Best locations for STR/vacation rental

42 Replies

I'm looking to purchase a STR but I'm having a hard time deciding on a location. Is it best to pick the location based on ROI, or is there other important factors that a newbie may overlook? I know some state and local governments have laws on STR and of course thats a important factor. I'm just curious as to what parameters other investors use when choosing location.

Hi @Isaac Owens , thanks for posting and the great question! For me below is a short list, but bear in mind that my specific STR investment model is 'vacation house for free'. My criteria are:

  1. An area I want to enjoy with my family
  2. No pending or or existing STR restrictions or legislation in process
  3. Potential occupancy rates > 150 days per year 
  4. Net cash flow between -5k to $5k per year
  5. Family friendly destinations, non Bachelor party destinations 

I wrote a BP blog article also that touches on some of this as well that you might find interesting.  

https://www.biggerpockets.com/member-blogs/10042/64779-8-ways-to-effectively-hunt-for-your-vacation-house-4-free

Best of luck!

Yes, many local registrations and ordinances affect STRs. I would just go on Airbnb and look at popular searches. Then cross reference property costs in those locations. Austin, Texas fits a lot of metrics too.

Hey @Isaac, excellent question!  @Jon Crosby has great answers for those who have the same goals he does, i.e. vacation home for free.  My goals are different - my STRs are investments that I want to maximize my return on.  

I have STRs in two markets and one pending in a third - my favorite market is the Smoky Mountains in Tennessee (Sevierville/Pigeon Forge/Gatlinburg). I have three vacation rental cabins there. It's a very STR-friendly area, since vacation rentals have existed there since before I was born and long before AirBNB etc. It's a year-round family-friendly vacation destination with (relatively) low costs in an area that revolves around tourism. I cash flow like mad and keep adding to my portfolio. They do require that a permit be acquired (super easy) and hotel tax get paid (a little more complex but there are ways to make it easy), but otherwise there are no regulations to speak of.

My parameters are: 

- STR regulation I can live with (I'd rather have some regulation than no regulation)

- Proven vacation destination, preferably in a year-round market

- Excellent opportunity for high ROI

The Smokies have been the best place I know of for vacation rental investing. :) 

If your goal is to maximize roi then listen to @Julie McCoy .

My personal goal is to blend a maximum roi without owning 20 nickel and dime properties with 20 headaches.

Ive found areas in Hawaii to fit this well.

I look for... CoC ROI of a minimum of 20%

... high demand areas to achieve 90%+ occupancy

... something unique about the specific property (location, size, views, etc)

... appropriate regulation with no near term changes for seen.

... potential to value add

The best purchases I’ve made are from amateurs trying to self manage and getting their butts kicked... I swoop in and buy it for a discount, do my thing to make it more appealing, and ride it hard.

My town is the worst to live in Kansas according to Google.  High crime & unemployment.  Low education & property values.  There is a 115K bpd refinery in this town.  On any given week there are 50-150 contractors here doing short term jobs.  They do their work 6-7 days a week, 10-12 hours a day, then go back home when the job is done.  

Amazon.com closed their distribution center that was here.  1200 jobs gone.  This town pop. was 12000 at the time.  A lot of people left, they let their bank have their house that they had a loan for.

I buy the bank foreclosures, furnish them from estate sales, then rent them out to the contractors.

6 months of STR rent pays for the purchase price of the house. It takes 7-10 months to get 6 months of rent.

I have a fun time making my places into man caves.  Welders, pipefitters, boilermakers, electricians are my normal tenants.  No women, no children, no pets.  I gave a tour to my niece and nephew of one of my houses.  The nephew said "It's a pretty cool place, I like it".  Neice said "It's full of tits and asses".  Both of them are correct.

@Julie McCoy , @Lucas Carl

I've actually been leaning towards the Smokes just because it's only 3-4 hours away from me. 

Do you self manage your units?  

I was told that there are certain areas in the mountains that you couldn't operate a STR. Is there any truth to that?

Just check my profile and schedule a call I’ll walk you through everything in about an hour. 

Originally posted by @Paul Sandhu :

My town is the worst to live in Kansas according to Google.  High crime & unemployment.  Low education & property values.  There is a 115K bpd refinery in this town.  On any given week there are 50-150 contractors here doing short term jobs.  They do their work 6-7 days a week, 10-12 hours a day, then go back home when the job is done.  

Amazon.com closed their distribution center that was here.  1200 jobs gone.  This town pop. was 12000 at the time.  A lot of people left, they let their bank have their house that they had a loan for.

I buy the bank foreclosures, furnish them from estate sales, then rent them out to the contractors.

6 months of STR rent pays for the purchase price of the house. It takes 7-10 months to get 6 months of rent.

I have a fun time making my places into man caves.  Welders, pipefitters, boilermakers, electricians are my normal tenants.  No women, no children, no pets.  I gave a tour to my niece and nephew of one of my houses.  The nephew said "It's a pretty cool place, I like it".  Neice said "It's full of tits and asses".  Both of them are correct.

This post cracked me up - If I ever make it down in your corner of the state I'll have to look you up and see if I can get a tour of an open STR -- if you're ever up my way in Topeka look me up.

@Issac Harris Sunriver, OR. It's totally set up for STR. The HOA amenities are all made available to guests, etc. There's miles of hiking, biking trails, recreation equipment rentals for kayaking, floating, paddleboards, winter spirts, resursnts, breweries, etc. Many if tge homes were built in 70s. We remodeled a house there that we now have on the market, and more than likely will be bought for STR. Its a beautiful area, next to Deschutes River, and close to Mt. Bachelor.

Originally posted by @Issac Harris :

I'm looking to purchase a STR but I'm having a hard time deciding on a location. Is it best to pick the location based on ROI, or is there other important factors that a newbie may overlook? I know some state and local governments have laws on STR and of course thats a important factor. I'm just curious as to what parameters other investors use when choosing location.

I have family that owns several STR homes in Seaside, Watercolor, Rosemary beach, and Aly's beach. It's near Destin, Florida (30A) and gets lots of spring and summer brakers.

Issac, your location depends on your strategy. The only thing you should care a about is ROI and profitability. High occupancy does not equal the highest and best use of that unit depending on your nightly rate.

Would you rather charge more and make the same amount in a month with less nights? Or would you rather have more bookings at a lower price per night? 

Every unit had it's equilibrium point. 

Back to ideal locations? That depends on your specific strategy and market. 

Buy to rent

Rent to rent

Managing for others 

All different plays that may not overlap in one market. 

To give you a more cut and dry answer however ... The Smokes. 

I watched a one hour webinar with the CEO of AirDna and that's one of their best markets. Stable all year round.

All of the areas you mentioned are good rental areas except Alys Beach. In Alys, if you rent, you HAVE to rent through Alys Beach management and they charge 50%. One of the best ROI's is Seacrest Beach between Rosemary and Alys

Isaac and Robert, I self-manage.  (I don't know why I can't tag either of you... grr)  Until last week I lived in Los Angeles, and it was no trouble at all to run them from there while working my 16 hour/day day job.  I just moved to Nashville, so I'm still long-distance, just not quite as long!  Local PMs are 30-40% and that's the whole profit margin, I prefer to keep that, ha!

Isaac, definitely take Lucas up on his offer of a call, you'll learn a ton!

@Issac Harris I could sit here and tell you that the Panhandle of Florida (especially Destin/Fort Walton Beach) is the way to go, cuz who doesn't love the beach and the 90% occupancy rates, lol? But @Jon Crosby is 100% correct. All I can add, based on my experience, is that you will do best in an area you are somewhat familiar with, or at least take the time to become familiar. So, yes, if you like it yourself, you'll find it easier and better to "sell it" to others as a destination and you manage expenses and resources more efficiently. If you personally would like to go and vacation in Gatlinburg, TN or Hawaii or Destin, FL that is where you'll do best. Seriously, Croatia is awesome for STRs I hear, but chances are if you've never been there, lol, you'll find it hard to choose a property or manage, so I stick to what I know -- FLORIDA!!! :-)

I love the Gatlinburg area and have my sights set on that area to invest in a property. What draws people there during the winter?  Do smaller properties do better or larger properties? 

Originally posted by @Wendy Schultz :

I love the Gatlinburg area and have my sights set on that area to invest in a property. What draws people there during the winter?  Do smaller properties do better or larger properties? 

Re property size, from the data I’ve seen, it tends to be pretty linear in the Smokies. As a rough approximation, you can expect E TN gross annual rental revenue to be around 15-20% of purchase price at most price points & home sizes. You might as well scale up & get the largest house you can comfortably afford

@Wendy Schultz most time winter temps are moderate, crowds are down except at holiday time, there is skiing and snow tubing, and overall rates are less expensive. Dollywood does a holiday celebration and will be open all year round now.