When people consider short-term rental (STR) investments, their minds often jump to properties in booming metropolitan areas or HOA-restricted neighborhoods. Big cities come with high demand, tourist attractions, and business travelers.
However, as someone who has invested in both urban and small-town STRs, I’ve found that smaller towns can outperform big-city properties in key areas like profitability, guest satisfaction, and ease of management. Here’s how my small-town STR business stands out—and how financial tools like the ones offered by our partners at Baselane help make the process smoother.
Why a Small Town?
The decision to invest in a small town wasn’t random. I used a data-driven approach to pinpoint a location that balanced affordability, year-round demand, and unique guest experiences.
To guide my search, I applied my 60/30/10 rule:
- 60 minutes or less from a major city with a population of 500,000 or more, ensuring accessibility for weekend travelers.
- 30 minutes or less from regional, state, or national attractions, like parks, lakes, or wineries, to draw steady guest interest.
- 10 minutes from essential services, such as gas stations, grocery stores, or restaurants, to ensure guest convenience.
This framework helps ensure that any property I consider will have strong demand drivers and practical amenities nearby.
The Advantages of Small-Town STRs
1. Lower acquisition costs
In big cities, property prices can be astronomical. For the same investment that gets you a studio in a city, you could often purchase a spacious, multi-bedroom property in a small town. Lower costs mean a smaller mortgage and lower financial risk, leaving more room for profit.
2. Higher return on investment (ROI)
Small-town STRs often see higher occupancy rates and average daily rates (ADR) due to less competition. Additionally, the yield (annual revenue divided by median home price) in small towns often outpaces urban areas. With less supply and consistent demand, pricing power is on your side.
3. Less regulation stress
Many big cities are cracking down on short-term rentals with strict regulations, expensive permits, and rental day caps. In contrast, small towns often welcome STRs for the economic boost they bring to the community.
4. Unique guest experiences
Travelers are increasingly looking for unique stays, and small towns are often close to natural attractions, historic sites, or outdoor activities. My STRs offer a peaceful retreat that urban properties can’t replicate, resulting in happier guests and glowing reviews.
How Small Towns Drive Profitability
My property is in a charming town with a population under 10,000. Despite its size, it’s near a popular state park and several wineries. While the big-city properties I’ve owned relied on volume to drive profits, my small-town STR thrives on premium pricing and extended stays.
Here’s why it works:
- Fewer one-night stays: Guests typically book longer stays in small towns, which reduces cleaning and turnover costs.
- Attracting niche travelers: My STR caters to couples looking for romantic getaways, nature enthusiasts, and families attending local events.
- Loyalty and word of mouth: Small towns’ sense of community encourages repeat visitors. Many of my guests return annually and recommend my property to friends.
Why Data-Driven Decisions Matter
Investing in a small town isn’t about guessing but understanding the market dynamics. Before purchasing, I looked at tools like AirDNA to assess metrics like average daily rate, occupancy rates, and annual revenue.
For small towns, it’s crucial to focus on:
- Seasonality: Understand when the market peaks and dips to adjust pricing and manage expectations.
- Local attractions: Ensure a steady flow of visitors year-round, not just during a single season.
- Market saturation: Fewer STRs in a small town often mean less competition, but ensuring enough demand to support additional properties is essential.
Combining this data with the 60/30/10 rule ensured my investment was well-located and poised for consistent bookings.
Simplifying Small-Town STR Management
While small-town STRs outperform big-city properties in profitability, managing them requires attention to detail. That’s where Baselane comes in. I rely on Baselane’s all-in-one banking, bookkeeping, and accounting software to ensure my finances are in order.
Here’s how it helps:
- Streamlined expense tracking: With Baselane’s auto-tagging feature, all my STR-related expenses are categorized instantly, with no manual effort from me. Whether it’s a new set of sheets or a local repair bill, Baselane organizes it automatically.
- Stress-free tax prep: Tax season used to be a headache. Now, Baselane creates a tax package tailored for my CPA, complete with categorized expenses and detailed reports. This feature has saved countless hours and helped me avoid potential mistakes.
- Easy banking for STR owners: I use Baselane’s banking services to separate my STR finances from my personal accounts. A dedicated STR account simplifies cash flow tracking, and I can create multiple subaccounts to make planning for property improvements or expansions easier.
Common Concerns About Small-Town STRs
What if there’s no demand?
Research is key. I chose a location with year-round attractions and seasonal events. Tools like AirDNA and local tourism reports helped me understand demand patterns before purchasing.
Are small towns harder to market?
Not at all! Marketing is easier if you leverage the area’s unique charm. I focus on high-quality photos, SEO-friendly Airbnb listings, and partnerships with local businesses to attract guests.
Do small-town STRs have limited growth potential?
Growth opportunities are abundant, but they will not have the same appreciation rate as a major city. The advantage is the higher possible cash flow rates. I’ve seen consistent revenue increases by reinvesting in amenities such as hot tubs or fire pits and building strong guest relationships that lead to repeat bookings.
What’s Next for Small-Town STRs?
Small-town STRs represent an exciting opportunity for investors willing to think outside the box. As regulations in big cities become more restrictive, demand for unique, off-the-beaten-path accommodations will only grow. I plan to expand my portfolio with more properties in similar markets and have now learned the first steps to take in almost any market.
Final Small-Town Thoughts
Investing in a small-town STR has been one of my best decisions. Applying the 60/30/10 rule, analyzing local data, and using tools like Baselane to streamline financial management, I’ve turned a quiet, small-town property into a highly profitable investment.
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.
