Conservative STR underwriting: how to stress-test a deal before you buy
Before you commit capital, run the deal through downside scenarios. Here is how conservative underwriting works and what to look for.
If you only do one thing
Get a clear verdict (Proceed, Borderline, Walk Away) and see strong, typical, and weak year scenarios. Use STR Estimator or the sample report.
Why scenario ranges, not a single number
A single point estimate does not tell you what happens in a weak year or when occupancy drops. Conservative underwriting shows you strong, typical, and weak year outcomes so you can see where the deal breaks. If it only works in the best case, it is fragile.
Downside buffers
We cap optimistic occupancy and rates. We do not assume peak season year-round. We stress for weak months and treat high occupancy as fragile. The goal is to see how the deal holds up when things go wrong, not to maximize a headline number.
For why calculators disagree in the first place, see why STR calculators disagree.
Expense realism
Management, cleaning, utilities, STR insurance, maintenance, and reserves add up. Many tools understate them. Conservative underwriting includes realistic expenses and tells you what was assumed. If you are self-managing, do not assume zero cost for your time. For what breaks first when margins are thin, see the STR fragility checklist.
Decision thresholds: Proceed, Borderline, Walk Away
Conservative underwriting should give you a clear verdict. Proceed means the numbers hold; do due diligence. Borderline means thin margins; only proceed if you have reserves and can stomach break-even. Walk Away means the deal fails; find something better. A no is a valid and useful outcome.
The one assumption that could kill the deal
In every deal, one or two assumptions do most of the work. Often it is occupancy or rate. Good underwriting identifies that and explains what would have to go right for the deal to hold. If that assumption is fragile, the verdict should reflect it.
Do not optimize for a green light
Enter honest assumptions. Do not tweak numbers to get a better verdict. Adjust only with verified info. Use Walk Away as a valid outcome. The goal is to know where the deal breaks before you are in too deep.
What to do next
Run your deal through a conservative reality check. See the sample report for what that looks like, or stress-test your deal.