This is the question you were likely to have answered before you even opened this book. You probably know exactly the kinds of places you think would make a good vacation rental, or maybe– if your targeting customers like yourself–it’s the place or region you already visit frequently and know very well. Whether you think you have a county/region/town in mind or not, read on to determine the kinds of qualities you want to see in a STR-friendly market.
1. A region you are familiar with: You need to understand the region’s attractions and when those attractions are popular. You need to know the best parts in which to buy and the parts to avoid, and more than anything have a general sense of what constitutes a good price for a house of given size in a given condition in each of the towns/parts of town, or at least have enough familiarity that the answer can be easily determined.
2. (Relatively) affordable region: since you’re buying in order to operate a business, and not operating a business out of a home you happen to already own (primary or second residence, etc.) keeping costs low will be important. If most of the homes in your area are the weekend houses of some of the country’s wealthiest people, then the chances of finding a house at a low enough price that you can cover your bills and make money from vacation rentals alone are low. Exceptions to this are unique places where the very richest would still like to visit: places like Maui and Napa Valley–where nightly STR prices are basically unlimited, assuming you can justify the cost relative to your competition, amenities, or both. Which brings us to:
3. (Relatively) affordable for the region: for reasons alluded to above, you don’t want the most expensive house in the area. Your target customer, if they are a lot like you, will have a budget similar to what your budget would be if you were staying in the same region. Keep your target customer in mind, and try to tailor the experience to them, and not simply buy the nicest house you can find.
4. (Relatively) low taxes: Property and school taxes are a huge cashflow killer. You want to try to keep these relatively low. This goes along with a region that’s relatively affordable.
5. STR-Friendly regulations: Many places, including, in the US, many of the most desired vacation spots, have extremely strict STR regulations. New York City, Portland Oregon, Santa Monica, CA, Napa Valley, and many others have regulations that either (a) Make STRs completely illegal in almost all applicable situations (NYC, for instance) or (b) impose significant costs of operating, creating a situation where buying a house purely for the purpose of operating an STR is entirely unprofitable. For instance, some cities even require STR owners to live in the house a minimum number of days during the year. In that case, operating an STR could work if you happened to own a house in that location and your lifestyle allowed occasional renting, but you wouldn’t buy there for the express purpose of running an STR. Become familiar with local regulations, recognize that they often change (especially becoming less friendly) and speak to an attorney. Even then, keep a close eye on the state of the industry and the local government’s approach toward STRs, as they are becoming unpopular in many previously-friendly locales.
6. Acceptable base of service industry, for support once operating–finding good service technicians to handle issues that arise during your ownership is one of the most important tasks you need to accomplish in order to run a successful STR. Unless you plan to respond to all service calls yourself, you’re going to have to find professionals who are nearby, committed, and responsible. You can have a mansion that you bought for pennies on the dollar, but if it’s in the middle of the desert, five hours from the nearest town, your STR business will still fail because there is no one around to handle service issues when they come up.
Ideal Qualities to Look for in a Region:
1. Year-round visitors: every region has a high season, but to maximize your chances at operating a profitable STR, you’re going to need to be profitable for a large portion of the year. Focusing on locations with year-round visitors will significantly increase the chances of that happening. Aim for at least 2 ½ to 3 seasons or reliable tourism.
2. Up-and-coming area (includes areas undergoing revitalization): This will help keep costs in line and expectations manageable. If the region is already the most popular destination in the country, you’ll be competing with everyone else who’s trying to buy a home in the region, and sellers will know they have a valuable commodity and price accordingly. Your guests may also be more discerning, meaning that expectations will be higher and you will have to work harder to meet them. Any learning curve for yourself as a business owner will be much steeper.
3. No more than moderate STR market saturation: You don’t want to be engaging in an extremely competitive market, at least not at first or unless you can be absolutely certain the region has enough visitors to sustain a fully saturated STR market.
4. Access to a major city: If you’re near enough to a major city, you don’t have to be the best, cheapest, or most luxurious vacation rental, you just need to meet or surpass expectations. The large population center will make sure you have a steady stream of customers, as long as you manage not to truly ruin anyone’s vacation. This is not strictly required, but if you aren’t near a major population center, you might have to pick a more “known” vacation destination within your region, to ensure that you’ll get enough traffic to sustain the business. Your alternative is to advertising and market aggressively, which can be done, but is significant extra work, and you will have to overcome people’s reluctance to visit your STR compared to one in a more established destination.
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