Where to Invest in a Vacation Rental Property in 2018

Why West Florida is the hottest vacation rental market in the country

Thanks to the rise of user-friendly apps and services like HomeAway and Airbnb, driving revenue from short-term rentals has become a viable form of additional income. For some, the extra earnings are just enough to pay for ownership of a second home. For others, it’s solely an investment vehicle. Regardless of the strategy, it’s clear that short-term rentals have their place in real estate investment in 2018. For a deeper look at how much your vacation rental could potentially earn, check out our resource here

At InvitedHome, we’ve had many homeowners in the process of buying a vacation home inquire about the impact short-term rentals could have on their annual cost of ownership. Here’s a simple example that breaks it down. Note: the down payment, mortgage rate, and PITI shown are examples, and rates and fees are subject to change.

Home Price: $2.3M
Down payment: 35%
Mortgage: 4.5%
PITI(principal, interest, taxes, insurance): $9,969.95

Without renting the home, your annual payment to own would be $119,639 (PITI x 12 months). However, with a projected gross rental income of $114,700, the annual cost of owning that dream vacation home drops to $4,000. Upon this realization, a $2.3M vacation home doesn’t seem so out of reach.

Where should you invest in a rental property?

Once you’ve made the decision to buy, the question that naturally follows is where to invest in a vacation rental property. (If you're one step ahead and are currently looking for a property manager for your vacation rental, check out our 10 questions to ask before choosing a vacation rental manager.) In this post, we’ll focus on a single destination that has topped the list of the best places to buy a vacation home for several years running: West Florida.

Most recently, Rented.com named Panama City Beach the number one place to buy a vacation rental property, based on several factors. The study took into account real estate prices, local vacation rental rates, insurance, taxes, maintenances costs, and the overall popularity of the destination to determine the winner, giving PCB a sterling score of 98.9/100.

The average estimated rental income in Panama City Beach in 2018 is $26,301, with an average home price of $246,400, according to figures from Zillow. But these excellent vacation rental conditions are nothing new. Last year, the same study determined that Destin, just one hour west, was the second-best short-term rental market in the country, with an estimated rental income of $46,141. Even back in 2016, PCB made the number one spot on the list with an estimated rental income of $28,800.

30A: The Gem Of West Florida

Destin and PCB typically get the spotlight in the vacation rental market, but what has yet to gain similar attention is the stretch of land that connects these two markets. Scenic 30A Highway, or 30A as it’s known locally, runs along the Gulf Coast and has some of the most pristine beaches anywhere in Florida. It’s known for its sugar-white sand, and the unique water color has earned it the nickname the Emerald Coast. Gorgeous beachfront homes and condos line the shore, and small communities have unique events throughout the year that attract guests from all over the country.

30A is still a relatively under-exploited area of Destin/Panama City Beach, and with strong market fundamentals, is also one of the best luxury vacation rental markets in Florida. Let’s look at the neighborhood of Seacrest Beach, for example. Data from Scenic Sotheby’s International Realty show the average sale price of a home in Seacrest in 2016 was $790,300. In 2017, this number rose 2.6 percent to $811,000. Nearby Watersound Beach saw even more impressive growth, with the average sales price increasing 27 percent from $2.2M in 2016 to $2.8M in 2017. So not only will you drive revenue from short-term rentals, the traditional foundations of acquiring wealth through real estate are there as well.

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The Future of 30A

Taking a wider look, the last 15 years have seen consistent growth in both the number of single-family homes sold and home values since 2009, with even better growth post-2014. This push over the last five years is likely due to higher inventory, new construction, and airlines offering new direct flights to the region. All of this bodes well for the future of 30A.

Already, our homeowners along 30A have made up to $125,000 annually from rental income, thanks to high demand for week-long stays, the gorgeous appeal of the homes, their location, and the provided amenities. And if the predictions are true, demand for high-end accommodation in the area will only increase. The 30A Songwriters Festival and the Digital Graffiti festival have already become huge national draws, and grow in popularity every year. Ecotourism, which includes activities like kayaking, snorkeling, and hiking, brings in guests from all over the country, and the popularity of this form of tourism is only expected to rise. One of the most visually stunning communities in the country - Alys Beach - is expected to continue to grow in the coming decades, likely becoming one of the recognizable and iconic coastal towns in the state, if not the country.

The Scenic Sotheby’s 2017 Market Report closed with a glowing review of the overall macro conditions of the West Florida real estate market.  

“The fundamentals of the economy are stronger than ever,” the report noted. “We have witnessed the highest growth GDP in over two years; The stock market continues soaring to new heights; unemployment stands at its lowest since 2000; and interest rates remain low while consumer confidence reaches a new peak each month. These factors coupled with the strong activity we’ve observed in most of our market areas through most of the year’s end have us excited about what the future holds.”

If you’ve been searching for the best place to buy a condo or beach home in Florida, look a little more closely at 30A. For a breakdown of the various neighborhoods that comprise 30A, here’s a resource that explains each in detail.

If you have any further questions about how you can offset the cost of owning a vacation home through renting, get in touch with our owner consultants today at 970-289-4833.

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