Do you underwrite STR deals revenue-first or rules-first?

Question

Curious how other investors sequence diligence on short-term rental purchases.

I work with a lot of buyers who start at revenue (comps, ADR, occupancy) and only later dig into whether the property can actually operate the way they intend. Sometimes that still works. Sometimes they find out the hard way that seller history, HOA/condo docs, or jurisdiction details change the whole thesis.

My bias is to confirm the use-case path earlier—public rules and private restrictions—before spending too much emotional energy on the pro forma. Revenue still matters. I just do not want it in first position if the operating right is unclear.

How are you handling this in your market?

• Rules/jurisdiction first?

• HOA docs before offer?

• Comfortable underwriting off seller operating history?

Genuinely interested in what's working for people outside my area too.

John Underwood · Answer

You have to check everything. Its all part of the due diligence.

I don't even look at HOA's or condos.

Jon Martin · Answer

HOAs are a non-starter for me. There is almost no legal or democratic process that can help you. Exception would be a building that is mostly owned by other STR owners, although even then you aren't 100% safe, and you are competing with a bunch of other units that look exactly the same. Would have to be an A+ location (beach or mountainside, view, walkable etc) where a SFH is nonexistent or too expensive to cash flow.

City/County regulations can also be dealbreakers. If there is a process with a clear yes/no set of qualifications that's fine. If it is subject to the whims of a government employee then no.

So yes, I start with rules, then move to revenue. I also find that the revenue to price needs to be higher with smaller units because so many expenses are the same whether you are 1 or 5 bedroom.

Mike Grudzien · Answer

ALL pieces make the final picture.  Don't get fooled or excited by a single one.

Hampton Rogers · Answer

@Erika Albert I’m also with you and @Diana Khan on use-first.

Revenue can make a deal look great on paper, but if the property can’t legally operate the way you’re underwriting it, the rest of the analysis doesn’t matter much. I’d want to understand both the public side — zoning, STR regulations, licensing, occupancy limits, etc. — and the private side,

especially HOA or condo restrictions, before leaning too heavily on seller history.

My wife Melinda and I are building REInMakers around this exact idea: verify the property-specific facts early, then evaluate the opportunity with clearer eyes.

Seller operating history is useful, but I’d treat it as evidence of past performance, not proof of future operating rights.

Diana Khan · Answer

@Erika Albert, I’m with you on checking the use first. From working with property owners and investors, one thing I’ve learned is that I would not rely too heavily on the seller’s STR history by itself. I would want to know whether any permit or license stays with the property, whether it has to be renewed under the new owner, and whether an HOA or local rule could change what the buyer is allowed to do after closing.

I usually think of it in this order: first, can I legally operate the property the way I want to, second, will that right still be there after I buy it, and then third, do the revenue numbers work. That keeps me from spending too much time on a deal that may never work the way it was underwritten. I’d be glad to stay connected too. I like the way you’re looking at the deal from the use side before getting too attached to the revenue. Since you’re in Texas, I’d still have local counsel confirm anything specific to the property or local STR rules.

Andrew Steffens · Answer

I represent a lot of buyers in my area, so I already know where is and is not legal here.  If I were exploring a new area, I would start rules first then revenue, I would not want to waste time if its not legal.

Do you underwrite STR deals revenue-first or rules-first?

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