Vacation rental ROI: Rental repayment insights by state

In this article we look at vacation rental ROI by US state. In other words, which locations across the USA provide the greatest revenue return compared with their cost.

There are lots of things to consider when weighing up investing in a short-term rental property. First, which locations are feasible in terms of providing or procuring effective operational services. Second, what property type is the most lucrative in those locations. Then, the obvious sticking point – what can you afford. A very effective but often hard won barometer however, is return on investment (ROI). To weigh this up, you need vacation rental revenue data and aligned property purchase prices (and of course some maths). Luckily for you, we have both. In the following two sections we look at:

• a ranking of states by their annual 3 bedroom vacation rental revenue

• a ranking of states according to how long until you pay off a 3 bedroom vacation rental

Vacation rental ROI by US state

Whilst this chart, as mentioned, shows US states sorted by annual vacation rental revenue, you can also see the corresponding average purchase price for that property.

We looked at the 2022 average purchase price for a 3 bedroom property per state and contrasted those against the estimated annual vacation revenue according to the average 2022 occupancy and nightly rate for 3 bedroom listings in that state. This ranking allows you to see the most lucrative vacation rentals across the country. For example, Hawaiian rental properties (annual $205k) hit nearly double the revenue of second-best state Wyoming in 2022. By contrast, Kansas brings by far and away the lowest vacation rental revenue at $20k. That's 12.5k less than next-best Delaware and a meagre 10% of a similar property in the Aloha State.

However, it also highlights the disparity between that revenue and the purchase price. While a Wyoming 3bdr will earn you half a Hawaii one, it’ll cost you closer to a third ($304k vs $879k). So, what does this mean in terms of ROI, and critically, where the smart investments are?

How long until you pay off your vacation rental?

The ratio of the above data allows us to rank our US states by the average time required for revenue to equal investment. And, the question of Hawaii and Wyoming is immediately answered. Despite its mammoth rental revenue, Hawaii only manages 10th in the ROI rankings due to property price tags. There, it’ll take you 4.3 years of operation compared to 3.2 years in Wyoming (2nd) to make back the purchase price.

It’s West Virginia that comes out on top however. In defiance of its relatively lowly 30th best short-term rental revenue, property prices pull it to the top in terms of ROI - again underlining the importance of looking at return on investment when selecting a property. Washington DC takes the unwanted wooden spoon in this competition, with the average 3 bedroom taking over 12 years to cover its outlay. At $693k on average, it just pips California to the second greatest investment behind Hawaii, and only makes 15th place in terms of vacation rental occupancy and ADR.

How important is ROI and where should you buy a vacation rental?

Return on investment has to be the most important factor in your decision on where to buy a vacation rental. Ultimately, if it’s an investment then the return counts. The above charts magnify the chasm in how long vacation rentals can take for return to meet cost. Indeed, your property in West Virginia will take just 25% of the time of your property in D.C. will - probably worth thinking about!

Now of course, the above is a very basic calculation not considering interest or mortgages etc, but it is a good place to start when trying to understand the relative merits of markets. If nothing else, this analysis serves as a reminder of the importance of data in decision-making if you are to maximize your returns in vacation rentals. Click below to discover the full power of our data for your business, and why not simulate and measure ROI with our free Rental Calculator.