In real estate, its often said that three things determine what makes a property a good investment decision—location, location, location. This concept sounds simple but there are many factors that set one city or neighborhood apart from another. Even two rental units in the same building can experience vastly different occupancy rates. So what should you consider before you by your vacation home?

1. Regulation

Its generally recommended to always begin with researching regulation in your desired short term rental market. Why? Because if airbnb is illegal then this can stop you dead in your tracks before you even get started. Sophisticated real estate investors find a location that is homeowner friendly and where short-term rentals are not only legal but supported. Many cities across the United States ‘sunbelt’ are beginning to recognize the tax benefits of having short-term rentals. They support tourism and provide tax revenue to the city. A quick google search will reveal a plethora of viable STR starting points.

2. Demand

Once you’ve narrowed down your search, the real work begins. In this stage of information gathering, you should really try to understand both the macro and micro economics of your property’s location. Is there high net migration to the area? Is there tourism demand? What types of guests will frequent the area? Finding the answers to these questions can help you avoid the pain of not having your rental property generate the passive income you dreamed of having when you bought it? And they also will prevent you from dealing with the headaches of having undesirable guests that throw parties and/or pose a physical threat to your rental property. Luckily there are tools that help you get started with your vacation rental research — my favorite is www.airdna.com

3. Lifestyle

In reality, many real estate experts will recommend starting in your own backyard to provide a more accessible and hands-on experience to hosting. Whether you decide to manage the property yourself or hire property managers for your short-term rental will be a big determinant of what city makes the most sense for you. Over time you can then determine what parts of the business you want to offload i.e. cleaning, revenue management, etc. Even then, finding the right property manager is a challenge in itself as not all property managers are the same with varying levels of care and fees.

TLDR; Getting the location right is important because if the property does not cash flow its a bad investment. Finding a location that meets your search criteria is often easier said than done. Luckily, there are done-for you services like Andes STR that use machine learning algorithms to help you find (and finance) the property of your dreams.