State level factors set the boundaries within which a submarket can perform: income tax, preemption of local bans, property tax structure, insurance availability, and the demand geography. Here are the states currently clearing our filters and why, plus the ones we avoid.
Tennessee
No state income tax on wages, the most visited national park in the country, four genuine demand seasons, and the deepest operator base of any market we buy in. The Sevierville corridor is the most proven large cabin market in the United States. Nashville is exceptional in permitted zones and restrictive everywhere else. State guide.
Florida
No state income tax, year round demand, drive-to accessibility from the entire Southeast, and the deepest short-term rental inventory in the country. The two factors that decide individual deals are insurance cost, which has risen sharply in coastal markets, and condo association rules. State guide.
Arizona
The strongest state level protection against outright local prohibition of residential short-term rentals of any market we buy in, which lowers the probability of the catastrophic regulatory outcome. The offsetting factor is a winter snowbird booking pattern that can break the seven day average a tax focused buyer depends on. State guide.
Oklahoma
The best revenue to price ratio we underwrite, concentrated in the Broken Bow and Hochatown cabin corridor, with three hour drive-to demand from Dallas Fort Worth. Supply growth is the primary risk and Hochatown's recent incorporation introduced a new local government worth monitoring. Market guide.
State selection narrows the search before property selection begins
We screen at the state and submarket level first, which is why our client conversations start with objectives rather than listings.
Apply NowTexas
No state income tax, rapid population growth, and event driven demand producing very high peak rates. The offsetting factors are property tax rates near the top of the national range, with no homestead protection on investment property and reassessment after sale, plus an Austin regulatory history that requires careful verification. State guide.
Pennsylvania
Proximity to the largest concentration of high income households in the country, with the Poconos reachable within two hours of New York City and ninety minutes of Philadelphia. Four season demand with shallow troughs. Private community association rules are the deciding factor at the property level. Market guide.
Missouri and Colorado
Branson offers entertainment driven demand at a low basis with a strong Christmas season. Denver offers an urban base with mountain access and a demand mix that flattens seasonality, though Colorado licensing is among the most active regulatory environments in the country and requires verification first. Colorado guide.
Where we do not buy
We avoid markets on structural grounds rather than on returns. The recurring disqualifiers: state or local regimes hostile to non owner occupied rentals, insurance markets where coverage is unavailable or priced beyond what the revenue supports, price to revenue ratios that cannot produce returns regardless of operations, and markets in the middle of an active political fight over the activity.
California is the clearest example of several of these at once, and we have written about it separately. See why we do not invest in California and how we verify regulation.
My BnB Accelerator, LLC is a real estate acquisition firm and is not a licensed tax, legal, or investment advisory firm. Nothing here is tax advice. Our tax partner is AE Tax Advisors, an independent firm.
Keep reading
At a glance
| State income tax | Regulatory posture | Why it makes the list | |
|---|---|---|---|
| Tennessee | None on wages | State preemption protects existing use | The most proven large-cabin corridor in the country |
| Florida | None | State preempts outright bans, local rules grandfathered | Beach and theme-park demand, no state income tax |
| Arizona | Flat, low | Strong state preemption of local bans | Predictable rules and a strong winter season |
| Oklahoma | Moderate | Light touch, few restrictions | The best revenue-to-price ratio we track |
| Texas | None | Contested in places, verify by city | Event-driven demand, no state income tax |
| Pennsylvania | Flat | Township level, varies sharply | Lowest entry price serving two major metros |
| Missouri | Moderate | Local, trending toward more oversight | Low basis and strong gross yields |
| Colorado | Flat | Restrictive in Denver proper | Flat booking calendar, buy outside the city limits |
The states we deliberately exclude, and why
A list of good markets is only half the information. The exclusions carry as much signal, because they show what the screen is actually testing for.
California fails on three counts at once: constrained permitting in the strongest submarkets, a policy trend running against short-term rental expansion, and state income tax reducing the after-tax value of the return. Joshua Tree, Big Bear, and the California side of Tahoe all illustrate the pattern, and none of them clear our underwriting. The longer explanation is here.
Premium ski markets such as Park City are excluded on basis rather than regulation. Entry prices high enough to compress leveraged returns, combined with revenue concentrated into a single season that a poor snow year can damage, make them better suited to a low-leverage buyer with personal-use motives than to a return-driven purchase.
Markets with capped permits are excluded on principle, wherever they are. When the permit is the scarce asset rather than the property, you are underwriting a licence you may not be able to obtain or transfer, and a purchase made in anticipation of receiving one is speculation rather than investment.
The pattern across all three: we are not screening for the highest revenue. We are screening for revenue that is durable, at a basis that leaves room, under rules unlikely to change against us.
What getting this wrong actually costs
Whatever you choose, judge it against the three ways a short-term rental purchase actually fails, because all three are decided before closing and none of them are exotic.
Regulation. A property bought without a parcel-level regulatory check can become unrentable when a permit cap or primary-residence rule arrives. The resale market for a short-term rental that can no longer operate short-term is the long-term rental market, which values it very differently.
Revenue assumptions. Underwriting to a peak year rather than a trailing median commonly overstates revenue by 20 to 30 percent, which on a leveraged purchase is the entire cash flow.
Management structure. Signing a full-service agreement before speaking to a CPA can defeat material participation and forfeit a first-year deduction worth six figures to a high earner. It is a tax decision disguised as an operational one.
More detail in the mistakes that cost the most, checking regulations before buying, and STR material participation.
Frequently asked questions
What is the best state for short-term rental investing?
Tennessee is the most reliable state we underwrite: no state income tax on wages, the most visited national park in the country, four genuine demand seasons, and the deepest operator base of any market we buy in. Florida, Arizona, and Oklahoma each lead on different specific factors.
Which states protect short-term rental owners from local bans?
Arizona has the strongest state level limitation on municipal prohibition of residential short-term rentals among the markets we buy in, while still permitting licensing, tax registration, and safety and nuisance regulation. Local requirements continue to evolve and should be verified for the specific address.
Do no income tax states make better short-term rental markets?
It helps but it is not decisive. Tennessee, Florida, and Texas all lack a state income tax on wages, and Texas offsets that with property tax rates near the top of the national range. Your home state still taxes you on its own rules regardless of where the property sits.
Why avoid certain short-term rental markets entirely?
The recurring structural disqualifiers are regimes hostile to non owner occupied rentals, insurance markets where coverage is unavailable or priced beyond what revenue supports, price to revenue ratios that cannot produce returns regardless of operations, and markets in the middle of an active political fight.
Does state income tax matter when choosing an STR market?
It matters to the after-tax return, which is what you actually keep. Two properties producing identical cash flow in Tennessee and in a state taxing income at 6 percent do not produce identical outcomes. It is one input among several, and it should never override the regulatory check, which is a pass or fail gate rather than a factor to weigh.
Should I invest in a state I do not live in?
Most of our clients do, and out-of-state ownership is normal in this asset class. What it requires is a management structure decided before closing, a local maintenance contact, and honesty about material participation: if you cannot be on site, you need a co-host arrangement that still leaves pricing, calendar, and guest communication with you. Buying near home is only an advantage if the market near home actually works, and for most high earners it does not.