The nightly-rate spreadsheet hides the variable that actually kills STR returns: the local ordinance. Across the past five years a long list of cities — New York, Honolulu, Santa Monica, Dallas, Palm Springs, and most of unincorporated California coastal county territory — have moved from light-touch registration to primary-residency requirements, hard permit caps awarded by lottery, outright bans in zones where residential housing is scarce, or whole-home rental limits of 30–90 nights per year. The trigger is usually political, not financial: residents complain that investor-owned STRs cannibalize the local housing stock, the council finds a junior planning deputy a quick win, and overnight your six-bedroom $1.4 million asset with the custom pergola and the heated pool reverts to a long-term rental that does not service its debt.
This risk does not appear in occupancy data, AirDNA comps, or yield tables — it appears in council agendas and is binary when it lands. Before you buy, read the existing municipal STR ordinance and the last two years of council minutes; assume the rules will tighten, not loosen; and underwrite the property as a long-term rental at prevailing area rents. If the deal does not clear your hurdle rate on the LTR exit, you are not buying a real-estate investment, you are buying a leveraged bet on a zoning loophole. Diversification across jurisdictions helps; betting the portfolio on one council vote does not.