Stay away from large cities !

One of the very compelling reasons to operate vacation rentals is that the underlying working assets actually appreciate instead of withering. It's a beautiful thing to make money renting out a vacation property while that same property is increasing in value intrinsically. Compare this to say, owning a beer distribution company. Over time, your beer trucks lose value and have to be written off and eventually replaced. Not so for real estate rental ownership.

The conventional wisdom is that pricier real estate locations will bear higher rental rates. And this is generally true to a point. Rental property located in Myrtle Beach will command lower nightly rates but require a much smaller investment than perhaps Seattle. Although initial investment will cost more, higher rental rates can be achieved in good downtown Seattle locations. However, the model breaks down when you include the largest cities like New York, LA, and Chicago. The investment required for city center locations increases exponentially. The nightly rate that would need to be charged can not catch the huge investment required. The reality is that the number of people who can afford the premium rates that would need to be charged in Manhattan for example to generate a return on a Manhattan investment would be out of limits for most travelers. The only recourse for owners is to set rates that are as high as possible but will not chase away the majority of potential travelers. The result is the income generated just can't stack up against the investment required, and hence, a low ( or no) ROI

The temptation is great to own rental property in Manhattan, along Miracle Mile or Santa Monica. It's prestigious, sexy, and a little intoxicating to own a property in these top metropolitan areas, but the investment returns will be minimal. If making an operating return on your investment is the goal, do your homework and make the economics work for you. Find properties whose rental income can stack up against the required investment.