Do You Evaluate the Property First or the Market First?

Question

Most STR investors spend a huge amount of time evaluating properties and surprisingly little time evaluating markets.

After analysing several very different STR destinations—including Breckenridge, Whitefish, Moab, Bar Harbor, and Springdale—I’ve noticed that the strongest markets tend to share a handful of common characteristics:

• Durable tourism demand• Pricing power (ADR resilience)• Limited supply growth• Strong revenue potential• Long-term destination appeal

What's interesting is that these characteristics show up in very different ways depending on the market type.

For example:

A ski resort market such as Breckenridge derives demand from winter tourism and affluent destination travel.

A national park gateway market such as Moab relies heavily on visitation growth and outdoor recreation trends.

A coastal destination such as Bar Harbor has an entirely different seasonality profile again.

My question for the BiggerPockets community:

When you're evaluating a potential STR market, what metric carries the most weight?

• Occupancy?• ADR?• Revenue per listing?• Supply growth?• Something else?

I'd be interested to hear how others approach market selection.

John Underwood · Answer

If it is not a good market to start with no point in evaluating properties in a bad market.

Andrew Steffens · Answer

I live and operate as a PM and a broker in Tampa FL so I cannot comment on what I do to analyze markets because all I have is here.  Maybe one day I will venture out, always have/had an itch to do it but I am kept so busy here.

That said 95%+ of my client are out of state so I get a glimpse of their analysis into why they chose Tampa.  Mostly its personal reasons and not strictly the numbers.  Using Tampa area as an example it has good returns (but probably not the best in the nation), durable demand, its a growing area, has great beaches and is generally a place they will enjoy visiting annually.  That tells me most STR investors, or at least the ones I interact do think positive cashflow as well as future appreciation are important, but I think what is more important is its a place they can use and enjoy in the future.  I regularly see people choose the property with a slightly lower ROI because they like the house of where it is specifically located.

These also, in my experience, tend to be the better investors in the long run.  They have some emotional ties to the property.  I have worked with pure investors in the past and they try to squeeze every dollar out of the place.  If you have a good manager there is not a lot you can do to maximize revenue if you have a solid revenue management plan, but you can cut costs.  Too much cost cutting has a negative effect on the property within a few years it can literally be falling apart and hemorrhaging money.

Bruce Woodruff · Answer

I see both as being very important. A property has to have value in some way to be worth even looking at. Let's say you buy a property as an STR and then the city changes its regulations.....that property needs to be able to operate as a standalone LTR as well, right?

Jules Aton · Answer

I'm definitely looking at the area first but with ease of resale always at the top of my list. I still carry a scarcity mindset in some aspects which may contribute to finding value in being able to take my chips and go home at any time.

Account Closed · Answer

I would never invest in Bar Harbor unless I had a lot of money to accumulate STR's.

I live in Maine.Better off investing where I live — where almost 80% of the year (April-December) has seasons in which can turn into guest bookings. OR Sunday River areas.Bar Harbor is very very seasonal. And small.

JV Kaufman · Answer

Always evaluate market first!

Mike Grudzien · Answer

A smart investor looks at all factors in context; there is no one carrying the weight.  Once all the numbers add up, then mix in the investor's personal goals.  May be I want a property just because I like it and the market and it's just a breakeven.

Mike Grudzien · Answer

I will add that your profile says nothing about you or your background: it reads like a piece of advertising for what you are selling...

Bryce Stephens · Answer

Market first to build the short list — but the trap I'd flag is treating occupancy and ADR as separate metrics to rank. They trade off against each other, so either one alone will mislead you. A market can flash a gaudy ADR and leave you empty half the year, or grind high occupancy at rates that barely cover the note. Revenue per listing (RevPAR) is the one I lean on, because it's already both of them multiplied together — closest read on what the median real operator there actually pulls.

The thing I'd add to your list is supply growth, weighted heavier than most people give it. Revenue per listing tells you what already happened; new permits and new listings are the leading indicator of what that number looks like in two years.

One caveat from my own analysis, and I come at this more from the underwriting side than operating a big portfolio: the market metric is only as good as the resolution you measure it at. I underwrote a San Antonio deal where the city-level averages made it look like it could pencil, then pulled the actual comps within about a mile and occupancy was running closer to 27% — completely different story, and it killed the deal. Good market, bad submarket. So I screen markets on RevPAR and supply trend, then underwrite the specific property like a pessimist.

Do You Evaluate the Property First or the Market First?

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