Depth or Breadth? Deciding Whether to Expand to a New Market

At the time of writing this post, I find myself with a hunger for another property and a bank account that might even be able to satisfy that hunger. My routine this year, since starting my short-term rental journey, has been somewhat of a copy-paste technique within the same city. I have two houses in the same small town and, with it, a rhythm and pocket of comfort. I understand the market and have resources in place that make replicating my investments a relatively easy thing to do. So, when I started fantasizing about the idea of investing in a whole different state, I became torn in two directions. Do I keep going with the area I understand or venture out into the unknown and try my hand at an interstate venture? I hope this post serves both as an informative article for you in your own STR investment career and as a way for me to think-out-loud through the decision, looking at the pros and cons of each path. Let’s get started.

The Niche I Know

The adorable, small town I chose for my first two investment properties has served me well. I have enjoyed getting to know the area and building a trustworthy team of resources around me to help run the show. Here’s a pros-and-cons list of adding my third home to this market:

Pros

• My fantastic cleaning professional has the bandwidth to take on another home.
• My agent has my back and has become a good friend I can trust.
• The proximity (1.5 hour drive) to my home gives me peace of mind, in case I ever need to make the trip.
• I know there’s a market for short stays here.
• I am building a reputation in the community for doing what I do well. Strengthening this with another home could be beneficial.
• Real estate prices are lower (~15%) than in the alternative city.

Cons

• I risk potential market saturation. What if I’ve tapped out the market?
• All of my eggs in one basket could mean trouble if the city ever makes rules against STRs or the area becomes undesirable.

Venturing Into The Unknown

The new city/state that caught my attention isn’t completely foreign to me. My brother lives in town, which is what gave me the idea to consider it. Here’s what I like and dislike about investing here:

Pros

• Interstate experience. This move would force me to practice more truly remote management. It’s further away, but not too far for the occasional weekend trip. Getting confidence with investing in a new state will open me up for endless new markets.
• I will have a new place to stay. A big draw for me to the STR world is the fact that I can use the homes for my own vacations if I desire.
• This city brings more revenue potential. Looking at the Airbnb trends in the area, the home I’m considering would likely earn double what my current market does. It is a big city with multiple major events every year.
• The property taxes are lower in this city.

Cons

• This is an unknown market for me. I will need to do a lot more market research to understand how to price the home throughout the year.
• I will need to start from scratch assembling a team of professionals I can trust; including a cleaning crew, maintenance professionals, and a lawn-care service.
• It is not as easy to get to in the case of an emergency.
• This particular city is more prone to parties and events, requiring greater due diligence to protect my home.

So, What To Do?

Obviously, some of these items pulling me toward either market are specific to the areas in question. The home values, property taxes, big-city party potential, and revenue expectations in the two markets are all things that are relevant particulars in my scenario, but may vary in your own decision-making process. Nevertheless, it is important to take these things into consideration. Other features in my lists are universal pros and cons to venturing into any new market.

Ultimately, I could justify going either direction. Based on my own vision for my business, I have decided to move into the new market for my next investment. I want to challenge myself with the experience of hosting a short-term rental home in a new city and in a new state. The revenue increase and new vacation location for myself will be worth the uncertainties of the market, extra setup work, and occasional long drive. The pros outweigh the cons for me, though they may not have for you while reading. That’s okay – We are all crafting our own journey here. If you feel I missed any key considerations for either avenue, please leave a comment!

As always, thank you for reading and happy hosting.