Good morning,
One of the most difficult decisions short-term rental (STR) investors make is where to buy. A big part of the location decision will be based on whether you feel comfortable hiring a property manager, managing yourself from a distance, or if you want to be nearby.
You should also consider whether you’ll be staying there occasionally. There are basically 4 kinds of STR markets.
Where should you buy your first STR?
1. Big Cities
Think of these as places a lot of people visit, but they visit for a lot of different reasons. Most people are residents, and tourism is not the main supporter of the area. Chicago comes to mind. These markets are likely to have strict (and changing) regulations.
2. National Tourism Hotspots:
These areas are very dependent on tourists, and many people fly to get there. Can’t help but think of my neighbor, Orlando. There’s usually high competition in these markets.
3. Regional Tourism Hotspots:
Like national hotspots, these areas are also dependent on tourism, but they’re lesser known, and people usually drive there. A lot of west coast Florida towns, like Cedar Key, fit this mold. These are my favorite because there isn’t as much competition and should withstand a recession better than the above.
4. Rural Areas:
I could simply have called this “other,” but I think anything other than the above is going to be pretty rural, so I went with that. These markets are in areas that don’t have a business or tourism draw but might have the occasional traveler. I would envision choosing this kind of market if it’s nearby and that’s what makes you comfortable.
There are more considerations once you’ve decided on your market type. For example, there’s a gigantic difference between being on the beach or near the beach, on the ski shuttle route or simply near the mountain, etc. Location will affect your nightly rates and vacancy, and therefore will also affect how much you’re willing to pay.
Let me tell you a little about my portfolio, so you can get an idea for how to think through location considerations. As I said above, my preference is regional tourism hotspots. I started by moving to one of these markets and house hacked by renting out 2 accessory dwelling units (ADUs) in my back yard.
This allowed me to learn the business really well by being there most of the time, but I’ve since gotten more comfortable managing from a distance, and we bought an apartment building 2.5 hours away.
Our first property and the apartment building are walkable to the downtown areas. Half a mile further away and guests wouldn’t be able to walk, which would change our business and the numbers quite a bit.
One downside to the tourism hotspots may be more seasonality than other markets, so keep that in mind too.
In Conclusion
Whichever market you choose, you must know the short-term rental regulations. Operating illegally is a bad idea.
To learn how to analyze a short-term rental deal, check out this eGuide.
Lauren | Adulting Is Easy (@AdultingIsEasy) / Twitter — twitter.com
Making Adulting Easier by Making Money Easier on the Adulting Is Easy podcast. Sharing my and others’ wealth building journeys.
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