The vacation rental market in the United States created over a billion dollars for vacation rental property owners in 2016. That’s a call to action for many investors, but before you dive head first into the market, read through our findings to learn whether the city you have in mind is a smart investment.
The growing industry has incentivized property owners to enter the vacation rental industry making it more difficult to keep units occupied. Choosing the right location will give you an advantage on untapped markets that generate a higher return on investment.
While hot spots like Los Angeles and New York City may seem like obvious money makers, the result of this study might surprise you.
Defining Vacation Cities
To be considered a vacation city, a city needed to have at least 10 full-time rentals on Airbnb. We defined full-time rentals as properties available for rent for at least 75 percent of the year and no more than 10 blocked calendar dates in each month. We narrowed these down to properties with at least 20 Airbnb bookings in the last 12 months.
To determine the return on investment for a vacation rental property, you need to consider the costs of the home. We used data on median sales prices and local costs of homeownership for the cities that met vacation city criteria to estimate what expenses are incurred by vacation property owners. In determining the local costs of homeownership, we considered utility rates, insurance costs, property taxes,  and local interest rates for a 30-year mortgage. We assumed maintenance would cost 1 percent of the value of the home, annually.
We used data from historical local occupancy rates and the median vacation rates to estimate gross vacation rental revenue from each unit.
We calculated return on investment (ROI) using the following formula:
[(Annual Median Vacation Rates)(Historical Local Occupancy Rate)] – Local Costs of Homeownership
The Median Sales Price
We used the formula above to come up with the top 100 cities to earn the highest return on investment for vacation rental properties in the United States. Below we describe the top 10 cities on the list.
#9 Gulfport, Mississippi
Vacation rental properties in Gulfport, Mississippi have a 34.55 percent return on investment. The area is likely popular for vacation rentals because it is on the border of the Gulf Coast. The city features beautiful beaches and water-related recreation. Gulfport is just off of I-10; therefore, it is a popular place for travelers to stop and rest for a night. Additionally, it is only an hour and a half from New Orleans.
❝The Mississippi Gulf Coast has so much to offer both visitors and locals alike. The region’s temperate climate, along with its astounding natural beauty, makes for the perfect year-round destination. There is an incredible amount to do, see and experience across the Mississippi Gulf Coast: from outdoor activities, such as kayaking, boating, fishing and hiking, to a wide variety of festivals, attractions and museums.
When it comes to food, this is the place to be! From coastal seafood shacks to fine dining, we’ve got it all. In short, the Mississippi Gulf Coast checks all the boxes: great food, great weather, great prices, great people, and a great way of life!❞ – Anna Roy, Visit Mississippi Gulf Coast
#6 Biloxi, Mississippi
Owners of vacation rental properties in Biloxi, Mississippi receive a 38.93 percent return on investment. Biloxi is about 20 minutes away from Gulfport (featured earlier on this list). It is also a popular vacation rental spot for its proximity to the beach, I-10 and New Orleans. The city is home to 24-hour casinos too.