A client came to us last spring with a property under contract in Germantown. Strong bones, great street, walkable to everything. He had already run the Airbnb calculator, liked the numbers, and was ready to close. There was one problem: the property was zoned R, which meant new non-owner-occupied STR permits had been off the table since 2022. He was four days from the end of due diligence, and nobody had checked. We caught it. He got out. The deal would have closed on a property that could not legally do what he bought it to do.
That situation is not rare. Nashville STR underwriting is the discipline that prevents it — and most buyers in this market are skipping it entirely, or doing a version of it that stops at the Airbnb revenue estimate.
The Mistake Most STR Buyers Make
The common error is treating an STR acquisition like a standard home purchase with an extra revenue tab open in a spreadsheet. Buyers find a property, like the neighborhood, plug some bedroom count and location data into an online estimator, and if the projected gross looks good, they move toward an offer.
That process has four fatal gaps. It skips permit viability. It treats the block-level competitive picture as uniform across neighborhoods. It uses gross revenue instead of net. And it ignores what the property is worth to the next buyer — who may not want an STR at all.
The result: buyers close on properties that cannot be permitted, or that can be permitted but generate cash flow that looks nothing like the pro forma once real expenses hit the ledger. This is not a theoretical risk in Nashville. Since 2022, the city has stopped issuing new investor permits in residential zones, and existing permits disappear when the property sells — they are not transferable. That policy change has been quiet enough that plenty of buyers — and frankly, plenty of agents — still do not know it applies to the block they are underwriting.
The Costigan Group Take
We run four checks on every STR acquisition before an offer goes in. Not after due diligence opens. Not after the inspection. Before the offer. That sequence matters because by the time a buyer is under contract and emotionally attached to a property, the sunk cost of the deal makes it very hard to walk away from a bad underwrite.
The four checks are permit viability, layout and guest experience analysis, block-level competitive positioning, and conservative revenue and exit modeling. Each one is designed to answer a specific question that the typical offer process never asks. Here is how we run each one.
Jack Costigan has detailed the broader framework behind this approach in a USA Today feature on Nashville STR and investment real estate, but the value is never the headline — it is the specific work that happens before the offer is written.
Check One: Permit Viability
This is the non-negotiable first gate. A property either has a clear path to a legal STR permit or it does not. Everything else is irrelevant until this question is answered.
In Davidson County, property owners must receive a permit before listing a rental on platforms like Airbnb, and there are two main types: owner-occupied and non-owner-occupied. The distinction matters enormously for investors. New non-owner-occupied permits are banned in nearly all residential zones, and buildable supply is locked to specific commercial, mixed-use, and downtown zones.
Permits are annual and non-transferable — they end on sale or any change of ownership entity. This has two direct consequences. First, if you are buying a property that currently operates as an STR, you cannot assume the permit transfers with the deed. It does not. Second, properties marketed as "active STRs" may be generating revenue under a permit that evaporates at closing.
A few additional rules matter at the property level. There is a hard cap of four sleeping rooms per permit, a home with five or more bedrooms cannot be permitted as an STR, and maximum occupancy is twice the permitted sleeping rooms plus four, never more than 12. That cap has real implications for large group rentals, which are a material part of Nashville's STR revenue picture.
Nashville requires anyone wishing to operate an STR to obtain a permit from the Metro Codes Department before listing the property on any platform — and if you list before you have a permit in hand, you become ineligible to apply for one for a full year. That rule alone has derailed acquisitions where an eager buyer listed a property to test demand before the permit was confirmed.
We verify zoning classification, overlay districts, and proximity rules before any offer leaves our desk. This is not due diligence — it is pre-offer qualification.
Check Two: Layout and Guest Experience Analysis
Once permit viability is confirmed, the second question is whether the property can actually compete. Not whether it is a nice house. Whether it functions as a guest experience that earns reviews in the 4.8 to 5.0 range, which is where the top-performing Nashville STRs operate.
The layout analysis looks at a specific set of factors: bedroom-to-bathroom ratio, privacy of sleeping areas from living spaces, parking count, outdoor gathering space, kitchen configuration, and natural light. A four-bedroom home with two bathrooms is a different product than a four-bedroom home with four bathrooms. The revenue spread between those two configurations in Nashville is not trivial. The second property can charge materially more per night, hold occupancy during slower months, and attract a group-travel guest who books longer and leaves better reviews.
We also look at what cannot be easily fixed. An awkward floor plan where the only path to a rear bedroom cuts through another sleeping area is a guest experience problem that no amount of furnishing resolves. A property with street-level parking for one car in a neighborhood where guests arrive in three SUVs will generate friction on every booking. These are not fatal disqualifiers, but they affect the revenue model and need to be priced into the offer.
The guest experience lens also catches HOA exposure. By default, most HOA bylaws require any tenants to sign leases for a minimum of six to twelve months, which automatically eliminates short-term rental possibilities unless the HOA specifically allows it. Downtown high-rises deserve particular scrutiny: no downtown Nashville high-rise condo buildings allow short-term rentals, and buildings like Viridian, ICON, and Encore restrict owners to minimum 12-month leases and typically limit rental permits to just around 20% of total units.
Check Three: Block-Level Competitive Positioning
City-wide averages do not set your pricing. Your direct competitive set does. This is the check most investors skip because market-level data is easy to find, and block-level data requires actual work.
Based on AirROI's 2026 dataset covering May 2025 through April 2026, the average Nashville STR generates $43,117 per year at a $346 nightly rate and 42.8% occupancy. That is a useful baseline. It is not your underwrite. A three-bedroom home in 12 South walking distance to restaurants competes with a different inventory set than a three-bedroom home near Bordeaux with no walkable amenities. The platforms will show you both. The data tools will average them together. We do not.
Current market data shows that typical properties maintain around 46% occupancy, strong-performing properties in the top 25% achieve 65% or higher, and best-in-class properties in the top 10% reach 81% or above. The spread between a median property and a top-quartile property in Nashville is not a matter of luck — it is a function of location quality, layout, amenity set, and management execution. Our underwrite models the median, not the ceiling.
Seasonality is also real in Nashville and often ignored in pro formas. During the peak month, Nashville STRs can reach occupancy of 55% and ADRs near $390, while the slowest month can see occupancy drop to 31% and daily rates compress to around $267. An underwrite that uses a single blended rate without accounting for that monthly swing will overstate annual revenue by a meaningful margin.
The demand side of this picture remains fundamentally strong. The Nashville Convention and Visitors Corp now projects 17.3 million visitors in 2025, the most in the city's history, with strong domestic leisure travel accounting for 67% of visitors. Future years indicate steady growth to 18.1 million in 2027, the year the new Nissan Stadium opens, creating the next wave of tourism in Nashville. More visitors means more demand for STR inventory. But more demand does not make every property a winner — it makes well-positioned properties stronger and average properties easier to confuse for good investments.
Check Four: Conservative Revenue Modeling and Exit Analysis
This is the check that separates an underwrite from a pitch deck. The goal is not to find the number that makes the deal work. The goal is to find the number that honestly answers whether the deal works.
We build revenue models using block-level comps, monthly seasonality, and occupancy assumptions at or below market median — not top-quartile performance. Then we stack the actual expense structure against that revenue.
STR expenses are categorically higher than long-term rental expenses, and most pro formas understate them. STR operating expenses typically run 30 to 70% of revenue compared to 35 to 40% for long-term rentals. At the high end of that range — which is realistic for a fully managed property with active turnover — a gross revenue figure of $70,000 could produce a net operating income closer to $35,000 before debt service.
The specific expense categories that catch investors off guard in Nashville: STR-specific property management fees (which typically run 20 to 30% of gross revenue, not the 8 to 12% long-term management rate), turnover cleaning and laundry, furnishing replacement reserves, platform fees of roughly 3%, property insurance priced for STR use, and the Davidson County occupancy and sales tax obligations that attach to every booking.
The exit analysis is the piece almost no one runs. Every STR investor eventually sells. When that happens, the permit does not transfer. The next buyer either needs to operate it as a long-term rental, plans to owner-occupy and pursue their own permit, or buys it for a use that has nothing to do with short-term rental income. This means the resale price of a Nashville NOO STR property is set by residential comparable sales — not by a cap rate applied to STR revenue. If the acquisition price can only be justified by STR income, and the resale buyer cannot replicate that income stream, you have paid too much. We model exit value against residential comps before the offer is submitted, not when the client decides to sell.
For buyers considering the full range of Nashville investment options, our Nashville short-term rental advisory covers the permit landscape, underwriting methodology, and acquisition strategy in detail. For those also evaluating high-end residential options alongside investment plays, our Nashville luxury real estate advisory often surfaces off-market and pre-market properties that never reach the public MLS.
What This Looks Like in Practice
A buyer approaches us with a four-bedroom property in East Nashville priced at $850,000. The listing mentions it is currently operating as an STR. Before we write anything, we confirm the zoning and determine that the property sits in an R zone — meaning the existing permit is the seller's permit, it will not survive the sale, and no new NOO permit is available. We then build a scenario analysis: could this property underwrite as an owner-occupied STR if the buyer plans to live there part of the year? Does the long-term rental income support the debt service without STR income? Does the residential resale comparable set support the $850,000 ask independent of STR use?
If the answers point toward a workable deal under one of those scenarios, we proceed. If the only scenario that works requires a permit the buyer cannot legally obtain, we tell the client that clearly and we do not write the offer. That is the advisory obligation. It is also why clients who work with us do not close on properties that become problems.
Clients interested in a full picture of Nashville's neighborhoods — including which areas offer the strongest STR positioning versus long-term hold value — can start with our Nashville neighborhood guides, which cover the specific market dynamics of each submarket we serve.
Frequently Asked Questions About Nashville STR Underwriting
Can I buy a currently active Nashville STR and keep operating it?
Not automatically. STR permits in Nashville are annual and non-transferable — they end on sale or any change of ownership entity. Buying a property that currently operates as an STR does not give you the seller's permit. You must apply for your own, and if the property is in a residential zone, a new non-owner-occupied permit is not available. Your eligibility depends on your ownership structure, residency plans, and the property's specific zoning classification. Confirm all of this before you make an offer, not after closing.
Which Nashville neighborhoods are most viable for non-owner-occupied STRs in 2026?
New non-owner-occupied permits are banned in nearly all residential zones, and buildable supply is locked to specific commercial, mixed-use, and downtown zones. In practical terms, this limits viable NOO acquisition to commercially zoned or mixed-use parcels, which are most commonly found near Downtown, SoBro, The Gulch, and select corridors in East Nashville and Germantown. Each property still requires individual zoning verification — zone classification alone is not sufficient. Overlay districts, proximity rules, and specific plan restrictions all apply.
How much does a Nashville STR actually net after expenses?
It depends heavily on the property and management structure, but the range is wide. STR operating expenses typically run 30 to 70% of revenue , and the Nashville market average sits around $43,000 in gross annual revenue per listing based on 2026 data. A fully managed property at the midpoint of that expense range might net $25,000 to $30,000 annually before debt service. Properties with strong block-level positioning, layout advantages, and lower management overhead can significantly outperform that figure. The key is building the model from real comps and real expenses — not from optimistic gross revenue projections.
What is the biggest permit mistake Nashville STR buyers make?
Nashville requires a permit from Metro Codes before listing on any platform — and if you list before the permit is in hand, you become ineligible to apply for one for a full year. That is the most damaging single mistake we see. The second most common is assuming the permit transfers with the property at closing, which it does not. Both errors are avoidable with pre-offer due diligence. Neither is forgivable at the offer stage.
Does Nashville's tourism growth actually support STR investment in 2026?
The demand side of the equation is genuinely strong. The Nashville Convention and Visitors Corp now projects 17.3 million visitors in 2025, the most in the city's history. Future years indicate steady growth to 18.1 million in 2027 when the new Nissan Stadium opens, and by 2033 Nashville is projected to exceed 20 million annual visitors. That structural demand supports the market over the long term. What it does not do is make every property a good investment. Supply constraints from the regulatory environment have actually helped stabilize occupancy for legally permitted operators, which is a genuine tailwind for buyers who underwrite correctly and acquire in viable zones.
The Decision You Are Actually Making
A Nashville STR acquisition is not a real estate transaction with a revenue kicker. It is an operating business acquisition that happens to involve real estate. The permit is your business license. The layout is your product. The block is your competitive market. The exit is your equity event. If you underwrite all four before the offer, you are making a real investment decision. If you underwrite one and call it done, you are guessing with a large check.
If you are evaluating a Nashville short-term rental acquisition — or trying to determine whether a specific property can legally and profitably operate as one — The Costigan Group can work through the permit, revenue, expense, and exit picture with you before you make a move. Our Nashville STR underwriting process is built to give buyers clear answers before the offer, not surprises after closing. Start at thecostigangroup.com.
Jack Costigan is the founder of The Costigan Group at Compass in Nashville, where his team has closed more than $100 million in real estate across Greater Nashville and Middle Tennessee. Specializing in luxury advisory, investment, and short-term rental real estate, Jack is known for a data-driven approach that helps buyers, sellers, and investors understand the numbers, the neighborhood, and the long-term value before making a decision. Featured in Apple News as one of Nashville's most sought-after short-term rental advisors, Jack pairs deep local expertise with modern marketing and a strategy-first approach to real estate. Learn more at thecostigangroup.com.
