Closed three weeks after the grandfathering deadline. The model was gone.

Rural lake town, population under 3,000, the kind of place I like because the price points are low enough that a mistake doesn't end you. This one nearly did anyway.

The property: three bed one and a half bath, 1,400 square feet, four blocks from a public boat launch, $172k. I underwrote it nightly at $2,300 a month average across the year, which was conservative against what the two comparable listings in town were doing. Long-term rents in that town are $950 to $1,100. Payment plus taxes and insurance came to $1,240.

When I went under contract, the town had no short-term rental ordinance. I checked. What I did not check was the planning commission's agenda, which had a short-term rental permit proposal on it that month. The ordinance passed while I was in escrow. It capped permits at 25 in the town limits, and it grandfathered anyone holding an active listing as of the effective date, which fell three weeks before my closing. Seller had never listed it, so there was nothing to grandfather. The 25 permits filled in nine days, mostly with people who already had listings.

What it cost. $18,200 of furniture and setup, most of it already delivered because I was trying to be open for Memorial Day. I sold roughly $11k of it over four months and got about $4,200 back. I put a long-term tenant in at $1,050, which against $1,240 of payment plus $180 of average maintenance meant I fed the property about $370 a month for the 14 months I held it. Sold it last spring for $181k and after costs I was down about $9,000 all in, plus the 14 months of attention.

My escrow contingency period had expired before the vote, and I chose not to fight about it because I didn't think I had grounds. Whether I did is a question for an attorney in that state and I never asked one.

What I'd do differently. I'd read the planning commission and council agendas for the previous 18 months on every market before writing an offer, not the ordinance as it stands. And I would not buy a property where the fallback long-term rent doesn't cover the payment, no matter how much room the nightly number appears to have.

Answer

2tashaford30PB2APRO7

I had a near version of this and mine only worked out because the county tabled it. Same shape, small lake town, I was under contract when the item appeared on an agenda I found by accident because a neighbor mentioned it at a gas station. It got pushed to the next session and then dropped. That's luck, not diligence, and I've never pretended otherwise.

On cause, I'd order your two lessons the other way. The agenda-reading is real and everyone should do it. But agendas can be posted a week out, items get amended on the floor, and a vote can happen between your inspection and your closing no matter how carefully you read. You can reduce that risk and you can't remove it.

The thing that turned a lost business model into a $9,000 loss and 14 months is that $1,050 didn't cover $1,240. If the fallback rent had covered the payment with a little room, the ordinance would have cost you the upside and you'd still own a small house in a lake town at $172k, waiting. That's a bad year instead of an exit.

So the rule I took from mine: the nightly revenue is the reason to buy it and the long-term rent has to be the reason it's safe. If a market's long-term rents can't carry the debt at the price you're paying, the deal only exists at the pleasure of a town council.

Also worth saying that the furniture is the part people underestimate. You recovered 38 cents on the dollar and that's probably better than average for a fast sale.

Closed three weeks after the grandfathering deadline. The model was gone.

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