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Trying to snag a vacation rental this summer has been brutal. After months upon months inside, many Americans are willing to fork over thousands of dollars to secure a hideaway — even for just one precious week off.
Savvy real-estate investors can reap those profits by targeting hot spots. Vacasa, one of the largest platforms for vacation-rental management in the US, just ranked the best rental markets for buyers to invest in this year based on prospective profitability.
The company determined this year's top places to buy a vacation home to rent out at a profit by assessing each location's average capitalization rate, or cap rate: the rate of return on a real-estate investment.
Thaddeus Hanscom, who served as Vacasa's data-trends analyst, told Insider how the cap rate was calculated: Take the property's rental-income potential, subtract any operating expenses, and then divide by the purchase price. The figure takes into account local property taxes, insurance, property-management fees, and more.
What makes a "good" cap rate is relative, according to Investopedia, and depends on the conditions of the area and an investor's threshold for risk. All the spots that made Vacasa's list have cap rates between 5.2 and 8.6%. For comparison, a 10-year government bond had a 1.31% interest rate as of July.
The locations with strong cap rates include both beach towns and mountain hideaways. Snapping up affordable homes in Southern states might be your best bet — two spots in Tennessee and two spots in Alabama are high on the list.
In ascending order, here are the 10 best vacation areas for real-estate investors to target this year:
10. Ludlow, Vermont
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Ludlow was once a tiny mill town but is now a choice ski destination. It is near the Okemo Mountain Resort and the Okemo State Forest, making it a dream destination for nature lovers. The busiest seasons are winter and summer.
Median home sale price: $345,950
Median annual gross rental revenue: $42,648
Cap rate: 5.2%
9. Seaside, Oregon
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Seaside is a tiny resort city in northwest Oregon that sits right on the Pacific Ocean. Popular local attractions aside from the beach include the Seaside Aquarium and the area's historic downtown. The busiest seasons are spring and summer.
Median home sale price: $466,086
Median annual gross rental revenue: $45,249
Cap rate: 5.2%
8. Deep Creek Lake, Maryland
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Deep Creek Lake is a mountainous lake destination in western Maryland that has 60 miles of shoreline. It's a multiseason vacation spot, with water activities like boating and tubing in the summer and skiing in the winter.
Median home sale price: $439,367
Median annual gross rental revenue: $51,031
Cap rate: 5.7%
7. Palm Springs, California
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Palm Springs is one of the most popular vacation destinations on the West Coast, just 100 miles east of Los Angeles and 30 miles west of Joshua Tree National Park. It's a glamorous stretch of desert known for its hot springs, golf courses, and midcentury-modern architecture. The busy seasons are spring and fall.
Median home sale price: $539,370
Median annual gross rental revenue: $52,784
Cap rate: 5.9%
6. Blue Ridge, Georgia
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Blue Ridge is in northern Georgia on the southernmost stretch of the Appalachian Mountains. It offers craft breweries and easy access to the Blue Ridge Scenic Railway and Chattahoochee National Forest. The busiest seasons are summer and winter.
Median home sale price: $290,934
Median annual gross rental revenue: $38,266
Cap rate: 6.1%
5. Norris Lake, Tennessee
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Norris Lake is 55 miles north of Knoxville and just south of the Kentucky border. The massive lake is the surrounding area's main attraction. The 52 square miles of freshwater in the landlocked state lures lovers of water sports like kayaking and wakeboarding. Summer is the busiest season.
Median home sale price: $343,907
Median annual gross rental revenue: $42,450
Cap rate: 6.2%
4. Dauphin Island, Alabama
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Dauphin Island is a tiny Gulf Coast town known for quiet white-sand beaches just 40 miles south of Mobile, Alabama. Local attractions include the Audubon Bird Sanctuary and an aquarium. The busiest seasons are spring and summer.
Median home sale price: $539,370
Median annual gross rental revenue: $52,784
Cap rate: 5.9%
3. Gulf Shores, Alabama
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Gulf Shores, Alabama, is close to Dauphin Island — and the Florida border. It is also known for its white-sand beaches frequented by sea turtles and migratory birds, along with famous dive bars and restaurants. The busy seasons are spring and summer.
Median home sale price: $402,905
Median annual gross rental revenue: $46,107
Cap rate: 7.1%
2. St. Augustine, Florida
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St. Augustine sits on the northeast coast of Florida on the Atlantic Ocean. It's known for its Spanish colonial architecture and general European feel. Popular attractions include the Castillo de San Marcos, a stone fortress dating to the 17th century, a historic downtown, and, of course, the beach. The busy seasons are spring and summer.
Median home sale price: $365,576
Median annual gross rental revenue: $46,557
Cap rate: 7.4%
1. Gatlinburg, Tennessee
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Gatlinburg is a woodsy spot in eastern Tennessee that serves as a gateway to the Great Smoky Mountains. It's just 40 miles southeast of Knoxville and known for having sweeping mountain views that can be seen from the country's longest pedestrian suspension bridge or scenic chairlifts. The busiest seasons are summer and fall.
Median home sale price: $320,111
Median annual gross rental revenue: $47,328
Cap rate: 8.6%