Underwriting is the part of this business that actually determines outcomes, and it is the part most buyers do least. We screen roughly a thousand deals a week and eliminate about 98%, and almost all of that elimination happens in the analysis rather than at the viewing. This is where it stood in 2022, which was the year cheap money ended and the phase-down clock started.
What 2022 changed
2022 split into two halves. The first looked like 2021: strong demand, rising rates, aggressive competition for inventory. The second was defined by the fastest rise in borrowing costs in decades, which changed what a property had to earn to work.
Revenue held up better than most expected while the cost of capital rose underneath it. Deals underwritten in the spring frequently did not pencil by the autumn on the same purchase price.
Rates rose sharply through the year as the Federal Reserve tightened, and the cost of financing a purchase in December was very different from March.
How it works
Underwriting is the part of this business that actually determines outcomes, and it is the part most buyers do least. We screen roughly a thousand deals a week and eliminate about 98%, and almost all of that elimination happens in the analysis rather than at the viewing.
- Assemble twelve to twenty genuinely competitive listings: same submarket, same bedroom count, same amenity tier, and pull twelve months of booked nights and rates.
- Model twelve individual monthly revenue figures rather than dividing an annual number by twelve, because seasonality is the whole shape of the risk.
- Build the complete expense stack: debt service at the actual rate, property tax reassessed at your purchase price, insurance quoted for the address, management all-in, cleaning per turnover, utilities at rental-use levels, dues, and reserves.
- Stress it: revenue at 75%, three lost peak weeks, insurance 40% higher, and for city properties the long-term rental floor.
What that meant in 2022 specifically
Revenue held up better than most expected while the cost of capital rose underneath it. Deals underwritten in the spring frequently did not pencil by the autumn on the same purchase price.
Supply caught up in several markets during 2022. The properties that struggled were the ones bought at 2021 prices on the assumption that 2021 occupancy would persist.
The discipline that mattered in 2022 was stress testing against a higher rate and a normalised occupancy at the same time, rather than one or the other.
Where it goes wrong
The failure modes are consistent across years, which is itself useful information: they are not caused by the market cycle, so a different year does not protect you from them.
- Treating a seller's proforma as data. They are routinely built by extrapolating peak-season rates across twelve months.
- Building a comparable set on bedroom count and distance alone, so the subject property is compared against inventory it does not actually compete with.
- Omitting the maintenance and capital expenditure reserves, which is the most common reason a projected return exceeds the realised one.
What a buyer should have done in 2022
The discipline that mattered in 2022 was stress testing against a higher rate and a normalised occupancy at the same time, rather than one or the other.
The underwriting discipline does not change with the year. Twelve individual monthly revenue figures from a comparable set you assembled, a complete expense stack including reserves, and a stress test at 75% of projection that still covers debt service.
We screen roughly a thousand deals a week and eliminate about 98% of them. That ratio has held across every year on this site, through the boom, the correction and the stabilisation, because it is a function of how listings are selected rather than of the market.
What generalises, and what does not
Reading a year in isolation is the most common analytical error in this business. 2022 had its own conditions, and someone who learned the wrong lesson from it carried that lesson into a market that no longer rewarded it.
What generalises is the mechanics above. The definitions, the tests, the sequence and the failure modes are the same in every year on this site, which is why they are worth learning properly once rather than relearning each cycle.
What does not generalise is the environment: the cost of capital, the depth of supply, the bonus depreciation percentage, and the regulatory posture of a given jurisdiction. Those change, sometimes abruptly, and a model that treats them as fixed is a model that was only ever right about one year.
The practical consequence is to build the analysis so the environment is an input rather than an assumption. A property that only works at one interest rate, one occupancy level and one tax treatment is not an investment thesis, it is a bet that nothing moves.
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Frequently asked questions
What was different about analysing a short-term rental deal in 2022?
2022 split into two halves. The first looked like 2021: strong demand, rising rates, aggressive competition for inventory. The second was defined by the fastest rise in borrowing costs in decades, which changed what a property had to earn to work.
What was the main risk in 2022?
Supply caught up in several markets during 2022. The properties that struggled were the ones bought at 2021 prices on the assumption that 2021 occupancy would persist.
What were financing conditions like in 2022?
Rates rose sharply through the year as the Federal Reserve tightened, and the cost of financing a purchase in December was very different from March.