Vacation rentals can be lucrative investments. They offer rental income in the short term and build equity in the long term. It’s an exciting proposition attracting more investors, especially as travelers embrace vacation rentals as their preferred accommodations.
For the third year in a row, we’re happy to share our list of the ten best places to buy a vacation rental. Our experience working with over 10,000 vacation rental properties across the United States has given us insight into more than 500 markets and how they perform.
This year, we’re including our estimated capitalization rate (cap rate) to help with rankings. Cap rate compares the net rental income generated per year against the purchase price of the property. It’s a good indicator of a property’s earning power and a reliable way to determine where you might get a better return on your investment.
To calculate our cap rates, we started by looking at the median annual rental revenue for Evolve properties in 500+ markets. We also applied yearly expenses of 20% to reflect the costs associated with operating a vacation rental. We then divided that by the median home price on Zillow for properties in each market.
If you’re looking to purchase a vacation rental property, make sure you take a closer look at these areas. Your numbers may differ based on operating costs, property values, and other factors, but this list helps shine a light on promising locations for investors.
1.Maggie Valley, North Carolina
- Median annual rental revenue: $38,949
- Median Home Price: $155,500
- Cap Rate: 20%
A new addition to our list, Maggie Valley is in the Smoky Mountains area outside of Asheville, North Carolina.
It tops our list with a strong cap rate of 20%. Driven by low real estate costs with a median price of $155,500 and a median income of $38,949 per year, the Maggie Valley area presents an appealing investment option.
Proximity to the region’s famed mountain range is the primary tourism draw in this area. And the natural resources provide year-round activities, with hiking in the summer, leaf peeping in the autumn, and skiing in the winter.
If you’re looking at this area for a potential investment, shop around for a property that has a nice outdoor area where guests can enjoy the surrounding mountain views. Our data also shows that homes with hot tubs, fire pits, and decks typically perform better than average.
2. Saint Augustine, Florida
- Median annual rental revenue: $50,989
- Median Home Price: $209,100
- Cap Rate: 19%
Consistently a top vacation destination for American and international travelers, Florida is an obvious frontrunner for short-term rentals. The warm weather allows for year-round tourism and lower real estate costs leave plenty of room to generate a sizable rental income.
But with so many beach towns, where is the best place to buy in Florida?
St. Augustine rises above the rest in our research with a cap rate of 19%. The median home price is $209,100 and you can earn an estimated median revenue of $50,989 in this area.
That’s an attractive rate of return, and it has the potential to increase further when you have top amenities like a private pool, hot tub, and proximity to the beach.
Rich in history, outdoor recreation, and prime beach access, St. Augustine offers great vacation rental potential for investors.
3. Gatlinburg Area, Tennessee
- Median annual rental revenue: $42,751
- Median home price: $182,950
- Cap Rate: 18%
Gatlinburg, Pigeon Forge, and Sevierville have been proving their weight in gold for years. These family-friendly vacation rental destinations have a high demand for accommodations ten months out of the year and they provide a steady source of rental income.
With relatively low housing prices and few restrictions for short-term rentals, it’s no surprise that this area has become a top destination for vacation rental investors. Cabins are the preferred type of housing for regional visitors, and we found that the median home price ranges from $162,000 to $202,300 across Sevierville, Pigeon Forge and Gatlinburg.
While the area is generally affordable, you might run into prices as high as $800,000 for larger (five bedrooms+) and more luxurious properties. Essential amenities for the Gatlinburg area are hot tubs, mountain views, and game rooms.
While the median for rental revenue is around $42,751, we do see six-figure revenue potential for larger properties in the area. If your rental is in good shape, with a desirable location and popular amenities, you stand a high chance of earning even more.
4. The Poconos, Pennsylvania
- Median annual rental revenue: $25,058
- Median Home Price: $118,300
- Cap Rate: 17%
The Pocono Mountain region has been drawing tourists to its lakes and ski resorts for more than 100 years. With a strong demand for accommodations and a large inventory of real estate at affordable prices, it’s easy to see why this region is one of our top five places to buy a vacation rental.
The median home price in the Poconos ranges from $118,300 on the low end to $144,300 on the high end. With a property that has an open calendar, the median rental income you can expect to generate ranges from $25,058 all the way up to $40,278 per year.
We found that results vary from town to town, but we see the strongest returns with properties in Tunkhannock Township, Tannersville, and Pocono Lake.
Large lakefront properties that can accommodate a group perform best in this market. It’s also a good idea to look for houses that are updated or that you can renovate after purchasing. This traditional market has many outdated properties, and you can beat out the competition and charge a higher nightly rate with a home that has modern kitchens, bathrooms, and furnishings.
5. Surfside Beach, Texas
- Median annual rental revenue: $29,321
- Median Home Price: $136,500
- Cap Rate: 17%
An hour down the coast from Galveston, this Texas town is known for beautiful beaches and a laid-back community. With few tourist traps or boardwalk shops, most Surfside Beach visitors spend their evenings cooking family dinners at home rather than hitting the town. That makes fully equipped vacation rentals all the more successful in this area.
We found the median home price for Surfside Beach was $136,500, which is a bargain compared to the stilted homes in the Galveston area that range from $200,000 to $400,000.
A median revenue of $29,321 gives this lesser-known area on the Gulf Coast an impressive cap rate of 17%.
If this coastal Texas town checks all the boxes for you, look for a property that offers ocean views and proximity to the beach. Fortunately, Seaside Beach is situated on a narrow tract of land, so beachfront real estate is not too hard to come by.
6. Pequot Lakes, Minnesota
- Median annual rental revenue: $36,291
- Median Home Price: $204,600
- Cap Rate: 14%
Situated in the Brainerd Lakes area north of the Twin Cities, vacation rentals in the Pequot Lakes area are hugely popular in summer months. Even better, they get bookings during the slow winter season for holidays and weekend retreats.
This market provides advantages to buyers in the Midwest because it’s a great investment opportunity where you can make strong returns, but it’s also close to home. That makes regular maintenance easier and offers the added benefit of having a second home for your personal use when you don’t have guests in residence.
While the median home price is $204,600 for properties in this area, larger homes that sleep eight or more people tend to see the best success. So it pays to invest in a larger property if you have the budget.
Something to consider with an investment in the Pequot Lakes area or a similar market is that rentals here tend to have a shorter season. With cold winter months, you face some pressure to hit your revenue goals during the high season, which requires smart pricing and aggressive marketing strategies.
7. Shenandoah Valley Area, Virginia
- Median annual rental revenue: $37,763
- Median Home Price: $227,500
- Cap Rate: 13%
Spanning two hundred miles across the Blue Ridge and Allegheny Mountains, the Shenandoah Valley is an outdoor oasis. Visitors enjoy exploring National Parks and Forests, outdoor sports (skiing, fishing, golfing, canoeing and more) and a segment of the famed Appalachian Trail.
With an area that large, home prices and rental income will obviously vary. Still, the median home price in the markets that made our list is $227,500, earning $37,763 per year in estimated annual revenue.
To increase your income potential, look closely at the four-season resort areas of Massanutten and Wintergreen. They can expand your booking season via snow sports in the winter and water parks during the peak summer booking window.
Profit-driving amenities include hot tubs, a deck with a view (and a grill), and game tables like billiards and foosball. If you’re looking to invest in this area, the closer a property is to Massanutten Resort or Shenandoah National Park, the better.
8. Branson, Missouri
- Median annual rental revenue: $24,062
- Median Home Price: $145,000
- Cap Rate: 13%
With theme parks, specialty museums, shopping, and hundreds of shows per year, there’s no shortage of things to do in Branson. This Ozark getaway is a family-friendly vacation spot that has caught the eye of investors who want reliable returns and a lower price point.
The median home price hovers around $145,000, making this an affordable place to buy a vacation home. Our data revealed that rentals in Branson generate $24,062 in rental revenue per year at the median for a 13% cap rate.
The tourism season spans from March to December, so you have the opportunity to book ten months out of the year and reach an impressive occupancy.
Another benefit of investing in this area is that there are few regulations standing in the way of vacation rentals. Some areas west of Branson may come with restrictions, but the area is generally friendly toward short-term rentals.
The vacation rental inventory is a mix of condos, cabins, and homes. So no matter your budget, you can find something in this market that will perform well. Amenities that can help you succeed include proximity to popular attractions (the Shows District, Table Rock Lake, and Silver Dollar City), decks, and lake or mountain views.
9. Myrtle Beach, South Carolina
- Median annual rental revenue: $23,881
- Median Home Price: $144,700
- Cap Rate: 13%
For the third year in a row, Myrtle Beach makes our top-ten list. The seaside town is known for its 60-mile stretch of beaches, as well as theme parks, museums, and shopping. It’s also home to festivals, bike rallies, car shows and other events that draw crowds and drive up demand for accommodations.
Yet, Myrtle Beach is a budget-friendly place to invest. Condos frequently sell for under $100,000, and Zillow data shows the median home price is around $144,700.
If you buy in this market, beach proximity is important. However, unlike Surfside Beach, you don’t have to be on the water to be successful. Rental properties within one or two miles of the beach will also book and perform well.
When you’re buying a condo in a resort or community, be careful with association fees and restrictions. Higher fees typically get you nice facilities, upkeep, pools, and other amenities that are attractive to guests, but you may pay a lot for those add-ons.
10. Hot Springs, Arkansas
- Median annual rental revenue: $24,425
- Median Home Price: $148,800
- Cap Rate: 13%
Hot Springs, Arkansas is named for Hot Springs National Park, a treasured natural feature that draws visitors for its mineral-rich water.
A prime benefit of investing in this market is that your money stretches here. The median home price is $148,800 and generates a healthy $24,425 per year at the median for estimated annual revenue. That leaves plenty of flexibility to pocket the income or pay off your investment quickly.
For the best returns in this market, look for properties close to downtown Hot Springs or on Lake Hamilton. In our experience, waterfront homes tend to achieve higher occupancy rates and command better nightly rates than properties farther from the action.
Lake views, updated interiors, and dock access are additional amenities that can improve your performance in Hot Springs.
So, where should you invest?
As always, the answer depends on your budget, your revenue goals, and your personal preferences.
You might want to purchase in a proven market like Gatlinburg or Poconos even if that means stiffer competition to get bookings. Or, you might want to buy in an area that isn’t as saturated, like Hot Springs or Surfside Beach, where you get more for your money.
We always encourage investors to think about where they’d like to visit. One of the key benefits you get from a vacation rental is that you get a second home for yourself. Where would you want to stay?
This list is a great place to start your consideration process, but it’s by no means definitive. There are many popular destinations that didn’t make our list. Think of this as a snapshot of the markets that you might want to explore if you’re looking to get the biggest return on your investment.
If you want more information, Evolve is constantly updating resources like these to help you better understand the vacation rental market:
- Vacation Rental Performance Reports: See key data on top markets across the U.S.
- Rental Income Calculator: Compare expected earnings and expenses
- Vacation Rental 101 Guide: Everything you need to know to get started with vacation rental
If you’ve already chosen a property and need to get your vacation rental off the ground, let us help.
With Evolve, you get everything you need to start a successful vacation rental: professional photos, a custom listing, competitive rates, vacation rental expertise, and full-time teams to support you.
There are no upfront costs and you pay just a low 10% fee per booking. Learn more about our services and contact us to see if your home qualifies.