The short-term rental landscape in East Tennessee has shifted significantly over the past two years. What was once a relatively unregulated market has seen new ordinances, permit requirements, and enforcement mechanisms introduced at both the county and municipal levels. If you are buying a property with the intention of operating it as an STR, here is what you need to know as of early 2026.

Sevier County remains the most STR-friendly jurisdiction in the region, but it is no longer a free-for-all. The county now requires all STR operators to obtain an annual permit, which costs $250 per unit and requires proof of liability insurance, a local emergency contact, and compliance with occupancy limits based on septic capacity. The county has also introduced a noise ordinance with quiet hours from 10:00 PM to 7:00 AM, enforced through a complaint-based system. Three verified noise complaints within a 12-month period can result in permit suspension. These rules apply to unincorporated Sevier County; properties within city limits are subject to municipal rules.

Gatlinburg has the most established STR regulatory framework, having regulated short-term rentals since 2018. The city requires a business license, an annual safety inspection, and compliance with parking minimums of one space per bedroom. Gatlinburg also enforces a 3% tourism development fee on STR revenue, separate from state and local sales taxes. The city capped new STR permits in certain residential zones in 2024, though commercial zones remain open. If you are buying an existing STR in Gatlinburg, verify that the permit is current and transferable; some older permits are grandfathered to the property, while newer ones are tied to the operator.

Knox County and the City of Knoxville introduced STR regulations in 2025 that are more restrictive than Sevier County's. Within Knoxville city limits, Type 1 STRs (owner-occupied, renting a portion of the primary residence) are permitted by right in all residential zones. Type 2 STRs (whole-home rentals where the owner does not reside on site) require a special use permit in residential zones and are capped at 2% of the housing stock per census tract. The city has also imposed a 500-foot separation requirement between Type 2 STRs. These restrictions have effectively capped supply in the most desirable urban neighborhoods like Fourth and Gill, Old North Knoxville, and Island Home.

For investors, the regulatory trend is clear: STR rules are tightening, not loosening. The best strategy in 2026 is to target properties in jurisdictions with established, stable regulatory frameworks rather than betting on unregulated areas staying that way. Sevier County's rules are now mature and predictable. Gatlinburg's are strict but well-understood. Knoxville's are the most restrictive but also the most clearly defined. The riskiest play is buying in a municipality that has not yet addressed STRs but is facing resident pressure to do so. Those situations can produce sudden, unfavorable rule changes that impair asset value overnight.