Here’s where beach house rentals bring in the most revenue

As hopeful home buyers flounder in a frustrating market, many are choosing to hold on to rental properties in expensive areas and make a second home their first purchase. As the thinking goes: buying in another cheaper market is the only route to home ownership, and that way they can keep some of the rental income in the mix.

As summer approached, we turned to Vacasa, a property management company, for data on the profitability of beach house rental properties in various locations across the United States. (The company also tracks data on lake homes and winter vacation homes.)

The report ranks beach towns by capitalization rate (or “cap rate”), a measure used to determine the profitability of rental properties. The ceiling rate is determined by comparing the sale price of a house with what is left of the annual rental income after expenses are covered. For example, if a house sold for $300,000 and collected $3,000 in annual rent after expenses, the cap rate would be 1%. The higher the capitalization rate, the more profitable the property.

Data on home sales and vacation rentals from the previous year were examined using real disposable income of homeowners. Proprietary Vacasa data was used in areas where the company managed at least 50 units. The average taxes, HOA fees, utilities, insurance, and management fees in each area were subtracted from the average annual rental income to help find the cap rate.

Among the 10 most profitable areas, seven were in the South. Gulf Shores, Alabama was in the lead, followed by three cities from Florida, two from North Carolina and one from Texas.

This week’s chart shows the 10 most profitable areas for beach rentals based on Vacasa’s analysis, along with the median home price and average gross rental income (before expenses) in each.