The best STR markets in 2026 are the ones that score 20 or more out of 25 on five factors you measure yourself: demand consistency, ADR spread, regulatory risk, supply pipeline, and cost to enter versus revenue. A market scoring 15 to 19.9 is a conditional candidate with named risks, and anything below 15 comes off the list, no matter how good the listing screenshots look.
That is the whole method in two sentences. The rest of this page shows how to score each factor from 1 to 5, how to weight them, and how to run the evaluation on a real candidate. It is a scoring method, not a city list. If you want the broader case for building your own ranking instead of copying one, read how to pick a short-term rental market instead of copying a list. This page is the scorecard you use once you have decided to do that.
One note on the thresholds below. Every cutoff in this framework (the 65% occupancy floor, the 60% ADR spread, the 30% supply growth line, the revenue-to-cost bands) is my screening rule of thumb from running and coaching STR operators since 2016. They are not market statistics. Treat them as starting settings, then tighten or loosen them for your own cost structure.
Why the Criteria Come Before the City
Most operators choose a market by gut feeling or by imitating what they see on social media. A market that works for a 5-unit operator with 3 years of data may not work for someone starting unit one. The experienced operator has reviews, pricing history, and cleaning teams already in place. You have none of that yet, so you need a market that forgives a slow first six months.
Operators who pick the wrong first market do not always fail, but they spend the first year discounting to fill dates and covering slow months out of pocket. A good first market makes pricing, staffing, financing, and the second-unit decision easier.
Setting the criteria first also protects you from yourself. Once you have toured a property or spent a weekend in a town, you start defending it. Writing the scorecard before you look at any listings means the numbers decide, and a market has to earn its place instead of being argued onto the list.
Factors 1 and 2: Demand Floor and ADR Spread
These two factors describe revenue. The first tells you how bad it gets. The second tells you how good it can get if you run the unit well.
Factor 1: Demand consistency (the occupancy floor)
You want a market where the 30th-percentile operator still achieves 65% or more occupancy over the trailing 12 months. Use the floor, because it tells you what the weaker operators earn, and your first year will look more like theirs than like the top performers'.
Seasonality lives inside this factor. A market with steady year-round occupancy is better than a market with 90% for 3 months and 20% for the rest. Run the arithmetic on the second market: (90% x 3 months + 20% x 9 months) / 12 = 37.5% average occupancy. That annual number already looks weak, and the monthly shape is worse, because rent, the mortgage, utilities, and software bills arrive every month whether guests do or not. Seasonal volatility creates cash flow risk, especially when you are paying rent on fixed monthly terms.
Two checks to run for this factor:
Pull the 30th percentile occupancy for comparable listings (same bedroom count, same property type) over the last 12 months.
Find the weakest calendar month and confirm your projected revenue in that month still covers fixed costs.
Demand drivers explain whether the floor will hold. Look for more than one reason people visit: a hospital system, a university, a state capital, a lake, a stadium, a regional airport. Population trend matters too. The Census Bureau publishes annual population and housing unit estimates (the current release is Vintage 2025), which lets you see whether a metro is growing, flat, or shrinking before you commit.
Factor 2: ADR spread (upside potential)
ADR spread is the gap between the 20th percentile and the 80th percentile average daily rate for comparable listings. A large spread means top performers earn meaningfully more than average, and you can become a top performer with good photos, sharp pricing, and fast guest communication.
My target is a spread of 60% or more, measured as (80th percentile ADR minus 20th percentile ADR) divided by the 20th percentile ADR. If the 20th percentile earns $120 a night and the 80th percentile earns $210, that is a $90 gap and a 75% spread ($90 / $120). That $90 is what you capture through execution.
A narrow spread is a warning. It usually means guests treat every listing as interchangeable and book on price alone, so better design and service do not move your rate. In that kind of market, the only lever left is cutting price, and that is a race you do not want to run on unit one.
For both factors, use whichever market data tool you already pay for, such as AirDNA, PriceLabs Market Dashboard, or Rabbu. If your tool does not show percentiles directly, export the comparable listings and compute the 20th, 30th, and 80th percentiles yourself in a spreadsheet. Twenty to forty true comps are enough for a screening decision.
Factor 3: Regulatory Risk
What are the local STR ordinances? Is there a permit requirement? A cap on STR licenses? A primary-residence restriction? A minimum-stay rule? This factor can take a market from A-tier to eliminated in a single city council vote, which is why it carries the heaviest weight in the scorecard and why a score of 1 eliminates the market outright.
Airbnb's own guidance for US hosts tells you to look up permitting, zoning, and local tax rules, and to check your HOA and lease for any restriction on hosting before you list. Take that literally and check each layer:
Search the city's municipal code for "short-term rental" and "vacation rental," then do the same at the county level.
Read the last 12 months of city council and planning commission agendas for any STR item, including scheduled hearings.
Confirm lodging or occupancy tax registration requirements with the city, county, and state.
Read the HOA covenants or lease clause for the specific building, because a city can allow STRs while the building bans them.
Look for recent local news stories about STR complaints or proposed restrictions.
Ask in local STR operator groups what enforcement actually looks like.
Score what you find, not what you hope. A permit with no cap and no pending legislation is a 5. A market where a cap hearing is already on the agenda is a 2 even if the rules today are friendly, because you would be signing a multi-year commitment into an open question. If you are doing rental arbitrage, add one more check: the landlord's written permission to sublet as a short-term rental.
Factors 4 and 5: Supply Pipeline and Cost to Enter
These two factors decide whether the revenue you found in Factors 1 and 2 survives the next two years and whether it covers what you paid to get in.
Factor 4: Supply pipeline
How fast is new STR supply entering this market? My rule of thumb: a market with 30% or more year-over-year growth in active listings is going to compress ADRs within about 18 months. New supply does not show up evenly. It clusters in the same few neighborhoods and the same bedroom counts that the social media case studies featured, so check growth in your specific segment, not just the metro total.
Signs of a heavy pipeline beyond the listing count: new-construction townhome projects marketed to investors, developers advertising "STR-friendly" units, and a jump in listings with zero reviews. A market can survive supply growth if demand is growing with it. When a new convention center, hospital wing, or employer is arriving at the same time, note it on the scorecard, but only if you can confirm it on a primary source such as the city or the employer's own announcement.
Factor 5: Cost to enter versus revenue
This factor asks one question: how many dollars of gross revenue does each dollar of entry cost buy you? I measure it two ways depending on the model.
Buying: projected gross annual revenue divided by all-in cost (purchase price, closing costs, furnishing, and setup).
Rental arbitrage: projected gross monthly revenue divided by monthly rent.
Financing cost is why this factor matters so much right now. Freddie Mac's Primary Mortgage Market Survey put the 30-year fixed rate at a 7.03% average as of September 24, 2026. On a $385,000 all-in purchase with 25% down, the $288,750 loan costs about $1,927 a month in principal and interest, or about $23,123 a year. Against $58,000 of projected gross revenue, debt service alone takes roughly 40% of the top line before cleaning, platform fees, utilities, insurance, supplies, and taxes. Investment-property and STR loans usually price above that owner-occupied survey rate, so treat 7.03% as a floor, not a quote.
For arbitrage, benchmark the landlord's asking rent against HUD's Fair Market Rents, which are estimates of 40th percentile gross rents for standard units in each metro area and nonmetro county. If the asking rent sits far above the FMR for that unit size, you are paying a premium before you book a single night, and your revenue-to-rent ratio has to be strong enough to absorb it.
If you plan to use the property yourself, run the tax side before scoring. IRS Publication 527 treats a dwelling you use as a home differently depending on whether it is rented fewer than 15 days or 15 days or more, and personal days change how expenses are divided. Confirm your plan with a tax professional.
The 1-5 Scorecard and Weights
The table below turns each factor into a score using the screening thresholds described above. Pick the Factor 5 row that matches your model (buying or arbitrage), not both.
Factor | Weight | 5 | 4 | 3 | 2 | 1 |
|---|
1. Demand floor (30th pct occupancy, trailing 12 months) | 25% | 65%+ | 58-64.9% | 50-57.9% | 42-49.9% | Below 42% |
2. ADR spread (80th vs 20th pct) | 15% | 60%+ | 45-59.9% | 30-44.9% | 15-29.9% | Below 15% |
3. Regulatory risk | 25% | Allowed, simple registration, nothing pending | Permit required, no cap | Cap with licenses available | Hearing or proposal pending | Banned or cap full (eliminate) |
4. Supply growth (active listings, YoY) | 15% | Under 5% | 5-9.9% | 10-19.9% | 20-29.9% | 30%+ |
5a. Buying: gross revenue / all-in cost | 20% | 20%+ | 16-19.9% | 12-15.9% | 9-11.9% | Below 9% |
5b. Arbitrage: monthly revenue / rent | 20% | 3.0x+ | 2.5-2.99x | 2.0-2.49x | 1.6-1.99x | Below 1.6x |
To get the final score, multiply each factor score by its weight, add the five results, and multiply by 5. That puts every market on a 25-point scale:
20 to 25: strong candidate. Move to property-level underwriting.
15 to 19.9: conditional candidate. Write down the specific risk that is holding the score down and what would have to change.
Below 15: eliminate.
Any regulatory score of 1: eliminate, regardless of the total.
Regulation and the demand floor carry 25% each because they are the two factors that can take a unit from profitable to unworkable with no action on your part. ADR spread and supply carry less because good operations can partly offset them.
Worked Example: Scoring a Hypothetical Market
This is a hypothetical market with made-up numbers, built only to show the math. "Market X" is a mid-size lake-and-hospital metro. The operator is buying a 3-bedroom home.
The inputs and scores come out as follows:
Factor | Hypothetical input | Score | Weight | Weighted |
|---|
1. Demand floor | 30th pct occupancy 61% | 4 | 25% | 1.00 |
2. ADR spread | 20th pct $140, 80th pct $215 = 53.6% | 4 | 15% | 0.60 |
3. Regulatory risk | Permit required, cap hearing on next month's agenda | 2 | 25% | 0.50 |
4. Supply growth | Active listings up 14% YoY | 3 | 15% | 0.45 |
5a. Cost to enter | $58,000 gross / $385,000 all-in = 15.1% | 3 | 20% | 0.60 |
Total | | | | 3.15 x 5 = 15.75 |
Market X lands at 15.75, a conditional candidate. The revenue side is healthy: a 61% floor and a 53.6% spread say the demand is real and execution gets paid. The score is being held down by the pending cap hearing, and the price is only average for the revenue.
If the hearing passes a cap that is already full, Factor 3 drops to 1 and the market is eliminated. If the hearing ends with no change and the permit stays uncapped, Factor 3 rises to 4, adding 0.50 to the weighted total: 3.65 x 5 = 18.25. Still conditional, so the operator would then negotiate price. At a $330,000 all-in cost, $58,000 of revenue is 17.6%, Factor 5 moves to a 4, the weighted total becomes 3.85, and the market scores 19.25. That is close to strong but not over the line, which tells you this is a market to buy only at a disciplined price.
The arbitrage version of the same market: $58,000 / 12 = about $4,833 a month in gross revenue against a $2,100 rent is a 2.30x ratio, which also scores a 3. Same conclusion, different entry cost.
The Market Evaluation Process
Run this process on every candidate, in this order. Regulation comes before revenue because a banned market wastes the hours you spend on comps.
Write your thresholds first. Copy the scorecard, adjust any cutoff for your cost structure, and save it before you look at listings.
Build a shortlist of three to five markets. Use drive time, demand drivers, and your budget as the first filter. Census population and housing estimates help rule out shrinking metros.
Score Factor 3 (regulation) first. Read the city and county code, the last 12 months of council agendas, the tax registration rules, and any HOA or lease terms. Eliminate any market that scores 1.
Pull 20 to 40 true comps. Same bedroom count, same property type, same guest profile. Compute the 30th percentile occupancy, the weakest month, and the 20th and 80th percentile ADR.
Measure the supply pipeline. Compare active listing counts in your segment to 12 months ago and look for investor-marketed new construction.
Price the entry. Get a real rent quote or purchase price, check rent against HUD Fair Market Rents, and run debt service at the current Freddie Mac rate plus your lender's STR premium.
Score, weight, and decide. Apply the weights, multiply by 5, and write one sentence per market explaining the score. Advance only markets at 20 or above, or conditional markets where you can name the fix.
Repeat the scoring every six months on any market you already operate in. Scores move, especially Factors 3 and 4, and the earlier you see a slide, the more options you have.
If you want a second set of eyes on your scorecard before you sign anything, book a complimentary one-on-one diagnostic call. We will walk through your shortlist and the numbers behind each score.
Frequently Asked Questions
What score makes an STR market worth pursuing?
A weighted score of 20 or more out of 25 marks a strong candidate. Scores from 15 to 19.9 are conditional and need a named risk and a plan to address it. Anything below 15 is eliminated, and a regulatory score of 1 eliminates a market regardless of its total.
Why is regulation weighted as heavily as demand?
Regulation can end a profitable operation with one council vote, and you cannot operate your way around a ban or a full license cap. Demand carries the same 25% weight because the occupancy floor sets your downside. The other three factors can be partly offset by pricing, design, and buying at the right price.
What occupancy rate makes a good STR market?
My screening rule of thumb is a 30th-percentile occupancy of 65% or more over the trailing 12 months, which scores a 5 on the demand factor. That threshold comes from coaching STR operators, not from a published statistic, so adjust it for your own costs, financing, and risk tolerance.
Does this framework work for rental arbitrage as well as buying?
Yes. Factors 1 through 4 are identical for both models. Only Factor 5 changes: buyers divide gross annual revenue by all-in cost, while arbitrage operators divide gross monthly revenue by monthly rent and check the rent against HUD Fair Market Rents.
How many comparable listings do I need to score a market?
Twenty to forty true comps is enough for a screening decision. They should match your bedroom count, property type, and guest profile. Fewer than that and a handful of outliers can swing your percentiles.
How often should I re-score a market I already operate in?
Every six months is a sensible cadence. Regulation and supply change fastest, so watch council agendas and listing counts between full re-scores. A falling score gives you time to adjust pricing, renegotiate, or plan an exit.
Sources
Related Reading
