First time STR, where is everyone investing in next??

[Daniella Lamis]

We have 20% down for 2 STRs and will self manage from Arizona. Where are you investing next? 

[William Beck]

There should also be a "Worst places to purchase a vacation rental investment" thread. Even purely for entertainment purposes. I'm sure some will find this educational, but i'm writing this post because it's a bit cathartic and fun! I consulted thousands of people looking all over the US for: where should I buy a vacation rental? There were definitely cases of people trying to put a round peg in a square hole. I'm sure there are creative real estate investors on BP could find some individual one-off cases to prove me wrong, but for the most part these are not recommended spots to get into the STR investment space. Especially if someone isn't really familiar with the market and are newish to Short term rentals. The key word is investment because there are a few markets where you can own an oceanfront property, or a ski property that makes a ton of money as a vacation rental... but not a good return on investment. Anyways, here we go....

There's obviously places that are in the middle of nowhere and no tourism flow to speak of (North Dakota comes to mind, no offense to any highly successful vacation rental investor there *crickets*) so those are not great places to start a vacation rental if there is not something nearby for people to go visit. Pretty much a logical "Duh" statement right there so there could be a few one off people that say "Hey my Podunk town has a refinery so I get tons of business" or "We have a great college football team so we're going to crush it on game days."  But for the most part, if the town has less than a hundred people and you pop on Airbnb or Vrbo and you see less than 2 or 3 vacation rentals in a 10 mile radius, it really begs the question "Why would someone go here?" The answer is "There isn't a reason... ."

I'm all for people trying new things, but Bigger Pockets isn't the place to test new creative ideas. The closest we're starting to see in 2021 is a migration of deals to periphery markets that are near highly successful vacation rental hotspots. With the price appreciation in the major areas, there is something to be said about nearby spots where property values haven't skyrocketed as high. 

I'm going to start trashing some of the WORST places to get a vacation rental based upon my time working with vacation rental buyers all across the country. These are not in any particular order and these opinions are purely my own so don't get too butthurt if you want to argue.  

1. Big Cities - LA/Chicago/NYC - great places to visit, Amazing food & entertainment, BUT regulations are murderous for Airbnb and vacation rentals. People can justify ADU's and renting out bedrooms, but for traditional standalone vacation property after factoring in the already high cost to purchase and the incredibly difficult regulations.... just go somewhere else. I didn't even bring up Covid and travel lockdowns but just add that on top of the trash bin.

2. Las Vegas - Read: Casino lobby doesn't like the vacation rental business eating into their market share. Heavily regulated and super challenging to get started there. I probably worked with 100 people that tried to buy something there. I didn't have one successful person that went through all the hoops. I feel like I might get whacked even just talking about Vegas. For STR investors? Avoid.

3. California - Taxes, Regulations, Property values. With 40 million people and tenant friendly anti-landlord legislation it's already not looking good. San Diego is probably one of the better big cities there to do it. The Coachella Valley (La Quinta, Palm Springs, Palm Desert, Etc.) is pretty seasonal and regulations are starting to get ugly. Big Bear/Lake Arrowhead: Saturated. Coastal cities, mostly regulated. San Fran: 30 day min restrictions. Tahoe: regulated, pricey. If someone held a gun to my head and forced me to invest in a short term rental in California, I'd pick something along the edges of Yosemite like in Arnold, CA but then you run into issues with local cleaner options. After visiting San Francisco a few years back for a real estate investor conference, I definitely came away thinking that the traditional vacation rental property was something that not many people got or wanted to get into when I was there and based upon the state's natural barriers to entry it makes sense. 

4. Breckenridge/Vail/Aspen/Park City/Tahoe/Insert other major ski area - Ski areas are highly seasonal. When there is snow, people go. No snow? No go. That's making it a case where you have a vacation rental that is needing to pay you money where it's getting rented for 3-4 months solid in peak season... then 2-3 months in the summer.... and then... not at all. Combine that with the fact that they also tend to be very expensive. Those two factors combined make most ski property "Non investment grade". There are some one-off places where buying near a ski area where you can find a deal could work but epicenter of these major ski areas is a recipe for offsetting some costs and not generating major ROI.

5. Residential Property on Hawaii - Hawaii is some of the best occupancy month over month vacation rental real estate out there. 300+days booked a year on average is doable! Just don't buy a house in a non-resort zoned area on big island. Locals will despise you and the fines there are obscene for running an illegal vacation rental. Quoting from Honolulu Council: Oahu property owners who illegally use their units as short-term vacation rentals could face fines of up to $10,000 a day under a bill passed unanimously by the Honolulu City Council... PER DAY?! Yeah that's right. 

6. Northeast USA Beach Property - Anything basically north of Virginia along the coast is seasonal. VERY seasonal. Cape Cod, Hamptons, Jersey Shore.  The rental season in this part of the country is a few months during summer each year. I've had the pleasure of speaking to people that knew of a "Friend that rents his vacation home for $10,000 a week!" That's phenomenal! How much did he/she pay for his place? <insert 7 figure answer> Oh. So after expenses they're making how much? OK. yeah, that's not that great. Bottom line, if you have 3-4 months to make a years worth of money to offset your offseason of 8-9 months - good luck have fun!

7. Portland - Regulations. Airbnb has a page on how to get yourself legal and it involves the words, permit, license, rules, registration. But I just remember when our company I worked for had to kick out almost every property we worked with because of the new law that was passed and it basically became a no-go zone. Again, I'm sure someone has a workaround but for most folks that are looking for a place they can buy, furnish and set up as a nightly rental, you're going to have to climb a mountain to get the property legal to do what you want to do. 

8. South Padre - Hurricane insurance, not many people are visiting here anymore. Spring breakers are drunken wild children that have a penchant to destroy things while inebriated. These properties don't make much money so all hassle and no reward.

9. Florida Keys - Once again, the regulators have made this idea a bust. There are a few spots where you can get something that's zoned or a property might be already operating as a vacation rental, but the likelihood of getting it grandfathered in is very very challenging. (Too bad, my first time visiting a Vrbo was in Key Largo but the regulations are a deal killer)

10. Kissimmee/Davenport - I'm really going to stir up some annoyed property managers, realtors, investors and the like with this pick. But I have to say it because it's a true warning for anyone looking to make serious money with a vacation rental investment. What can't be argued with is that this market is the most saturated vacation rental market in the entire country. Possibly the entire world. Sure there's international interest for this area for tourism and I've seen some highly successful properties here that I'd even consider buying. However, this is a perfect case of where everyone has the same idea and there are thousands upon thousands of competitors all vying for the same tourist business. You can be successful but it's a hyper-competitive landscape. To get something that works you have to get a house decked out with game rooms, themes, private pool and a bunch of bedrooms.  I distinctly recall a buyer that I worked with that purchased a vacation rental approved 3BR townhouse and it didn't get any bookings for the first 3-4 months. The #'s just aren't there when you add on top of that you have to cut your rates to compete with the numerous options in the market area. This is a massive market for vacation rental owners but the saturation hurdle is a tough nut to crack. 

With that being said, govern yourself accordingly and good luck with wherever you do end up deciding to purchase a nightly rental.