Due diligence separates successful vacation rental investments from costly mistakes. Before you buy, you need to verify that short-term rental is permitted, profitable, and practical for your target property.
This comprehensive checklist guides you through everything to verify before purchasing.
Before You Start Looking
Define Your Criteria
Investment parameters:
- Budget range (purchase price)
- Down payment available
- Target cash flow
- Acceptable ROI threshold
- Risk tolerance level
- Time commitment available
Property preferences:
- Location/market targets
- Property type (house, condo, cabin)
- Size requirements (bedrooms/bathrooms)
- Must-have features
- Deal-breaker issues
Market Selection
Research before choosing markets:
- Tourism demand data
- STR regulation status
- Competition analysis
- Seasonality patterns
- Growth trajectory
Regulatory Due Diligence
Municipal Regulations
Verify with the city/county:
- Is STR permitted in this jurisdiction?
- What permits/licenses are required?
- Are there caps on STR permits?
- What are the application requirements?
- What are the fees?
- What are operational requirements?
- Are there specific zones where STR is prohibited?
- What are the penalties for non-compliance?
Document everything:
- Get regulations in writing
- Note date of verification
- Keep official contact information
- Screenshot current regulations
Zoning Verification
Confirm:
- Property’s zoning classification
- STR permitted in that zone
- Any conditional use requirements
- Variance requirements if needed
- Process if zoning change needed
HOA/Condo Association
If property has HOA:
- Request full CC&Rs
- Search for “short-term,” “rental,” “transient”
- Review recent meeting minutes
- Ask direct questions to board
- Get written confirmation of STR policy
- Understand any restrictions (minimum stay, etc.)
- Check for pending rule changes
- Verify enforcement history
Pending Regulations
Research:
- City council meeting agendas
- Proposed ordinances
- Community sentiment
- State-level legislation
- Historical regulatory trends
Tax Requirements
Understand:
- State occupancy/sales taxes
- Local accommodation taxes
- Tourism taxes
- Registration requirements
- Collection and remittance process
Market Analysis
Demand Research
Data to gather:
- Average occupancy rates
- Average daily rates (by property type)
- Seasonal patterns
- Demand drivers (tourism, business, events)
- Growth trends
Sources:
- AirDNA market data
- Mashvisor analytics
- Active listing research
- Local tourism data
- Property manager insights
Competition Analysis
Assess:
- Number of competing listings
- Quality distribution
- Pricing range
- Review scores
- Supply trend (growing/stable/declining)
Comparable Performance
Research similar properties:
- Identify true comparables (size, location, quality)
- Track their calendars
- Note their pricing
- Read their reviews
- Assess their occupancy
Property Analysis
Location Evaluation
Verify:
- Proximity to attractions
- Neighborhood character
- Safety and walkability
- Parking situation
- Noise factors
- View and setting
- Access and transportation
Property Inspection
Standard inspection plus:
- All major systems (HVAC, electrical, plumbing)
- Roof condition and age
- Foundation integrity
- Water heater age
- Appliance condition
- Window and door condition
- Insulation adequacy
- Code compliance
STR-specific inspection:
- Pool/hot tub condition (if applicable)
- Deck/patio safety
- Railings and stairs
- Fire safety features
- Security features
- Noise transmission (between units, from outside)
- Photography potential
- Guest flow and layout
Condition Assessment
Evaluate:
- Immediate repairs needed
- Updates required before listing
- Cosmetic work needed
- Furnishing requirements
- Estimated renovation budget
Property Configuration
Assess for STR:
- Bedroom count and sizes
- Bathroom count and access
- Sleeping capacity potential
- Kitchen functionality
- Living space adequacy
- Outdoor space appeal
- Storage for guests
- Parking availability
Financial Analysis
Revenue Projection
Calculate conservatively:
- Projected nightly rate (by season)
- Expected occupancy (by season)
- Annual gross revenue estimate
- Compare to comparable properties
- Account for ramp-up period
Expense Estimation
Operating expenses:
- Management fees (if applicable)
- Platform fees
- Cleaning costs
- Supplies
- Utilities
- Maintenance reserve
- Insurance
- Permits and licenses
Fixed costs:
- Property taxes
- HOA fees
- Mortgage payment
- Insurance
Profitability Calculations
Run the numbers:
- Gross rental income
- Net operating income
- Cash flow (if financed)
- Cash-on-cash return
- Cap rate
- Break-even occupancy
Startup Costs
Budget for:
- Down payment
- Closing costs
- Renovation costs
- Furnishing budget
- Photography
- Initial supplies
- Permits and fees
- Reserves
Sensitivity Analysis
Test assumptions:
- What if occupancy is 20% lower?
- What if rates are 15% lower?
- What if expenses are 25% higher?
- Can you cover mortgage if vacant 3 months?
Insurance Verification
Coverage Requirements
Verify:
- STR insurance availability
- Coverage options and costs
- Liability coverage limits
- Property damage coverage
- Loss of income coverage
- Umbrella policy needs
Quote Collection
Get quotes from:
- Proper Insurance
- CBIZ
- Traditional carriers with STR endorsement
- Compare coverage, not just price
Financing Due Diligence
Loan Qualification
Verify:
- Loan type available for STR
- Down payment requirements
- Interest rate
- DTI requirements
- Reserve requirements
- Seasoning requirements
Lender Selection
Consider:
- Conventional lenders
- Portfolio lenders
- DSCR loan options
- Credit union options
- Compare terms thoroughly
Legal Considerations
Entity Structure
Consult attorney about:
- LLC formation
- Liability protection
- Tax implications
- Operating agreement
- Asset protection
Contract Review
Before signing:
- Review purchase contract
- Include STR contingency if possible
- Understand inspection period
- Verify title clear
- Review any lease assignments
Final Verification Steps
Before Removing Contingencies
- Permit application submitted/approved
- Insurance quotes obtained
- Final financial analysis complete
- All inspections complete
- Financing confirmed
- No new regulatory concerns
- HOA confirmation in writing
Before Closing
- Walk-through inspection
- All repairs completed
- Title insurance ready
- Funds prepared
- Insurance bound
- Closing documents reviewed
Red Flags to Watch
Walk Away If
Regulatory:
- STR not clearly permitted
- Pending restrictive regulations
- HOA ambiguous about STR
- Permit cap reached
Financial:
- Numbers only work with optimistic assumptions
- Major capital requirements not in price
- High fixed costs relative to revenue
- Market showing decline
Property:
- Significant structural issues
- Configuration doesn’t work for guests
- Location doesn’t appeal to travelers
- Features create liability
Post-Purchase Checklist
Immediate Actions
- Finalize permits/licenses
- Bind insurance
- Set up utilities
- Begin renovations if needed
- Order furnishings
- Schedule professional photography
- Create listings
- Set up property management software
Thorough due diligence protects your investment. Contact us to discuss how we can help evaluate potential properties in our markets.
