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Are Beach House Rentals Profitable?

Owning a rental property at the beach can be a good investment — but how good, and to what extent does that depend on where it is?

Vacasa, a vacation rental-property management company, looked at data on rental properties in popular beach destinations in the United States to determine the 10 most profitable locations. We’ve ranked them below by capitalization rate.

Cap rate, a metric used to determine a property’s profitability, is found by comparing a home’s sale price to its net operating income (i.e., whatever is left of the annual rental revenue after expenses). So if a house sold for $200,000 and there was $2,000 of net profit at the end of the year, the cap rate would be 1 percent.

The higher the cap rate, the more money in your pocket — and the better the investment.

But the cap-rate calculation does not take into account the cost of a mortgage, so it is most helpful to investors who can buy a home outright. Still, according to Vacasa, even with a mortgage factored in — a 30-year, fixed-rate loan at 4.58 percent, with a 25 percent down payment — all of the places on the following list are likely to be profitable.

One word of warning: The formula Vacasa used also does not reflect the cost of flood insurance, which has increased in recent years. Federal protection under the National Flood Insurance Program covers up to $250,000 of structural damage for about $700 a year, but additional coverage could cost thousands more. (The Federal Emergency Management Association’s floodsmart.gov website is a good place to find information.)

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About Scott Morgan

Scott B. Morgan writes for Debt Management and Real Estate sections in AmericaRichest.

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