Every month we meet an owner who bought a beautiful property in a market with structural problems. No amount of operational excellence fixes a market that isn't there. Here's how to think about market selection before you commit capital.
Demand drivers matter more than the town
The question isn't "is this town popular?" It's "what specifically brings people here, and is that driver durable?" Healthy STR markets tend to have two or more of:
- A major anchor — stadium, theme park, university, medical campus, airport hub.
- A seasonal but reliable draw — ski season, festival season, beach season.
- A pass-through volume — road-trip corridors between large cities.
- A sustained event calendar — conferences, weddings, sports tournaments, film shoots.
Markets that depend on one driver (single festival, one employer, one season) are more fragile than they look.
The seasonality curve tells the truth
Pull the last 24 months of comps in any market and chart the monthly RevPAR. Look for:
- Peak-to-trough ratio. If your best month is 4× your worst month, you need the peak to over-earn to cover the trough.
- Shoulder season strength. Markets with strong April/May and September/October usually pencil. Markets that rely entirely on summer don't.
- Year-over-year stability. Does the pattern repeat, or is last year's strength a one-off?
Regulation is a market moat
Contrary to the typical "regulation is a risk" framing, regulation is usually good news for operators already in a market. Cities that cap STR licenses, require permits, and enforce rules reduce supply growth — which protects existing listings' ADR and occupancy.
The markets to avoid are the inverse: no permits required, no local enforcement, and a flood of new supply coming online every year.
Comp density filter
A market has enough comps to be operable if you can find at least 15 actively rented properties within 1 mile, same bedroom count, same general tier. Below that, you're guessing on price. Below 5 comps, you have no market at all — you're running a one-off property.
Where we currently like and dislike (early 2025)
We're bullish on: Pasadena, Palm Springs, San Diego North County, Santa Barbara, Big Bear, and select mid-market neighborhoods in LA County.
We're cautious on: oversupplied Hollywood hillside blocks, tier-3 desert communities that saw 2021–2022 overbuilding, and small beach towns whose municipalities are mid-moratorium.
We reassess this list every quarter.
The simplest sanity check
If a client says "I love this town, I want to buy an STR there," we ask three questions:
- What's the regulatory status, and will it still be legal in three years?
- What's the trailing-12-month RevPAR for comps?
- What's the realistic long-term rental backup rent?
If all three answers are good, we support the acquisition. If any one is weak, we usually steer the client somewhere else.
