Looking to Buy My First Short Term Rental - What Market is Best?

Question

Hi Everyone!

I am brand spanking new to real estate investing and I am looking to purchase my first property out of state as I live in San Francisco, where all I can afford is a loaf of bread (on a good day). Currently, I have been looking at Pigeon Forge/Gatlinburg, Tennessee because a good friend recently bought there and has seen high occupancy rates and great returns on his short term rentals there.

My budget is around $325-350k and wondering how to find the best market for short term rentals! Any advice would help - thanks!

Tim Schroeder · Answer

I considered buying my second in a different market than my first one, to spread regional risk around. But then you're starting over with research each time. I spent 4 months researching vacation rentals in this ONE market. If I have to do that somewhere new each time it's going to really slow me down. Perhaps when I have 4-5 properties I'll worry about other markets.

Jim Sestito · Answer

@Matthew Kwong That question has been asked many times on these forums before... where to invest... Usually there is a very long spirited thread that consists of either:   A.  experienced investors telling what market they are in.  B. People cheerleading their local market.  C.  And maybe a mix of those telling you what markets not to roll in.

While entertaining sometimes those posts miss the big picture... There is no perfect market.  There is no market that will work for anyone.  Any successful real estate investor on this site is not successful just because of their market alone.  They are successful because they learned how to analyze that market.  Made a plan.  And took action.

Short term rentals... pick a place you like to or would want to visit... do others visit there?  What are others charging on airbnb vrbo?  How does that relate to home prices?   Is the competition oversaturated?

Sounds like your off to an  awesome start 1. joining bp and 2 having a place in mind with boots on the ground (your friend)

Good luck and see you around the site....

George Mevawala · Answer

@Matthew Kwong I would say my market (Phoenix/Scottsdale/Tempe market) due to low pricing and high returns. Also, On May 13, 2016, the Phoenix  Governor Doug Ducey signed into law SB 1350, which prohibits municipalities from banning the listing and use of short-term rentals ( this was really good for our city as there are no longer restrictions on under 31-day rentals, however, HOA's can still step in and enforce the CC&R's).

I will PM you additional information, I see 14-16% annual returns on my properties based on the gross rents and roughly 27-35% annual cash on cash returns. Not too shabby right?

The platform/ STR strategy has been working for me successfully for years now, and we are still seeing very healthy appreciation in our market ( lots of room to go).

Matthew Kwong · Answer

@Avery Carl Hey! Fancy seein' you around here. My comment above was actually in reference to you haha. @Tim Schroeder that's awesome news to hear. I should probably get some experience calling and learning to ask the right questions anyway. Thanks guys!

Tim Schroeder · Answer

Yes, I called the city and their only concern is residential areas within the city limits -- which isn't typically where the cabins are. Even then, they just want a business license which is just a few bucks. I agree with the analysis that these areas are so chock full of established vacation rentals that they are not going to ban them -- ever. Plus, the city, county and state are all getting a piece of the action with roughly 13% total occupancy tax (paid by guests not owners)

Matthew Kwong · Answer

@James Carlson I didn't really think to look into regulatory factor but you're right - I definitely should! One of my realtors in Pigeon Forge, TN said that she had several short-term rentals out there herself and isn't worried. Her reasoning was that most of the housing out there is intended for visitors and tourists and that there isn't enough permanent residents living there to actually raise a fuss. @Dan Baker I like your point on going one step further and calling the county office to find out where they think it's heading because I'm in it for the long-haul. Also, Joshua Tree is on my list of things to do this year. Never thought about investing out there but I will take a look - great tip! Many thanks for the advice fellas!

@Peter Jetson I've never visited Pigeon Forge before but I hear great things. I'm hoping to be able to use my property for little getaways at some point in the future! Thank you!

Dan Baker · Answer

Networking with local experts and reading up on local laws is absolutely the first step that you're going to want to take.  I've even called the county office when I couldn't find any concrete ruling to ask what their opinions were on short term rentals and it's been very helpful.I agree with Peter about checking Airdna for initial analysis. Joshua Tree is expected to continue to be one of the best markets for Airbnb and has fantastic occupancy with a pretty good nightly rate. Last I checked they are still welcoming of new Airbnb properties though have recently banned people from buying vacant land and just renting out an Airstream (which is pretty popular out that way).

James Carlson · Answer

@Matthew Kwong

Some great advice above from @Tyler Work and @Tim Schroeder There is no perfect market. As always, it depends on your goals. Purely cash-flow? Appreciation? (Wouldn't buy just for that, but some do.)

I think another consideration is the regulatory reliability. Do you know a municipality is going to continue to allow you to operate short-term rentals? For instance, here on the Front Range, Denver turned a blind eye for years but then came back and outlawed any sort of Airbnb investment. On the other side of the spectrum, Colorado Springs -- just an hour south -- has embraced short-term rentals and Airbnb and has said they do not plan on turning back. So, just know  your market and what you're getting into.

Good luck!

Tyler Work · Answer

@Matthew Kwong @Tim Schroeder just bought there, he might be able to help you out.

Agree with @Jim Sestito, I think the "right place" is different for everyone.  There are good and bad deals in every market.  If I had any advice it would be to stick to vacation markets (vs. urban markets), I know a few people who are making good returns on the FL panhandle but they are all self managing.  Destin, Gulf Shores, and Panama City can be good options if you can find a gulf front condo with low HOA fees.

Avery Carl · Answer

Calling the county office is always a good idea.  @Tim Schroeder didn't you do this recently before we got under contract on yours?  Did you find any useful information?

One thing to keep in mind when calling county offices and/or utility companies in East Tennessee...they move VERY slowly.  So keep calling until you get your answers.

Looking to Buy My First Short Term Rental - What Market is Best?

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