Are beach house rentals profitable?

Owning a rental property at the beach can be a good investment – but how much and how much does it depend on where it is located?

Vacasa, a vacation rental property management company, reviewed data on rental properties in popular beach destinations across the United States to determine the 10 most profitable locations. We have listed them below by capitalization rate.

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

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

But the calculation of the cap rate does not take into account the cost of a mortgage, so it is very useful for investors who can buy a house directly. Still, according to Vacasa, even with a mortgage taken into account – a 30-year fixed rate loan at 4.58%, with a 25% down payment – all of the places on the following list are likely to be profitable.

A word of warning: the formula used by Vacasa 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 in structural damage for around $700 per year, but additional coverage could cost thousands more. (The Federal Emergency Management Association floodsmart.gov website is a good place to find information.)