Thursday, 5 August 2021

Top Places to Invest in a Vacation Home

Top Places to Invest in a Vacation Home
21 Jun

Updated on Monday, June 21, 2021

Owning a home In Park City, Utah, Palm Beach, Fla. or Provincetown, Mass., is a fantasy for many people who visit these beautiful places, but vacation home investors may need deep pockets, market data and patience to find the right property.

While not every location is pricey, the median value in places like Kiawah Island, S.C., and Nantucket, Mass., tops $1 million. MagnifyMoney researchers used various metrics — largest percentage increase in median home values, highest home values and most vacation homes — to find the top vacation areas, looking exclusively at towns where 20% or more of the housing is occupied for recreational, seasonal or occasional uses.

Key findings

  • McCall, Idaho, saw the largest percentage increase in median home prices between 2015 and 2019. Median home values in the Idaho resort town rose from $206,800 to $339,900 — a 64% increase. Cape Canaveral, Fla., and Crestline, Calif., round out the top three.
  • Not every vacation market is buzzing. In Munds Park, Ariz., where 81% of homes are for recreational, seasonal or occasional use, property values are down 22% since 2015. Mammoth Lakes, Calif., and Fire Island, N.Y., join the Arizona town in the bottom three.
  • The vacation destination with the highest home values is Kiawah Island, S.C. The median home there is worth more than $1.5 million. At the other end, the median home value in North Fort Myers, Fla., is just less than $98,000.
  • Fire Island — despite the drop in property value — is the most vacation-dominated housing market in the analysis. 96% of homes in the area are used as vacation homes. The next closest are Sunriver, Ore., and Keystone, Colo. (both 86%).

Top 10 places to invest in a vacation home

Investors looking to hold onto their property for a few years to generate a profit will want to review the markets with the largest increase in median home values. MagnifyMoney researchers compared median home values in 2015 and 2019, finding that property values rose in 98 of the 112 vacation towns with available data.

Median home values in McCall, Idaho, a ski resort town on the western edge of Valley County, finish at the top with a 64% increase in just five years. While other vacation towns had some big increases, too, none came close to that level.

Vacation towns with largest % increase in median home value
Rank Vacation town 2015 median value 2019 median value % change
1 McCall, Idaho $206,800 $339,900 64%
2 Cape Canaveral, Fla. $167,300 $244,900 46%
3 Crestline, Calif. $178,000 $258,100 45%
4 Vail, Colo. $534,400 $773,700 45%
5 Sunriver, Ore. $393,700 $564,800 43%
6 Marco Island, Fla. $475,300 $678,900 43%
7 St. Pete Beach, Fla. $324,100 $462,500 43%
8 Hallandale Beach, Fla. $151,600 $215,600 42%
9 North Fort Myers, Fla. $69,600 $97,900 41%
10 Poinciana, Fla. $122,500 $170,900 40%

The rapid rise in the median home value in McCall is part of the growth story In Idaho, which was the fastest-growing state in the U.S. with a population increase of 2.1% in 2020 compared to 2019.

Six of the top 10 vacation markets with the highest growth in median home values are in Florida, which added the second-largest number of residents between 2019 and 2020. A recent summary from the Florida Demographic Estimating Conference expects the state to gain 845 residents a day between 2020 and 2025, which could benefit vacation home investors.

Another notable location is Sunriver, Ore., which has the fifth-highest increase in median home values at 43% and is the second-most vacation-home-dominated housing market, with 86% of the homes being vacation properties.

Bottom 10 places to invest in a vacation home

While real estate investors in some resort markets saw median home values climb between 2015 and 2019, the median home value dropped in 14 of the 112 markets analyzed. The markets included each has at least 20% of their housing used for recreational, seasonal or occasional purposes.

Vacation towns with the largest % decrease in median home value
Rank Vacation town 2015 median value 2019 median value % change
1 Munds Park, Ariz. $290,200 $225,000 -22%
2 Mammoth Lakes, Calif. $419,100 $337,700 -19%
3 Fire Island, N.Y. $576,100 $475,000 -18%
4 Surf City, N.C. $315,200 $275,700 -13%
5 The Hideout, Pa. $182,700 $162,700 -11%
6 Pinetop Country Club, Ariz. $269,300 $249,500 -7%
7 Ventnor City, N.J. $291,600 $273,500 -6%
8 Branson, Mo. $167,800 $157,500 -6%
9 North Wildwood, N.J. $375,700 $354,000 -6%
10 Arnold, Calif. $307,600 $293,000 -5%

While Munds Park, Ariz., has the largest decrease in median home values at 22%, the small town about 20 miles south of Flagstaff, Ariz. has less than 900 residents year-round. And the median home values are based on all homes in the community, not just vacation homes.

On the other hand, The Hideout, Pa., where the median home value dropped 11%, is also fifth on the list of markets dominated by vacation homes, with 84% of properties used occasionally or for recreation. That means vacation homes primarily drive the change in value.

Vacation destination with the highest home values

Some of the best-known vacation destinations are among the locations with the highest median home values. Real estate investors in these markets need exceptional resources to afford to buy a vacation home.

Vacation towns with the highest home values
Rank Vacation town 2019 median value
1 Kiawah Island, S.C. $1,532,800
2 Stone Harbor, N.J. $1,375,000
3 Key Biscayne, Fla. $1,211,000
4 Avalon, N.J. $1,192,600
5 Palm Beach, Fla. $1,177,100
6 Park City, Utah $1,035,300
7 Rehoboth Beach, Del. $1,017,100
8 Nantucket, Mass. $1,001,700
9 Naples, Fla. $988,500
10 Pelican Bay, Fla. $983,600

Exclusivity is a big draw for some of these expensive resort areas. Topping the highest median home value list is Kiawah Island near Charleston, S.C., which has five golf courses and a 10-mile beach. Much of the island is part of the private resort community.

Stone Harbor and Avalon, two beach towns in Cape May County, N.J., are both about 2.5 hours from New York City.

The four Florida resort towns on this list — Key Biscayne, Palm Beach, Naples and Pelican Bay — are all known for high-end shopping and luxury housing.

Meanwhile, Rehoboth Beach, Del., has garnered attention recently as the second home for President Joe Biden and has long attracted real estate investors and vacationers from Washington, D.C., Baltimore and Philadelphia.

Vacation destination with the lowest home values

People searching for sun, the ocean, the desert or just a place to relax can find cheaper vacation places than just discussed. For investors looking to build wealth over time, starting with a less expensive vacation home can be an opportunity to gain equity or rental income.

The market with the lowest median home value is North Fort Myers, Fla. — $97,900 in 2019. But North Fort Myers saw a price increase of 41% between 2015 and 2019, making it a potential market for investors to consider.

Other markets at the low end include Fortuna Foothills, Ariz., with a median home value of $126,300, and Bullhead City, Ariz., with a median home value of $140,300.

Places with the highest percentage of vacation homes

While some towns and cities barely make the cut with as low as 20% of the homes used by vacationers, Fire Island, N.Y., stands out, as 96% of the homes on the island are vacation properties. The median home value on Fire Island was $475,000 in 2019, putting it at the 37th most expensive, but home values dropped by 18% between 2015 and 2019.

Most vacation-dominated housing markets
Rank Vacation town % vacation homes
1 Fire Island, N.Y. 96%
2 Sunriver, Ore. 86%
3 Keystone, Colo. 86%
4 Ocean City, Md. 84%
5 The Hideout, Pa. 84%
6 Munds Park, Ariz. 81%
7 Ocean Isle Beach, N.C. 79%
8 North Beach Haven, N.J. 78%
9 Sea Isle City, N.J. 78%
10 Avalon, N.J. 77%

Like many of the markets with the highest density of vacation homes, Fire Island, N.Y. is relatively small with just 3,331 households, 3,206 of which are vacation homes. Nine of the 10 markets with the highest percentage of vacation homes have less than 7,000 households. The only outlier in that group is Ocean City, Md., which has nearly 30,000 households.

On average, places where at least 20% of the housing market was dedicated to vacation homes have a total of 12,240 households. Some cities bucked this trend, though. Miami Beach, Fla., for example, has nearly 70,000 households, 25% of which are vacation homes.

Full details

Is buying a vacation home a good investment?

Deciding to invest in a vacation property depends on personal preference even more than other investments, says Tendayi Kapfidze, LendingTree chief economist. You’ll need to think about whether your primary goal is to use the property for vacations or financial returns.

“There are two main ways to make money when investing in property: cash flow and appreciation,” Kapfidze says. “If your goal is cash flow, you’ll need to know if you can lease the property enough to earn more than you spend on the mortgage and maintenance. If you’re more interested in appreciation, you have to estimate whether the property will be worth more several years down the line.”

Con: Getting access to your cash

The main disadvantage of owning an investment property is the lack of liquidity of your money, he says.

“Even if the property appreciates in value, you can’t usually access the equity with a home equity loan or line of credit,” Kapfidze says.

When you invest in stocks, you can sell them more quickly than real estate to gain access to your cash.

Pro: Gaining leverage

The main advantage of buying a vacation property rather than investing in stocks is leverage, Kapfidze says.

“You can take out a mortgage so you don’t need all the capital as cash upfront, and the returns you get will be magnified by that leverage,” Kapfidze says. “Interest rates are so low now, which makes that leverage even cheaper.”

Choosing the right vacation home for you

When investing in a vacation home, you’ll need to consider the purchase in the context of your financial plan.

“While it may seem good to buy in a market with lots of appreciation, rental prices in an area with fast appreciation may not have kept up,” Kapfidze says. “You may not get the cash flow you expect, but it could still be a good investment in the long term.”

In addition to looking at median home values and price appreciation, your location choice depends on whether you plan to manage your property yourself, which means you’ll need to purchase closer to home or hire a property manager for an additional cost.

Taxes on investment properties can get complex, Kapfidze says, so it’s smart to discuss your purchase with a tax advisor and financial advisor before you make a decision.

“Your insurance needs will also be different, so you should evaluate that cost ahead of time,” he says. “Some of those costs could be tax-deductible, but you need to discuss that with your tax advisor.”


MagnifyMoney researchers analyzed 2019 U.S. Census Bureau American Community Survey (five-year estimates) housing data for the 200 cities or towns with the most vacation homes or those designated as vacant because they’re used for recreational, seasonal or occasional uses. Researchers then filtered that list down to 113 places where at least 20% of the total housing market was occupied by homes that fit that definition (2015 median home values weren’t available for Keystone, Colo., so it was excluded from the research that required the value).

Researchers broke this down by vacation towns with the largest percentage increase in median home value, vacation towns with the highest home values and the most vacation-dominated housing markets.

The “Find a Financial Advisor” links contained in this article will direct you to webpages devoted to MagnifyMoney Advisor (“MMA”). After completing a brief questionnaire, you will be matched with certain financial advisers who participate in MMA’s referral program, which may or may not include the investment advisers discussed.


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