Not all STR markets are created equal. Before you sign a lease, invest in furniture, or commit to a management contract — run every market through this 5-factor evaluation framework.
The 5 Factors That Make or Break a Market
Why Criteria Come First
Most operators choose a market by gut feeling or by imitating what they see on social media. The problem: a market that works for a 5-unit operator with 3 years of data doesn't necessarily work for someone starting unit one.
The operators who pick the wrong market first don't always fail — but they work twice as hard for half the results. Get the market right and everything else gets easier.
Factor 1 — Demand Consistency (Occupancy Floor)
What to Measure
You want a market where the bottom 30th percentile of operators still achieves 65%+ occupancy. Not peak occupancy — floor occupancy. This tells you what the bad operators earn.
Earning Potential
Markets with 65%+ occupancy floor: median operator earns $2,800-4,500/month per unit. Markets below 50% floor: median operator earns $1,200-2,000/month. The floor determines your downside.
Tool to Use
AirDNA Market Minder. Filter for 'Occupancy Rate' at 30th percentile. Any market below 65% gets removed from your list immediately.
Factor 2 — ADR Spread (Upside Potential)
What to Measure
The gap between the 20th percentile ADR and the 80th percentile ADR. A large spread means top performers earn significantly more than average — and you can be a top performer with good photos, pricing, and communication.
Earning Potential
Ideal spread: 60%+ gap between 20th and 80th percentile ADR. If the 20th percentile earns $120/night and the 80th percentile earns $210/night — that's a $90 spread you can capture through execution.
Factor 3 — Regulatory Risk
What to Measure
What are the local STR ordinances? Is there a permit requirement? A cap on STR licenses? A primary-residence restriction? This factor can take a market from A-tier to eliminated in a single city council vote.
Check the city's municipal code for 'short-term rental' or 'vacation rental'
Search for active city council legislation on STR
Join local STR operator Facebook groups and ask about regulatory climate
Look for recent news stories about STR restrictions in that market
Factor 4 — Supply Pipeline
How fast is new STR supply entering this market? A market with 30% year-over-year inventory growth is going to compress ADRs within 18 months.
Factor 5 — Seasonality Profile
A market with 60%+ year-round occupancy is better than a market with 90% for 3 months and 20% for the rest. Seasonal volatility creates cash flow risk, especially when you're managing rent on fixed monthly terms.
The Evaluation Scorecard
Score each factor 1-5. Markets scoring 20+: strong candidates. 15-19: conditional candidates with identified risks. Below 15: eliminate.