Purchasing short term rentals can be a great way to grow your cash flow quickly, but it can also be much more tedious to find a market that will perform well consistently and on a long term basis!

When determining what short term rental market is right for you, there are several things you want to consider and thoroughly evaluate.

1. How Long Has It Been a Vacation Destination

While with most investing strategies, it is good to get into a market before it peaks, with short term rental markets you want to be a bit more cautious. You want to be able to find data on occupancy rates, average nightly rates and anticipated gross income over at least a few years. Knowing this data is crucial to determining if you will be able to make the cash on cash return that you need in that market. The longer that market has been thriving as a vacation rental market, the more stable your returns are likely to be.

2. Who Vacations There

Knowing the typical renters in a market is also helpful to determining the viability of it as a short term rental investment market. The higher end the market, the more risky it becomes in difficult economic times. The best markets are the markets that are desirable and affordable to the average person.

3. Housing Prices

Perhaps the most important thing to consider is what you can get for your money in a given market. There is no point in finding a market with great occupancy rates and income potential if you can’t afford to purchase property there. Do some research on average property costs before picking a short term rental market to make sure you will be able to find a property that suits your budget.

4. Supply v. Demand

There are some markets where all of the numbers look great, but there are all ready too many vacation rentals and not enough renters. This is a little bit more difficult to discern just through online research, so it is helpful to speak with a local investor or real estate agent to get a better sense of how many more rentals that market can support.

5. Local and State Regulations

Some localities are cracking down on the vacation rental market – especially bigger cities that already have a shortage of long term rentals available for the people that live there. You want to be sure to do some research on any current or proposed laws that affect your ability to run a short term rental business. Markets that are primarily vacation rental/ tourist areas will often have much more friendly laws for short term rentals than bigger cities, as tourism is a huge part of the economy in those areas. But be careful, as some vacation destinations are heavily inundated with hotels and resorts, and have established laws that support that industry over small business vacation rentals.

It can take a bit more leg work to find the perfect vacation rental market, but they are out there and when you find one that is a good fit the returns will be worth the wait!