The Market Scoring Framework
Our market scoring system evaluates short-term rental (STR) and long-term rental (LTR) investment opportunities across five key dimensions, each weighted by importance to long-term returns. This methodology has been refined through analysis of hundreds of markets and validated against historical performance data.
1. Rental Yield (40% weight)
The most important factor for rental investors is cash flow potential. We calculate gross rental yield by dividing annual rent by property price:
Score ranges:
- 9-10: >8% yield (exceptional cash flow)
- 7-8: 6-8% yield (strong cash flow)
- 5-6: 4-6% yield (moderate cash flow)
- 3-4: 2-4% yield (appreciation play)
- 1-2: <2% yield (negative cash flow likely)
2. STR Regulatory Environment (25% weight)
Regulations dramatically impact returns. We score based on maximum nights allowed and permit requirements:
Score ranges:
- 9-10: No restrictions or 270+ nights allowed
- 7-8: 180-269 nights allowed
- 5-6: 90-179 nights allowed
- 3-4: 30-89 nights allowed
- 1-2: <30 nights or outright ban
Additional penalties apply for:
- Permit required: -1 point
- Primary residence only: -2 points
- Host must be present: -3 points
3. Tax Burden (15% weight)
Property taxes and STR lodging taxes reduce net returns. We evaluate combined tax burden:
Score ranges:
- 9-10: Property tax <1% AND STR tax <8%
- 7-8: Property tax 1-1.5% AND STR tax 8-12%
- 5-6: Property tax 1.5-2% OR STR tax 12-15%
- 3-4: Property tax 2-2.5% OR STR tax 15-18%
- 1-2: Property tax >2.5% OR STR tax >18%
4. Risk Profile (10% weight)
Climate and insurance risks impact long-term sustainability. We evaluate:
- Flood risk: Flood zone data from government sources (high/medium/low)
- Natural disaster risk: Storm, bushfire, coastal or other regional hazards (where data available)
- Insurance premiums: Baseline + risk surcharge
Score ranges:
- 9-10: Low risk (inland, no flood zones, low hazard)
- 7-8: Moderate risk (some flood exposure or coastal proximity)
- 5-6: Elevated risk (coastal or known natural hazard area)
- 3-4: High risk (multiple overlapping hazards)
- 1-2: Extreme risk (high flood + severe natural hazard exposure)
5. Market Fundamentals (10% weight)
Long-term sustainability depends on economic strength:
- Population growth: 5-year trend
- Median household income: Economic health
- Employment diversity: Industry concentration
- Housing supply: Vacancy rates
Score ranges:
- 9-10: Growing, diversified economy
- 7-8: Stable, moderate growth
- 5-6: Slow growth or one-industry town
- 3-4: Declining population
- 1-2: Severe economic distress
Composite Score Calculation
The Market Score is a weighted average of all five dimensions:
Interpretation
- 8.5-10: Exceptional opportunity (rare, <5% of markets)
- 7.0-8.4: Strong opportunity (top 20% of markets)
- 5.5-6.9: Moderate opportunity (middle 50%)
- 4.0-5.4: Below average (bottom 25%)
- <4.0: Avoid (high risk, low return)
Real-World Examples
Example 1: High-yield regional market (Score: ~8.2)
A regional city with affordable housing, permissive STR rules, and moderate holding costs:
- Yield: 8.1% (9/10) — Strong cash flow
- Regulations: Permissive, 365 nights (10/10)
- Tax: Low holding costs, modest STR tax (8/10)
- Risk: Low, inland (9/10)
- Fundamentals: Declining population (4/10)
- Composite: 8.2 (strong opportunity for cash flow investors)
Example 2: High-cost city with strict regulation (Score: ~4.8)
A premium city with high prices, tight STR controls, and strong long-term fundamentals:
- Yield: 2.1% (2/10) — Negative cash flow
- Regulations: <30 nights, strict (2/10)
- Tax: Moderate holding costs, higher STR tax (6/10)
- Risk: Moderate (7/10)
- Fundamentals: Strong economy (9/10)
- Composite: 4.8 (appreciation play only, not for cash flow)
Using the Market Score
For cash flow investors: Prioritise markets with score >7.0 and yield >6%
For diversification: Mix high-score markets (cash flow) with premium markets (appreciation)
For first-time investors: Target score >7.0 at an entry-level price point for your target market
For STR operators: Regulations score is critical — avoid markets with score <5/10 on regulations
Limitations
This scoring system is a starting point, not a final decision. It does not account for:
- Neighborhood-level variation (crime, schools, amenities)
- Specific property condition (repairs, age, upgrades)
- Personal investment goals (cash flow vs appreciation vs lifestyle)
- Management expertise (ability to maximize occupancy)
Use the Market Score to narrow your search, then conduct property-level due diligence before investing.