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.
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.