The Four Variables That Make a Market Investable
Market selection is the most consequential decision in STR investing. The same capital deployed in a strong market vs. a weak market can produce a 3–5× difference in annual returns. Yet most buyers choose markets based on familiarity or where they personally vacation — which may or may not align with where the investment math works.
A defensible market analysis evaluates four variables simultaneously: gross revenue yield (annual STR revenue ÷ property acquisition cost), regulatory risk (current environment and direction of travel), supply growth rate (how much new STR inventory is entering the market), and demand stability (how much of the demand is secular vs. dependent on a single draw).
No market scores perfectly on all four. The analysis is about finding markets where the aggregate picture is strong enough to justify acquisition at current prices.
Tier 1: Nature-Adjacent Markets With Supply Constraints
The best-performing STR investment markets in 2025 are consistently in nature-adjacent locations where demand is structural (proximity to natural features) and supply is constrained by geography or regulation. These markets combine strong revenue yields with lower regulatory risk than urban centers.
Smoky Mountains, TN (Gatlinburg/Pigeon Forge/Sevierville area) remains one of the highest-yield STR markets in the US. Median gross yields of 10–14% on acquisition cost, year-round demand anchored by Great Smoky Mountains National Park (12+ million visitors annually), and relatively STR-friendly state and local regulation. Entry prices for 2-bedroom cabins start around $350,000 — accessible for many investors — with revenue potential of $45,000–65,000 annually for well-positioned properties.
Joshua Tree, CA has seen demand accelerate significantly as LA residents seek weekend escapes within 2–3 hours. Despite higher acquisition prices than Tennessee ($400,000–700,000 for STR-suitable properties), weekly revenue during peak season (October–April) can reach $3,000–5,000, producing gross yields of 8–12% in favorable zones. Regulatory risk: San Bernardino County has implemented permit requirements but not outright restrictions.
Asheville, NC combines mountain setting, a vibrant dining and arts scene, and year-round demand. City center STR regulations have tightened (requiring owner occupancy or commercial zoning), but Buncombe County properties outside city limits operate with fewer restrictions. 2–3 bedroom properties in the $300,000–500,000 range producing $40,000–60,000 annually are regularly available.
Tier 2: Sun Belt Markets With Durable Leisure Demand
Florida beach markets remain attractive for STR investment despite supply growth. The state's regulatory environment is among the most STR-friendly in the US (Florida has preemption laws that prevent municipalities from banning STRs outright). The primary risk is supply saturation in the most popular areas — prices for beachfront condos have appreciated significantly, compressing yields even as rents have risen.
The better opportunities in Florida are in secondary beach markets (Panama City Beach, Gulf Shores extending into Alabama, 30A corridor) where acquisition prices remain below peak gateway markets but demand has grown as travelers discover these areas through social media and word-of-mouth.
Tier 3: International Markets With Exceptional Yields
For investors with the risk tolerance and operational capacity for international STR ownership, markets like Medellín, Colombia; Bali, Indonesia; and Tulum, Mexico offer gross yields that dwarf US domestic markets — often 15–25% on acquisition cost — combined with tourism demand that is fundamentally supply-constrained by geography.
The complexity is proportionally higher. Foreign property ownership rules, local tax implications, currency risk, STR regulation in tourist zones, and the operational challenge of managing a property remotely or with local management partners require significantly more due diligence than a domestic acquisition. Read the full framework in our international property buying guide.
For investors willing to do this work, the yields are real. A well-positioned 2-bedroom in Medellín's Laureles or El Poblado neighborhoods can be acquired for $150,000–250,000 and produce $18,000–30,000 annually in STR revenue — a gross yield well above most US domestic options.
Markets to Avoid in 2025
Some markets that were attractive three to five years ago have deteriorated as investment destinations due to supply saturation, regulatory tightening, or both. The markets we're most cautious about for new acquisition:
New York City effectively has no viable STR investment market for non-owner-occupant investors following Local Law 18. The regulatory risk of any investment premised on STR income is prohibitive.
Nashville has seen supply growth significantly outpace demand growth in 2023–2024, compressing yields. The regulatory environment is also less favorable than it was — while not as restrictive as NYC, the direction of travel is unfavorable.
Oversaturated beach condo markets (South Miami Beach, certain sections of Myrtle Beach) have acquisition prices that reflect STR income potential that the current supply environment can no longer sustain. Yields on new acquisitions are often 4–6%, which doesn't justify the illiquidity and management complexity of STR ownership.
Running Your Own Market Scoring
Use the STR ROI framework to score any market you're evaluating. The data sources: AirDNA for revenue and occupancy data, Zillow/Redfin for acquisition prices, your state's legislature tracker for regulatory status, and Census Bureau population and housing data for supply trend context.
Our consulting team provides market analysis reports for specific acquisition targets across all 40+ markets we actively track, including current regulatory status, comp performance, and acquisition recommendations.
The Bottom Line
Market selection determines more of your STR returns than any operational decision you'll make after acquisition. The best markets in 2025 share common characteristics: supply-constrained demand, favorable or stable regulatory environments, and gross yields above 8% at current acquisition prices. Nature-adjacent domestic markets lead the list, with select international markets offering exceptional yields for investors who can manage the additional complexity. Avoid markets where supply has saturated demand or where regulatory risk is acute — the operational work of running a great STR is too significant to deploy in a market where the fundamental economics have deteriorated.
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