Underwrite the Deal

Underwriting is the skill that separates investors from gamblers. If you can't project a property's numbers before you buy it, you're not investing — you're hoping.

The underwriting sequence

• Project revenue from comps, not listings. Find 5–10 comparable active listings and estimate ADR and occupancy from what they actually achieve. Never use the seller's claimed revenue as your number — verify it against market data. Optimistic revenue is the #1 underwriting error.
• Count ALL the expenses. Mortgage, taxes, insurance (STR insurance costs more than homeowner's), utilities, cleaning, supplies, platform fees (~3–15%), management if you outsource, maintenance, capex reserves, and permit/lodging-tax costs. Deals that look great usually have 3–4 of these missing.
• Judge on cash-on-cash return. Annual cash flow divided by total cash invested (down payment + closing + furnishing + reserves). It's the honest number, because it includes everything you actually spent.
• Stress-test it. Re-run the deal at 10–15% lower revenue. If it only works in the sunny scenario, it doesn't work.

Expect most deals to fail your underwriting. That's the system working. Passing on nine mediocre deals to buy one good one is exactly how this is supposed to feel — the worked case study below shows the full process on a real example, start to finish.

Go deeper

• How to Analyze STR Deals
• STR Cash Flow Analysis
• The Complete STR ROI Analysis Guide
• STR Deal Analysis: A Full Worked Case Study
• Tool: ROI Calculator
• Tool: Income Estimator

ACTION: Underwrite 3 live listings in your top market with the ROI Calculator. Keep only the deals that clear the cash-flow number you wrote down in Lesson 1.

An agent who actually invests in STRs can tell you which comps are real and which revenue claims are fiction. When you're ready to buy, get matched free with an STR-specialized agent.

Next lesson: the loan that qualifies you on the property's income instead of your W-2.