Everyone loves an edge. Whether you’re a poker player, a marathon runner, or an investor, finding that competitive edge is what separates the amateurs from the pros. And in the world of short-term rentals (STRs), it’s no different.
When STRs burst onto the scene, they disrupted the hospitality industry faster than a new iPhone launch disrupts your wallet. At first, the playbook was simple: buy in destination areas. It’s a hotel product, right? And where do hotels thrive? Big cities, ski slopes, and white sandy beaches. It worked for a while—until the regulators came knocking.
When the Party Gets Crashed: Regulation Hits STR Hotspots
In many STR hotspots, the party didn’t end—it got regulated. Local governments stepped in, motivated by a coalition of hotel lobbyists (fearing competition), NIMBYs (fearing neighborhood Airbnb parties), and housing advocates (blaming STRs for rising rents). What followed was a crackdown:
• Hawaii: STRs are restricted to resort-zoned areas, with strict permitting and minimum stay requirements. (Source)
• Miami: In areas designated as Estate or Low Density Residential, the owner must occupy the property for at least 6 months out of the year. Resort zoned areas have more lenient STR regulations that make it much more feasible to operate. (Source)
• Atlanta, Georgia: Introduced a permitting system requiring owners to register, pay fees, and comply with strict tax and zoning rules. Non-compliance leads to fines or suspension of operations. (Source)
This surge in regulation led many STR investors to pivot. If Hawaii and Miami were clamping down, maybe Ohio and Nebraska held the answer.
The Great Pivot: New Markets, New Risks
Cue the rise of the “undiscovered gem” strategy: rural lake towns, suburban neighborhoods, and the fringes of tourism. The thinking? If big-city regulators are playing whack-a-mole with STRs, maybe the smaller markets will let you operate in peace.
The logic isn’t bad—hotels exist in Nebraska too—but here’s the catch: these markets haven’t had the regulatory conversation yet.
The Devil You Know vs. The Devil You Don’t
In areas without regulations, it’s not because local governments have decided STRs are fine; it’s because they haven’t decided anything yet. This puts you, the investor, in a tricky spot. Are you betting they’ll never regulate? Are you prepared if they do?
Contrast that with regulated markets like Hawaii, where STRs in designated resort zones are essentially “grandfathered in.” The government already had the fight, and resort zones emerged as a compromise. These areas are recognized as tourism-focused, and the taxes they generate are a compelling reason for governments to keep them operational.
Put simply: regulated markets reduce your long-term risk.
Why Saturated Markets Might Be the Smarter Play
Let’s tackle the elephant in the room: competition. Saturated STR markets have higher prices, tighter margins, and more experienced operators. But they also come with two distinct advantages:
1. Regulatory Clarity: If you buy in Waikiki, you know the rules. If you buy in an unregulated county in Missouri, you don’t—and the first town hall meeting on STRs could wreck your business.
2. Tourism Infrastructure and historical demand: Destinations with established tourism industries already have demand baked in. That little lake town in Missouri? It might take years (or decades) to attract the same volume of guests.
Yes, you’ll face stiffer competition in these markets, but the upside is security. If you’re savvy—leveraging advanced pricing tools, offering standout amenities, and optimizing operations—you can turn even a high-cost property into a cash-flowing machine.
Lessons from the Trenches
Let’s get specific. If you’re eyeing a destination market but worried about high operating expenses or low cap rates, consider these strategies:
1. Focus on Guest Experience: Amenities matter. A neon sign or custom coffee bar can turn a good stay into a memorable one. Make your property unforgettable.
2. Optimize Pricing: Tools like Beyond Pricing or PriceLabs can help you outsmart the competition. Data is your friend.
3. Add Value Where Others Can’t: Personalized guest communication, unique decor, or niche themes can set you apart.
4. Buy with an Experienced Agent: STR-specific regulations can be a minefield. An agent who knows the area and its laws can help you avoid properties that might come with hidden legal risks—or steer you toward areas with untapped potential.
5. Partner with a Quality Property Manager: A great PM will maximize your earnings, help you navigate the regulatory landscape, and run accurate projections for what kind of revenue a property will generate so you can invest with your eyes wide open. If you need help vetting PM’s, check out this article for questions to ask.
The contrarian approach of targeting up-and-coming markets feels edgy—but it’s not without risk. In fact, that risk often mirrors the very reason early STR investors avoided these areas in the first place: uncertainty.
The Bottom Line
Regulation, ironically, can be an investor’s best friend. It provides clarity, structure, and a predictable operating environment—if you know how to work within it.
Instead of running from saturated markets, consider running toward them. The “contrarian” play has become mainstream, and the smarter move might just be zigging back toward the established markets where STRs are battle-tested.
So next time you find yourself dreaming about that rural STR play in an unregulated market, ask yourself: Would I rather face the devil I know or the devil I don’t?
Chances are, the sunny shores of regulated markets might look a whole lot more appealing in the long run.