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10 best beach towns to invest in short term rentals

Posted on by darion

Buying a house on the beach is a fantasy for many, conjuring up images of sandy feet and crashing waves. Some, however, take this dream a step further, anticipating a steady stream of rental income that will offset the costs of ownership and even generate a profit. Renting a beach house on platforms like Airbnb and VRBO can be a lucrative strategy, but not all beach towns are created equal.

In this article, we delve into the world of short-term rental (STR) investing in coastal areas. We’ll look at the concept of yield, a key metric that helps real estate investors compare potential profits with the value of the property. We’ll also dive into the regulations that can make or break your STR investment. While a high yield may initially point to a specific location, strict local regulations can make owning a rental property there complicated or even impossible.

Realtor.com, the leading online real estate marketplace, has partnered with AirDNA, a data company focused on the vacation rental industry. Together, they analyzed coastal cities across the United States, comparing average annual rental income with average listing prices on Realtor.com. This data allows us to calculate the expected performance for each location.

However, performance is only one piece of the puzzle. Before you dive into a beach town that offers a seemingly high return on investment, it’s important to familiarize yourself with local STR regulations.

10 best beach cities for short-term rental investment

Realtor.com and AirDNA crunched the numbers to identify the top 10 places on the coast for lucrative short-term rental (STR) investment opportunities. Here’s a breakdown of the top 5 candidates, with the remaining 5 locations revealed in Part 3. We’ll analyze each city’s average home price, average annual rental income, and expected rate of return, along with a note on any STR regulations you should be aware of before diving in.

1. Pawleys Island, South Carolina

Pawleys Island boasts a picturesque coastline steeped in history, making it a popular holiday destination. The charm translates into solid potential rental income. However, potential investors should bear in mind possible changes in the local STR landscape. The City Council is considering introducing restrictions, including: limiting the number of STR permits available and imposing annual fees.

  • Median home price: $497,237
  • Potential annual income: $41,995
  • Expected efficiency: 19.8%
  • STR Regulations: Potential changes coming soon, including restrictions on permits and annual fees.

2. East Coast Michigan, Michigan

Michigan’s sunrise coast offers an array of attractions that draw tourists to towns like Au Gres year-round. This translates into the potential to provide investors with solid rental income. There are currently no short-term rental laws in Michigan. However, a recent House bill could authorize municipalities to adopt their own local STR ordinances.

  • Median home price: $208,513
  • Potential annual income: $20,265
  • Expected efficiency: 16.7%
  • STR Regulations: No statewide regulations, but local regulations may be coming soon.

3. Cape San Blas, Florida

This Gulf County town offers attractive returns on investment when purchasing beach homes. However, Florida imposes a 5% lodging tax and Gulf County requires annual STR business licenses and annual home inspections for rental properties.

  • Median home price: $798,807
  • Potential annual income: $64,264
  • Expected efficiency: 12.8%
  • STR regulations: 5% bed tax required, annual business licenses and annual home inspections.

4. Gulfport Biloxi, Mississippi

The Magnolia State’s booming short-term rental industry has prompted targeted legislation. For example, Gulfport has strict safety regulations, notification protocols, and minimum insurance requirements for STRs. Be sure to read these rules before investing.

  • Median home price: $303,930
  • Potential annual income: $23,646
  • Expected Yield: 12.4% STR Regulations: Strict safety regulations, notification protocols and minimum insurance requirements.

5. Wilmington, Del

Wilmington has simplified the process of starting an STR company on its shores. The city implements a “one and done” policy, which means that once a property obtains the necessary zoning permits, its intended use will remain even if the owner changes. This may make existing STR properties more attractive to potential buyers.

  • Median home price: $614,856
  • Potential annual income: $35,361
  • Expected efficiency: 11.2%
  • STR Regulations: One and done policy simplifies the permitting process.

6. Lincoln City/Newport, Oregon

Lincoln City enforces regulations that potential STR owners must familiarize themselves with before obtaining approval. Additionally, the City has a limited number of STR licenses currently in use and no new ones will be issued until existing properties return to owner-occupied status. While patience may be required, it may also mean less competition in the rental market. However, this restriction only applies to rentals of 30 days or less, so homeowners can still make money on longer stays.

  • Median home price: $597,379
  • Potential annual income: $43,241
  • Expected efficiency: 11.10%
  • STR regulations: limited number of licenses, authorization procedure required, but long-term rentals allowed.

7. Grays Harbor, Washington

Grays Harbor boasts stunning beaches that attract crowds of tourists during the warmer months. STR regulations vary depending on the municipality where your property is located. Generally, you will need to apply for and renew your STR permit every year.

  • Median home price: $421,627
  • Potential annual income: $29,331
  • Expected efficiency: 11%
  • STR regulations: permit required, regulations vary by municipality.

8. Outer Banks, North Carolina

The Outer Banks is a collection of barrier islands, each with its own set of short-term rental regulations. For example, Nags Head distinguishes between whole-house and partial-house rentals, requiring different permits depending on the use. Before investing in any of these charming seaside towns, thorough research is essential.

  • Median home price: $705,939
  • Potential annual income: $34,237
  • Expected efficiency: 10.5%
  • STR Regulations: Regulations vary by city and require research before investing.

9. Corpus Christi, Texas

Corpus Christi defines a short-term rental as a property rented for a period of less than 30 days and requires a registration permit before posting a listing. However, there appears to be a more relaxed approach to STRs in the Padre/Mustang Island areas, which may be attractive to some investors.

  • Median home price: $541,169
  • Potential annual income: $27,154
  • Expected efficiency: 10.4%
  • STR Regulations: Permission required for registration, looser rules apply in some areas.

10. Gulf Coast, Alabama

Gulf Shores considers any rental of less than 180 days to be a short-term rental. Be aware of lodging tax requirements, which include apportioning state, county and city taxes based on the property’s location.

  • Median home price: $615,535
  • Potential annual income: $112,281
  • Expected efficiency: 10.3%
  • STR regulations: Housing tax applies and varies depending on location.

Factors to consider before investing in short-term rentals

While the above data provides valuable information, there is more to consider than just profits and regulations before purchasing a short-term rental beach house. Here are some additional factors to consider before making your final decision:

1. Market saturation and seasonality:

High performance may be tempting, but it affects competition. How many existing STRs are there in the area? Is the rental market already saturated or is there still room for your property to stand out? Additionally, seasonality should be taken into account. While some coastal towns thrive year-round, others experience significant fluctuations in tourism. Make sure your rental income meets your investment goals and mortgage repayments, even during off-peak seasons.

2. Target group and property management:

Who are your ideal tenants? Families with small children may have different needs than couples looking for a romantic getaway. Understanding your target audience will help you tailor your property’s amenities and pricing strategy. Also consider the management aspect. Will you manage the rents yourself or hire a property management company? When calculating projected returns, include associated costs.

3. Maintenance and maintenance:

Beach homes are exposed to harsh conditions – sand, salt and potentially strong winds. Be prepared for ongoing maintenance costs, which may be higher than those associated with a traditional rental. Include potential repairs, replacement of furniture and appliances, and regular cleaning services.

4. Local amenities and community:

What amenities are nearby? Easy access to restaurants, attractions and shopping can significantly increase the attractiveness of your property to tenants. Consider the overall community atmosphere. A relaxed, family-friendly atmosphere may be ideal for some investors, while others prefer a location with a more vibrant nightlife.

5. Personal Use and Exit Strategy:

Will you want to use the beach house yourself during holidays or family trips? When considering potential rental income, personal use should be taken into account. Additionally, think about your long-term plans. How will you ultimately get out of this investment? Selling properties in a saturated STR market may be more difficult than anticipated.

Final thoughts:

Investing in a short-term beach house rental can be a rewarding experience, offering the potential for financial gain and the chance to own a piece of paradise. However, remember that this is not a get-rich-quick scheme. By carefully considering the factors described above, along with the data provided by Realtor.com and AirDNA, you can make an informed decision that is consistent with your financial goals and risk tolerance.

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