Buying a beach house is dreamy enough on its own, but many owners also fantasize about the profits that await if they turn that shoreside property into a short-term rental.
Beach house owners truly can have their cake and eat it too by renting out their property on Airbnb, VRBO, and other similar sites. However, not all beach towns are created equal in netting a high return on investment. To size up a short-term rental (STR) property’s true potential, real estate investors compare a home’s annual returns to what they’d have to pay for it—a ratio known as a property’s yield.
“Yield is the potential revenue divided by the home value,” says AirDNA economist Bram Gallagher. “It’s closely related to cap rate. With a short-term rental, many aim to maximize their cash flow for the dollar amount put into it.”
Generally, the higher the yield, the better—and certain beach towns have better yields than others, as Gallagher determined by comparing average annual rental returns in coastal towns across the U.S. to the median listing prices on Realtor.com.
But even if the yield suggests that certain locales are a slam dunk investment, these numbers aren’t the only factor to consider. Many popular areas have enacted local STR regulations that make owning a rental costly, complicated, or nearly impossible to get.
As Gallagher points out, “The Big Island Hawaii has a 14.9% yield, but it’s difficult to enter this market due to tight STR regulations.”
So where are the best places to buy a beach house that are also solid money-making investments? To find out, Realtor.com partnered with AirDNA to crunch the numbers and highlight the top 10 locales—along with median home prices, average annual rental revenue, expected yields, plus any STR regulations to consider before diving in.
1. Pawleys Island, SC
Median home price: $497,237
Annual revenue potential: $41,995
Expected yield: 19.8%
Anyone looking to take advantage of picturesque coastlines, coupled with a unique and longstanding history, might want to take a trip to Pawley’s Island. Considered one of America’s original vacation spots, people flock to this region by the millions every year. Just don’t jump into any purchases before taking a look at the changing landscape of STR laws in the area. The City Council is considering implementing some changes, which will include capping the number of STR rental permits at 250 and charging owners an annual $500 fee (or $250 for owner-occupied rentals).
2. Michigan East Coast, MI
Median home price: $208,513
Annual revenue potential: $20,265
Expected yield: 16.7%
Also known as the Sunrise Coast, Michigan’s East Coast has some amazing attractions that bring renters to towns like Au Gres every season. And that’s great news for hopeful homeowners who want to take advantage of tourism in the area, especially since Michigan doesn’t have any statewide rules regulating the STR market. That being said, in April,House Bill 5438 might soon allow municipalities to enact local regulations on STRs. State RepresentativeJoey Andrews contends that “local officials know their communities best, and they are in the best position to create the right kind of ordinances for the STRs they host.”
3. Cape San Blas, FL
Median home price: $798,807
Annual revenue potential: $64,264
Expected yield:12.8%
You can get a pretty good return on your investment when you buy in this Gulf County town, but you’ll want to be aware that The Sunshine State expects a cut of those earnings, which include a 5% Bed Tax for overnight stays. Additionally, Gulf County owners need to apply for an annual STR business license, and rental properties are required to undergo annual home inspections.
4. Gulfport Biloxi, MS
Median home price: $303,930
Annual revenue potential: $23,646
Expected yield: 12.4%
The short-term rental industry is growing by leaps and bounds in the Magnolia State, which is why officials are coming up with some targeted regulations governing these properties. For example, Gulfport has strict safety regulations, notification protocols, and even insurance minimums when it comes to STRs within city limits. You’ll want to brush up on these rules before you buy.
5. Wilmington, DE
Median home price: $614,856
Annual revenue potential: $35,361
Expected yield: 11.2%
Wilmington has made it easier for owners to build a short-term rental business on the city’s coast by creating a “one and done” policy: Once a property has gone through the proper zoning applications to become a rental property, the designation remains on the property, even if ownership is transferred. This will make any turnkey listings more appealing to buyers, since half of the regulatory work will already be done for them.
6. Lincoln City/Newport, OR
Median home price: $597,379
Annual revenue potential: $43,241
Expected yield: 11.10%
Lincoln City’s City Council requires rental owners to jump through a few hoops before approving a property as an STR. What’s more, the city’s 285 STR licenses are currently being used—and thanks to citywide caps, no additional licenses will be issued until existing STR properties revert back to owner-occupied status. Still, if you’re patient, getting in on this market means you won’t be flooded with competition. That said, this only applies to rentals lasting 30 days or less, so homeowners can still rake in rental income for longer-term stays.
7. Greys Harbor, WA
Median home price: $421,627
Annual revenue potential: $29,331
Expected yield: 11%
Greys Harbor County in Washington state is home to plenty of stunning beach towns where many in the region run to as soon as the temperatures start to rise. While there are different STR requirements based on which municipality your property is in, generally, you’ll need to apply for an STR permit and get it renewed every year.
8. Outer Banks, NC
Median home price: $705,939
Annual revenue potential: $34,237
Expected yield: 10.5%
Each of the towns in North Carolina’s Outer Banks has its own regulations—Nags Head, for example, has rules differentiating between whole- and partial-house rentals and requires different permits depending on the intended use. So you’ll want to do your research before settling on one of these gorgeous coastal towns.
9. Corpus Christi, TX
Median home price: $541,169
Annual revenue potential: $27,154
Expected yield: 10.4%
Corpus Christi’s definition of a short-term rental is anything that is rented out for fewer than 30 consecutive days. Those properties are then governed by their Short-Term Rental Ordinance, which requires homeowners to apply for a registration permit before renting out their place. That being said, rules appear to be a bit more lax in the Padre/Mustang Island areas, in case you’re looking to purchase a rental somewhere with a more laid-back approach.
10. Gulf Shores, AL
Median home price: $615,535
Annual revenue potential: $112,281
Expected yield: 10.3%
Lawmakers in Gulf Shores deem any property that is rented out for less than 180 days a short-term rental, and owners of said properties will need be aware of the area’s lodging tax requirements. Those include a 4% payment to the state, 2% to Baldwin County, and 9% to the city if the property is within corporate limits—or 4.5% if it’s within the policy jurisdiction.
