Underwrite the Rules Before the Returns
A great pro forma on a short-term rental that is not legal is worthless. Your credibility with an investor is the asset you are protecting, and the fastest way to lose it is to sell a deal the city shuts down.
The four rule checks
- Permits and caps. Does the jurisdiction allow short-term rental, and are permits available? A cap or a primary-residence requirement can erase an STR overnight.
- HOA and CC&Rs. Governing documents can forbid short-term or even mid-term use. Read them, do not assume.
- Lender terms. Some loans restrict how the property can be used.
- Zoning. Confirm the property’s use before anything else.
Model the downside out loud
Regulation is the biggest threat, but not the only one. Seasonality and over-leverage are the others. Model a slow season. A cash reserve and a mid-term rental option are the two hedges, which is why mid-term rentals belong in the conversation from the first meeting.
I would rather lose a commission than sell a client a deal the city shuts down.
That sentence is why investors refer us. The agent who names the risks first is the agent they trust with the next deal.
A habit to copy
Keep a one-page rules summary for each jurisdiction you work in, with the date you last verified it. Update it when rules change. Attach it to every analysis so the investor sees you checked.
