Buying a house near the beach for its rental income potential can often be a risk/reward type of investment. After all, there are so many factors to consider and never any guarantees that beach house renters will come knocking at your door. Although the risks can be great, the rewards can be even greater, and those buyers who do their homework can reap substantial benefits in terms of average annual gross rental revenue.
According to a recent report from Redfin, buyer demand for second homes was up 87% at the start of 2022. And while other areas of the real estate market may begin to normalize, second home sales are expected to remain steady. Vacasa’s most recent Vacation Buyer Report shows that 42% of buyers are looking to purchase a vacation home in a beach destination.
Vacasa (NASDAQ: VCSA), a leading vacation rental management platform, cares for more than 35,000 vacation homes throughout North America, Belize and Costa Rica. They leverage that industry expertise to offer specialized real estate services and tools to prospective second home buyers. After purchase, Vacasa supports the end-to-end vacation rental experience with local teams on the ground to expertly clean and maintain the homes, along with a robust suite of technology to ensure homeowners earn the most on their investment.
Vacasa recently released its report on the Best Places to Buy a Beach House 2022. Vacasa’s annual report ranks the best U.S. destinations to purchase a vacation rental property based on average cap rate, or yearly rate of return, as second home sales remain strong in the first quarter.
Coming in at number one on this year’s list of profitable beach markets is the popular vacation destination Gulf Shores, Alabama. The top markets on this year’s list include:
The following data is based on: Market; Cap Rate; Median Home Sale Price; Annual Average Gross Rental Revenue.
Gulf Shores, AL; 10.20%; $402,905; $56,198
Corolla, NC; 9.50%; $608,953; $77,971
Navarre Beach, FL; 6.60%; $382,392; $43,202
New Buffalo, MI; 6.60%; $569,873; $58,544
Daytona Beach, FL; 6.50%; $247,960; $31,913
Galveston, TX; 6.40%; $340,559; $43,981
Hatteras Island, NC; 6.40%; $482,447; $45,968
Rockaway Beach, OR; 6.10%; $384,152; $48,030
Port St. Joe, FL; 6.10%; $360,721; $39,688
Lahaina, HI; 5.80%; $725,000; $58,496
“According to our 2021 Vacation Rental Buyer Report, 42% of buyers looking to purchase a vacation home chose a beach destination as the market type they’d be most interested in investing in and for good reason,” said Daned Kirkham, Senior Director of Real Estate for Vacasa. “While beach destinations will nearly always draw in a steady stream of guests, buyers can also earn more on homes with the amenities that guests seek most such as beachfront or beach adjacent, a private pool or hot tub and being pet-friendly. Guests can enjoy working and living from any location largely due to remote and hybrid work environments. Homeowners also benefit from increased income from these longer stays, which often occur during shoulder seasons when there tends to be more availability.”
To determine its ranking of top vacation rental markets, Vacasa analyzed home sales and vacation rental performance data from the last year for vacation destinations throughout the country where Vacasa and its licensed subsidiaries manage vacation rentals. To determine average gross rental income (homeowner revenue made from bookings, excluding any fees) for a market, they used actual performance data for the market as a whole, where available, except that Vacasa-only data was used for markets where Vacasa manages more than 50 units and actual Vacasa rental performance beats the market average by at least 25%. To calculate average cap rate, they considered the averages of the following in each market: property taxes, utilities, homeowners association fees, insurance and property management fees.
Local regulations vary by jurisdiction and the transfer of a property to a new owner may affect its ability to be used as a vacation rental. Generally, all vacation rental regulations are subject to change, which may affect your ability to use a property as a vacation rental in the future, and buyers should always check current local regulations prior to making an investment decision.