is a crucial factor that will determine its success.
The key to increasing rental demand and income without going over your budget is picking the right market. We have thoroughly investigated and compiled a list of the top 10 US locations to purchase vacation rental property in 2023 in order to assist you in making wise decisions and capitalizing on this burgeoning trend. These premier locations promise exceptional opportunities for sustainable growth and alluring returns on your commercial real estate investments and vacation rentals, whether you are just starting out or looking to expand your portfolio.
Let us now explore the top markets that provide the ideal balance of in-demand rental properties and lucrative business opportunities for your short-term rental venture!
Understanding Cap Rate
The primary focus is on generating income and ensuring profitable returns when determining the best places in the USA to own a short-term vacation rental. We rely on data from reputable sources like AirDNA, Mashvisor, and Evolve in our effort to identify the most promising markets for investing in vacation homes in 2023. We can identify the most desirable markets for short-term rental ventures by examining cap rates, a crucial real estate metric.
The capitalization rate, or cap rate, is a crucial sign of a rental property's success. The cap rate, which is determined by dividing a property's net operating income (NOI) by its current market value (CMV), aids investors in comparing various housing markets and selecting the most lucrative investment opportunities.
Cap Rate = Net Operating Income (NOI) / Current Market Value (CMV)
- After operating costs like property taxes, insurance, maintenance, and management fees are subtracted, the property's annual gross rental income (NOI) is what remains.
- The present value of a property is its current market value (CMV), which is typically established by a property appraisal or based on recent sales of nearby comparable properties.
Real estate investors can evaluate the viability and potential ROI of a vacation rental property in a particular market by using this formula. A lower cap rate may necessitate careful consideration and evaluation of other factors before making a purchasing decision, whereas a higher cap rate suggests a potentially more lucrative investment opportunity.
Finding the Optimal Cap Rate for Profitable Vacation Rental Investments
Finding the ideal cap rate for a successful venture is crucial for aspiring vacation rental property investors. The capitalization rate, also known as the cap rate, is a crucial indicator of investment potential. Even though there may be higher risks involved, a higher cap rate typically indicates a more lucrative opportunity.
The ideal cap rate range for achieving profitability is thought to be between 5% and 10%. However, it is important to keep in mind that even lower cap rates, ranging from 1% to 2%, can result in profits, especially in highly competitive markets like big cities where there is a strong demand for short-term rentals.
A higher cap rate may indicate a promising investment opportunity, but it is best suited for investors who are willing to take on more risk. It is crucial to understand that cap rates can differ significantly between boroughs, neighborhoods, and particular areas within a city. As a result, it is crucial to assess cap rates locally rather than broadly in order to accurately represent investment potential.
Consider New York City—Manhattan exhibits a cap rate of 3.9%, while just a short distance away, Queens boasts a cap rate of 5.03%. As no two cap rates are identical, prudent investors must take into account these location-specific nuances when making investment decisions.
Best Vacation Rental Property Markets for 2023
The best places to invest in 2023 can change from year to year due to the dynamic nature of the vacation rental market. When assessing potential markets, it is crucial for aspiring vacation rental property investors to take into account elements like cap rates, median home prices, and occupancy rates.
We have compiled a list of the top vacation rental locations for 2023, where high cap rates and lucrative investment opportunities are waiting, to help you with your decision-making.
- Gatlinburg, TN
Cap Rate: 9.2%
Median Home Price: $301,725
Vacation Rental Occupancy Rate: 74%
Gatlinburg, nestled amidst the stunning Great Smoky Mountains, attracts over 14 million visitors annually. With its scenic landscapes and family-friendly attractions like Anakeesta Adventure Park and Ripley's Aquarium of the Smokies, the demand for short-term rentals remains high. The majority of vacation rentals in Gatlinburg are entire homes, making it an ideal spot for starting a cabin rental business.
- Windham, NY
Cap Rate: 9.2%
Median Home Price: $290,295
Vacation Rental Occupancy Rate: 40%
Located in the heart of the Catskill Mountains, Windham is a favored getaway destination for New Yorkers seeking respite from city life. The best short-term rental properties in Windham cater to families and large groups and often come with luxury amenities like hot tubs and fire pits.
- Savannah, GA
Cap Rate: 9.0%
Median Home Price: $278,598
Vacation Rental Occupancy Rate: 69%
Savannah exudes Southern charm with its picturesque Spanish moss and antebellum architecture. With its beautiful Forsyth Park and historic River Street waterfront, the city attracts millions of overnight guests. Investors should consider properties that embody the region's famous architecture to embrace the hospitality of the South.
- Harpers Ferry, WV
Cap Rate: 7.88%
Median Home Price: $399,075
Vacation Rental Occupancy Rate: 63%
Nestled at the confluence of the Potomac and Shenandoah rivers, Harpers Ferry is an ideal destination for history buffs and outdoor enthusiasts. The Harpers Ferry National Historical Park and the Appalachian Trail draw thousands of visitors, providing ample opportunities for short-term rental investors.
- Bryson City, NC
Cap Rate: 7.8%
Median Home Price: $246,333
Vacation Rental Occupancy Rate: 63%
Bryson City, located near the Great Smoky Mountains National Park, offers a plethora of outdoor activities such as hiking, white-water rafting, and fishing. Its breweries, festivals, and artisan craft shops make it a sought-after destination for guests. Glamping businesses can thrive in this scenic location.
- Bar Harbor, ME
Cap Rate: 7.28%,
Median Home Price: $493,800
Vacation Rental Occupancy Rate: 90%
Bar Harbor, on Mount Desert Island, boasts breathtaking coastal views and is renowned for its seafood and boat exploration. Acadia National Park, a stone's throw away, offers diverse wildlife and a glaciated coast. With an impressive occupancy rate of 90%, Bar Harbor stands out as a lucrative vacation rental market.
- Penn Yan, NY
Cap Rate: 7.22%,
Median Home Price: $260,920
Vacation Rental Occupancy Rate: 67%
Nestled on the north shore of Keuka Lake, Penn Yan is a small town with upscale wineries and vineyards, attracting visitors from around the country. The Finger Lakes region's natural beauty and recreational activities make it a prime location for short-term rental investments.
- The Poconos, PA
Cap Rate: 6.7%
Median Home Price: $271,985,
Vacation Rental Occupancy Rate: 72%
The Pocono Mountains offer a safe bet for Airbnb investments, attracting around 30 million visitors annually with year-round activities such as golfing and skiing. Pocono's top-performing short-term rentals can yield three times the median income.
- Branson, MO
Cap Rate: 5.8%
Median Home Price: $237,371
Vacation Rental Occupancy Rate: 54%
Branson's family-friendly attractions and proximity to outdoor activities in the Ozark Mountains make it a popular destination year-round. The town has witnessed a significant increase in short-term rentals, making it one of the top vacation rental markets in 2023.
- Granbury, TX
Cap Rate: 5.0%
Median Home Price: $394,776
Vacation Rental Occupancy Rate: 55%
Granbury, situated next to Lake Granbury, offers a thriving short-term rental market and attracts visitors from Fort Worth and Dallas. Guests enjoy Granbury City Beach Park and exploring Historic Granbury Square, making it an attractive vacation destination.
For real estate investors in 2023, investing in vacation rental properties represents a promising opportunity. Travelers' preferences are changing away from traditional hotels toward vacation homes as the short-term rental market expands, driving up demand for distinctive and individualized lodging. However, careful consideration of the best markets is essential to getting the most out of this investment venture.
As you venture into the vacation rental market, it's essential to rely on reliable real estate partners and alternative investment platforms like Assetmonk. Assetmonk's Structured Debts can provide valuable financial solutions, helping you navigate the complexities of real estate investments. Assetmonk's knowledge and commitment to providing high-yielding properties can significantly increase the growth and profitability of your portfolio, regardless of your level of experience. Invest today!
What is a cap rate, and why is it important for vacation rentals?
Cap rate is a real estate metric that measures the profitability of an investment property. It helps investors compare different markets and assess potential returns.
What is a good cap rate for vacation rental properties?
A cap rate of 5-10% is generally considered good for vacation rentals. However, the ideal rate may vary based on individual risk tolerance and investment goals.
What factors should I consider before investing in a vacation rental market?
Key factors to consider include cap rates, median home prices, vacation rental occupancy rates, local attractions, and potential for rental demand growth.
Which locations offer the best vacation rental investment opportunities in 2023?
Gatlinburg, Windham, Savannah, Harpers Ferry, and Bryson City are some of the top destinations with attractive cap rates and potential for strong returns.
How can Assetmonk help with vacation rental investments?
Assetmonk offers structured debt investment opportunities in prime vacation rental markets, providing investors with access to professionally managed properties and potential rental income.