Choosing markets and COC

9 Replies

Hello, biggerpockets community! I'm an aspiring STR investor, and I have been focusing on finding a good mountain place, or any other depending on advantages, that could maintain bookings all year long with no too pricy properties, can anyone recommend some markets? And the second thing I want some advice on is what is an acceptable COC? is 20% a good return? is setting a 30% COC return goal too ambitious?

Thank you!

I'm sure there are plenty of places where you can achieve a 20% annual return in the STR world. My world is the smoky mountains. I easily do that, but only because I accumulated properties from 2005-2013. For new buyers, I don't think a 20% annual return is achievable there, these days.

Wynnewood or Ponca City Oklahoma.  Borger Texas.  They all have refineries.  Work goes on at refineries 24/7/365.  A lot of the work is done by traveling contractors.  You'd better be a ruffian if you choose to go that route.

I'd advise you to decide for yourself what an acceptable return would be for you. Returns are generally very market specific and they'll have a direct correlation to the how you structure your financing. What may be acceptable to you may not be acceptable to a stranger on the internet who lives on the other side of the country. Acceptable returns are a personal thing- when you find something acceptable for you, move forward confidently. 

Happy Investing!

I see similar posts to this pretty often. "What market is the best for STR?"

Maybe folks imagine that there is an investor out there with a secret honey hole and they're gonna say, "Sioux City, Iowa is a gold mine! We laugh at 20% CoC out here! We never pay more than $10K for our properties and we rent them at $10K/month!" It is an absurd question to me.

There is no best market.  There are niches in every market with big returns.  There are excellent operators beating the average market returns everywhere.  There are inside jobbers, like @Paul Sandhu , who greets all the refinery workers in some shantytown in Kansas (no offense Paul) on their way into town and then sells them an STR. There are DIY'ers and there are folks making money using property managers. There are markets packed with apartments and condos, but desperately short on 5bd/4ba homes. SO. MANY. POSSIBILITIES!

If I wanted to start in STRs...I'd look around my own backyard. I'd call every city planning division and ask about STR regulations. Use the ENEMY method and see what kind of competition you might face. If you can't find a niche in your own backyard, decide your budget, then split your research between vacation rentals and "business travel/hotel market" STRs.

Any way you slice it...if you are asking "What is the best STR market?", I propose that you are asking the wrong question. You should ask, "Why won't my home market work for an STR?"

Originally posted by @Alex S. :

I see similar posts to this pretty often. "What market is the best for STR?"

Maybe folks imagine that there is an investor out there with a secret honey hole and they're gonna say, "Sioux City, Iowa is a gold mine! We laugh at 20% CoC out here! We never pay more than $10K for our properties and we rent them at $10K/month!" It is an absurd question to me.

There is no best market.  There are niches in every market with big returns.  There are excellent operators beating the average market returns everywhere.  There are inside jobbers, like @Paul Sandhu , who greets all the refinery workers in some shantytown in Kansas (no offense Paul) on their way into town and then sells them an STR. There are DIY'ers and there are folks making money using property managers. There are markets packed with apartments and condos, but desperately short on 5bd/4ba homes. SO. MANY. POSSIBILITIES!

If I wanted to start in STRs...I'd look around my own backyard. I'd call every city planning division and ask about STR regulations. Use the ENEMY method and see what kind of competition you might face. If you can't find a niche in your own backyard, decide your budget, then split your research between vacation rentals and "business travel/hotel market" STRs.

Any way you slice it...if you are asking "What is the best STR market?", I propose that you are asking the wrong question. You should ask, "Why won't my home market work for an STR?"

 Agree 100%.  This is like the old question "is this a good time to invest in the market?"  Hmm.  What market?  And what stock?  

@Luis Silva are you looking at rental arbitrage or actually owning the property? With rental arbitrage your cash and cash will be much higher but keep in mind that is a return "on" and "of" your investment. Meanings at the end of the lease term you don't have an asset so you need to think about your returns differently.

The best way to set a return threshold is using an IRR. That will help give you a better apples to apples comparison between the arbitrage and owning the property. This will also give a better view of things that are not included in the COC, such as appreciation.

When setting your return thresholds you need to think about if your self managing or not. If you are self managing you need a higher return to account for your time spent. That's why some people proforma with a property management fee even if they're self-managing.

Christian Stoecklein