Best Places to Buy a Vacation Home

Posted by: Skylar Olsen    Tags:      Posted date:  July 2, 2014  

Methodology:

Our goal in creating the Second Home Index is to surface U.S. cities near popular vacation destinations that are also good locations to buy a second home for seasonal use. This endeavor had two steps—first to identify vacation cities near popular destinations, then to order those cities according to their investment and rental income potential.

Being the democratic, open researchers we are, we cover a diverse set of destination types.

  • For those looking to expand their golf game, we identified places whose land area, starting from the city center and radiating out to five miles, were at least 5 percent covered by golf courses. To ensure a fun and lively community in these golfing hot spots, we also require that the housing stock was composed of at least 15 percent of the housing stock being used seasonally or occasionally, as measured by the U.S. Census Bureau. We will refer to these properties as vacation homes going forward.
  • For those seeking an oasis by the water, we identify all places within 5 miles of a body of water spanning more than 40 square miles. To ensure these waterfront towns are vacation worthy, we make the same requirement on the percentage of vacation homes—must be more than 15 percent.
  • Suppose you’re a nature lover looking for a home base from which to explore one of our nation’s gorgeous national parks. We’ve got you covered. In order to identify the best areas for outdoor adventurers, we started with a set of cities which were within 20 miles (or a half hour drive) of a national park visitor center. A place was considered a vacation area if 10 percent of the housing stock is vacation homes.
  • For the thrill seekers and amusement park enthusiasts, we chose cities within 10 miles of amusement parks, zoos, or other attractions and with at least 5 percent vacation homes in the area.
  • Last but not least, for all the history buffs out there, we surfaced U.S. cities within 20 miles of at least two nationally recognized historical sites and with at least 5 percent vacation homes in the area.

Within each of these city sets, we then calculate the Second Home Index. Homeowners want a second home purchase to have strong investment potential. That includes both future home value growth as well as rental income opportunity for those homeowners expecting to spend a fraction of the year in their second home and renting it out during the rest.

To capture these requirements of the seasonal home buyer, we include two metrics: the price-to-rent ratio—or the ratio between the home price and annualized rent—and the 12-month home value forecast. For each metric, we assign the city a score ranging from 0 to 100 according to the percentile of which the city falls. For the home buyer looking to earn strong rental income relative to home price, we reorder to the price-to-rent score such that a high score is associated with a low price-to-rent ratio.

To combine these scores into one index, we simply average the two scores and then re-stretch to range from 0 to 100 within the set of cities assigned to each destination type. The resulting Second Home Index surfaces cities whose homes have good investment and rental income potential perfect for the summer vacation of your dreams, no matter what kind of person you are.


About the author
Skylar Olsen
Skylar is an Economist at Zillow. To learn more about Skylar click here.