STR in an expensive, close area or STR in far, less expensive areas?

Question

Hi all, I'm doing a 1031 exchange for my parents' retirement for the first time (working through IPX). I've identified a property that is close to me in Pennsylvania and it's decent price but it's not cheap and requires some renos. I'm under contract with that. With the rest of the 1031 (about $1.2M leftover), I can do one more in the area or I can do even up to 3 if I'm willing to take a plane ride and go to a different city. Mainly because the homes are cheaper. I understand there are a lot of variables at play here, but my initial logic is that I can make my money back faster with 3 than 1. If I use that $1.2M to buy one home that's close I also realize I can probably charge more since it'll be a bigger house (5bd+). But with 3 at 3bds in a decent STR market, I have to think I'll make back that money faster with 3 decent homes instead of 1 bigger home. I'd appreciate any feedback on this and how I should think through my approach because I want to make sure my parents' investment is in an appreciating area that is flexible for STR/MTR/LTR if I need to switch things up.

My experience is that I've run one STR before and am confident I can spin up remote operations with a property or area manager. 3 at once seems risky and a bit daunting, but I'm willing to do it. Oh and any suggestions on solid STR areas I should explore would be very helpful.

Thanks in advance,
Dan

My experience is that I've run one STR before and am confident I can spin up remote operations with a property or area manager. 3 at once seems risky and a bit daunting, but I'm willing to do it. Oh and any suggestions on solid STR areas I should explore would be very helpful.

Thanks in advance,Dan

Dave Foster · Answer

@Dan Steele, This strategy is what we call a diversification exchange, which is when you sell a large investment property and acquire multiple smaller investment properties in a 1031 exchange.

Investors will use diversification exchanges to reach different markets or even other states while deferring the tax and depreciation. And exactly as you're proposing - creating a portfolio mix that maximizes cash flow.

For you, flexibility might end up looking like some intermediate steps.  Buy one STR and a couple of smaller LTRs.  Then, as you feel confident and want to scale, you later sell your LTRs and 1031 into new STRS that you can immediately put into service with your systems established for your first STR.

Eric Gerakos · Answer

Keep in mind that cheaper properties are cheaper because they are less desirable. Collect money, not properties.

Tenzapa Wakombe · Answer

Great question and kudos for helping your parents build long-term wealth with a 1031. You're absolutely right—there’s a trade-off between managing fewer high-value properties close to home vs. scaling out with multiple mid-tier assets in other STR-friendly markets.

A few things to consider:

• Risk diversification: Spreading the $1.2M over 2–3 properties in different markets could reduce reliance on one property or one local economy.
• Operational load: Managing multiple STRs remotely is doable but will require strong systems and trusted boots on the ground. Since you’ve done it before, you know what that setup looks like—but scale adds complexity.
• Exit flexibility: Smaller properties may be easier to offload in the future if market conditions change or you want to reposition assets.

Risk diversification: Spreading the $1.2M over 2–3 properties in different markets could reduce reliance on one property or one local economy.

Operational load: Managing multiple STRs remotely is doable but will require strong systems and trusted boots on the ground. Since you’ve done it before, you know what that setup looks like—but scale adds complexity.

Exit flexibility: Smaller properties may be easier to offload in the future if market conditions change or you want to reposition assets.

As for STR markets, consider areas with:

• Year-round tourism (think Smoky Mountains in TN, parts of FL/Carolinas, Blue Ridge GA)
• Friendly regulations
• Strong occupancy + ADRs
• Decent long-term rental fallback

Year-round tourism (think Smoky Mountains in TN, parts of FL/Carolinas, Blue Ridge GA)

Friendly regulations

Strong occupancy + ADRs

Decent long-term rental fallback

If you’re okay traveling and setting up ops in a new market, the returns from 2–3 well-performing STRs might edge out a single high-end one. But if peace of mind and proximity matter more, there’s nothing wrong with going for the close-to-home option.

Happy to dive into specific markets or help model out the options if helpful!

Raymond J. Rodrigues · Answer

@Dan Steele, reach out to @Josh Green if you’re interested in FL. Josh runs a solid operation of high performing STRs that you’ll likely be interested in after speaking with him. He’s helped a ton of my investors in the past and can do the same for you. He’s also an investor/investor focused realtor.

Myrtle Mike Thompson · Answer

Hey @Dan Steele, not sure if you have any familiarity with the Myrtle Beach area, but this would be a great market to consider for an STR purchase (or 2 or 3).  Let me know if your research happens to point you this way and I'd be happy to lend my assistance.

Dan Steele · Answer

This is beyond valuable insights Lauren. You read my mind in terms of concerns and also provided valuable markets to look into. I'll digest this and come back to you with any questions if that's alright. Sent you a connection request

Dan Steele · Answer

Very helpful. Thank you for the response

STR in an expensive, close area or STR in far, less expensive areas?

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