5 Waterfront Markets for Profitable Vacation Rentals

Vacation homes provide owners with the opportunity to lease part-time, unlike traditional rental property investments requiring year-long commitments. Short-term rentals, depending on locale, are generally profitable and convenient. Owners have the option to claim dates for their personal use while charging premiums during peak holidays. Vacation home investors might consider purchasing waterfront properties, but may be hesitant due to the high purchase prices associated with surfside locales. Additionally, coastal cities have higher risk for floods and require increased insurance in risk zones.

The average short-term vacation rental in 2014, according to HomeAway.com, cost $1,520 per week, or $6,090 per month. Vacation homeowners with this pricing model make $27,360 in investment income per year. Many vacation homeowners use these funds to pay off their mortgages, insurance costs, taxes or other homeownership fees.

To determine the most profitable vacation markets to invest in, consider the national vacation rental averages as they relate to median for-sale prices and potential mortgage rates in the following waterfront hotspots.

*Note – All mortgage payments are assumed as 30-year fixes rates, including typical taxes and insurance with a 3.532 percent interest rate.

Chicago

Most U.S. residents don’t normally associate the Midwest with “waterfront” rental properties. However, Lake Michigan is massive at 307 miles long and 118 miles wide and is also the second-largest of the Great Lakes by volume. The coast lines up with the historic Chicago skyline, attracting culture-seeking vacationers during all seasons. The median for-sale price in Chicago is $239,000. With 20 percent down, a mortgage costs $1,167 per month. Vacation homeowners in Chicago might expect to make about $4,913 per month after deducting mortgage costs from the average short-term rental revenue.

Dallas

Although Dallas isn’t located on the coast, it has plenty of reservoir and natural spring-fed lakes to satisfy residents. White Rock Lake has beautiful trails for running, a museum, the Dallas Arboretum and plenty of picnic spots. These attractions drive visitors to Dallas, especially in the summer. The median for-sale listing in Dallas is priced at $250,000 – only slightly higher than the national median list price of $209,000. Assuming an investor puts 20 percent down on a $250,000 property, or $50,000, a mortgage payment costs $1,218 per month. Vacation owners with $1,218 in monthly mortgage payments can make $4,872 in profit, assuming a fully-booked month.

San Diego

Although a bit pricier than the two previous cities, San Diego has unparalleled weather. The temperature ranges from 49 to 77 degrees Fahrenheit over the course of the year, making it one of a few ideal vacation spots in the U.S. during winter. In fact, Zillow named San Diego the number one city for “pleasant days” in the United States. So, while the average investor might struggle with the median list price of $499,900, the warm weather, proximity to Los Angeles and tourism makes San Diego highly rentable. San Diego may be a reach for first-time buyers, but the returns on investment (ROI) are high for experienced vacation homeowners who can afford to fully finance their properties, since the mortgage is somewhat high at $2,370 per month. Even with a mortgage, vacation homeowner in San Diego would make around $3,720 per month.

Jacksonville

As the largest city in Florida, Jacksonville inherently attracts vacation renters from all over the country. Jacksonville sits on the eastside of Florida, with white sandy beaches lining the Atlantic coast. The median list price is $139,900. Properties at this price point require $27,980 (20 percent) out of pocket and $632 monthly mortgage payments. Such a comparatively small mortgage payment leads to a staggering $5,458 profit per month, on average.

Boston

Similarly to San Diego, Boston’s real estate market is hot. Visitors can stroll the Harborwalk, a 40-mile pedestrian walkway and bike path. While Boston’s weather doesn’t yield year-round visits to the beach, the city offers a rich combination of entertainment, coastal eats and educational sightseeing. The median list price for homes in Boston is $499,000. Although home asking prices are high, the average vacation home revenue more than covers typical mortgage payments. With 20 percent down (or $99,800) on a $499,000 home, investors face monthly payments of $2,365. Again, assuming a fully-booked month, vacation homeowners in Boston could make up to $3,725 per month.