Buying in Carmel-by-the-Sea in 2026 Means Underwriting a Range

Jacob Mishalanie
5 days ago
10 min read

Sunset at Carmel River State Beach meeting the Pacific, Carmel-by-the-Sea photograph

A buyer evaluating a Carmel-by-the-Sea short-term rental in 2026 is going to run into two numbers that don't agree, and how they handle that disagreement says a lot about whether the rest of their underwriting is going to be sound. AirROI puts this market's typical year at $91,583; AirDNA puts it at $122.7K. That's roughly a 34% spread, and neither figure is fabricated or obviously wrong — they're just measuring overlapping but not identical listing pools over slightly different windows.

The mistake isn't picking one number over the other. The mistake is picking whichever one makes the deal pencil, or worse, averaging the two into a false middle that neither source actually supports. This post is about underwriting this specific year's range honestly, filing Carmel Point's separate $157,376 figure where it belongs, and confirming the legal groundwork before any of the revenue math matters at all.

This is not legal advice or financial advice — it's a framework for reading the market data correctly before a buyer brings their own numbers to a lender or an agent.

Underwrite the Range, Not a Single Number

The honest starting point for a Carmel-by-the-Sea acquisition is $91,583 to $122.7K in annual revenue, reflecting the real disagreement between AirROI's and AirDNA's most recent extracts. A buyer building a pro forma off the high end alone is setting themselves up for disappointment if the property performs closer to the low end; a buyer using only the low end may pass on a deal that actually performs better than that.

A more disciplined approach treats the gap itself as information: AirROI shows lower occupancy (45.9%) with a higher rate ($688 ADR), while AirDNA shows higher occupancy (66%) with a lower rate ($594 ADR). A specific property's realistic performance depends on which pattern it's more likely to follow — a premium, lower-turnover cottage leans toward the AirROI pattern, while a more broadly booked property may track closer to AirDNA's. Reading the underlying pattern, not just the headline number, produces a more grounded estimate than either figure alone.

It's also reasonable to build a sensitivity range into any pro forma rather than a single point estimate — model the deal at the low end of the range, the high end, and a midpoint, and see how the return profile changes across all three. A property that only pencils at the high end of a 34%-wide range is a materially riskier bet than one that still works reasonably well even at the low end.

Carmel Point's $157,376 Is Not a Village Comp

Carmel Point is a separate, unincorporated Monterey County geography adjacent to the village, with its own AirROI figure of $157,376 at 53.4% occupancy. That number describes different parcels, often larger homes, and a different jurisdiction entirely — not the incorporated City of Carmel-by-the-Sea. A buyer using it as a comp for a village parcel is working from the wrong file, and a seller or agent presenting it as a comparable for a village property should be pressed to confirm the parcel is actually inside city limits.

This distinction should be verified at the parcel level, not assumed from the listing's marketing description or neighborhood label. Confirm the property sits inside the incorporated City of Carmel-by-the-Sea boundary before using any of this post's revenue figures — the wrong boundary produces the wrong entire underwriting model.

The same caution applies to any other neighboring geography that might get folded into a Carmel-by-the-Sea comp set — Pebble Beach, 17-Mile Drive, or unincorporated pockets of Monterey County near the village. Each of these has its own zoning framework, its own permit desk, and often its own distinct performance profile. A comp set built loosely around 'Carmel area' rather than the specific incorporated city boundary is a comp set built on the wrong foundation.

Entry Cost and Gross Yield Reality

Entry cost for a Carmel-by-the-Sea property should be verified through current sales data or a recent home-value index at the time of purchase — this post does not guess a median price, and neither should a buyer's underwriting. What can be said in general terms: high-ADR markets like this one often produce a gross yield that looks thin relative to purchase price, even when the underlying revenue figure is solid in absolute dollar terms, because entry cost tends to track the same premium positioning that drives the ADR.

A buyer should be honest about that math rather than assuming a high ADR automatically implies a strong yield. Run the actual entry price against the realistic revenue range above, net of expenses, before assuming the deal works — a strong top-line number doesn't guarantee a strong return once purchase price is factored in.

Operating expenses in this market deserve the same scrutiny as revenue. Transient occupancy tax at 10 percent of rent charged, per Carmel Municipal Code 3.32.020, is a fixed cost of legal operation that should be built into the model from the start, along with realistic maintenance, cleaning, and property management costs appropriate to a premium cottage market rather than a lower-cost market elsewhere.

The Legal Question Comes Before the Revenue Question

None of the revenue analysis above matters if the parcel can't legally operate as a short-term rental. Carmel-by-the-Sea prohibits transient rentals — stays under 30 consecutive days — in R-1 single-family zones, which cover most of the residential village. Narrower pathways exist in commercial and R-4 zones through a Legal Nonconforming permit predating 2019 or a Housing Incentive conditional use permit tied to new rental housing.

A buyer should confirm zoning and, where applicable, verify any existing permit directly with the City of Carmel-by-the-Sea before closing — not assume legality from the fact that the current owner has been operating a listing without apparent issue. This is the single highest-leverage piece of due diligence in this specific market, more consequential than the revenue-range question above, because a property that can't legally operate as a short-term rental has to be underwritten as a long-term rental or personal-use property instead, with an entirely different return profile.

A Worked Sensitivity Scenario

It's worth walking through what the sensitivity-range approach described above actually looks like in practice, without guessing specific new dollar figures beyond what this market's own data already provides. A buyer models the deal three ways: once using AirROI's $91,583 figure, once using AirDNA's $122.7K figure, and once at a rough midpoint, then asks a simple question of each version — does this purchase still make sense at the low end, or does it only work if the property performs at or above the high end of a range two credible sources already disagree on by roughly a third?

A deal that only pencils at $122.7K is a deal that requires the property to outperform AirROI's read of this market by a meaningful margin, with no property-specific evidence yet that it will. That's a materially different risk posture than a deal that still produces an acceptable return even at $91,583 — the AirROI reading — with the AirDNA figure representing genuine upside rather than a baseline assumption the purchase depends on.

This same sensitivity exercise should extend to occupancy and rate separately, not just the blended annual figure. A buyer should ask whether their specific property is more likely to behave like AirROI's pattern — higher rate, lower occupancy, consistent with a premium, lower-turnover cottage — or AirDNA's pattern — lower rate, higher occupancy, consistent with a more broadly booked property. That judgment, informed by the property's actual size, condition, and position within the village, is a more useful underwriting input than treating the two figures as interchangeable options to pick from.

Common Mistakes Buyers Make in This Specific Market

Beyond averaging the two revenue figures or borrowing Carmel Point's number, a few other mistakes show up repeatedly in how buyers approach this market. One is treating the current owner's asking-price justification as underwriting rather than marketing — a seller's pro forma, especially one built to support a specific listing price, has every incentive to lean toward the optimistic end of the range or toward Carmel Point-adjacent comps, and a buyer should rebuild the numbers independently rather than accepting a seller-provided model at face value.

A second common mistake is underestimating how much a property's condition and furnishing level affect where it actually lands within the range, treating the $91,583-to-$122.7K spread as though every Carmel-by-the-Sea property has an equal shot at the high end regardless of its own specific quality. A dated, under-furnished cottage is a weaker candidate for AirDNA's more optimistic pattern than a recently updated, well-styled property in a strong village location — the range describes the market, not a guarantee for any specific parcel within it.

A third mistake, particularly for a buyer new to this specific town, is underestimating how much weight the zoning question should carry relative to the revenue question. It's tempting to spend most of the due-diligence effort refining the financial model since that feels like the more analytically rigorous part of the process, while treating the zoning confirmation as a quick formality. In this market specifically, that balance should flip — the zoning question is binary and can eliminate the deal entirely, while the revenue question is a range to be managed, not a pass-fail test.

Who This Deal Is Wrong For

This market is a poor fit for a buyer trying to file a neighbor's year onto this parcel — someone assuming Carmel Point's higher figure applies here, or assuming a Monterey County unincorporated permit transfers into the incorporated city. It's also a poor fit for a buyer skipping the zoning confirmation step described above because a listing platform shows the property as an active, apparently thriving rental.

It's a reasonable fit for a buyer willing to underwrite conservatively against the real range, confirm the legal pathway directly with the city, and treat the property's own eventual trailing-twelve-month performance, once it exists, as the number that ultimately matters more than either public aggregator estimate.

It's also a reasonable fit for a buyer who has already worked through a similar process elsewhere and understands that a small, high-ADR, zoning-restricted market rewards patience in the underwriting phase — pulling current sales data, confirming zoning directly, and modeling a real sensitivity range — over speed in getting an offer in. A buyer moving quickly on a property in this specific market without having done that groundwork is taking on meaningfully more risk than the deal's surface-level appeal might suggest.

Once the Deal Closes, the Range Becomes the Target

Underwriting a purchase against the $91,583-to-$122.7K range doesn't end the buyer's relationship with that range once the deal closes — it becomes the benchmark the property is now expected to perform against. A new owner's first full year of operation is the point where the aggregator range finally gets tested against something concrete: this specific property's actual trailing revenue, occupancy, and rate.

That first-year performance matters for more than curiosity. It tells a new owner whether their property is tracking closer to AirROI's pattern or AirDNA's, which informs everything from second-year pricing strategy to how the listing itself should be marketed going forward. A property landing near the low end of the range in its first year is a signal to look hard at the listing's positioning and marketing — the fixes covered elsewhere in this content cluster — rather than simply accepting the low end as the property's permanent ceiling.

Frequently Asked Questions

Should I buy an Airbnb in Carmel-by-the-Sea?

That depends on whether the parcel is confirmed legal to operate as a short-term rental and whether the purchase price still works against a realistic $91,583-to-$122.7K revenue range rather than the high end alone. Confirm zoning with the City of Carmel-by-the-Sea before evaluating the revenue math at all.

What revenue should I underwrite for a Carmel-by-the-Sea rental purchase?

The honest range is $91,583 (AirROI) to $122.7K (AirDNA), reflecting a real roughly-34% disagreement between the two sources on occupancy and rate. Don't average the two into a false middle figure — underwrite conservatively within that range based on the specific property's likely booking pattern.

Can I use Carmel Point's $157,376 figure as a comp for a Carmel-by-the-Sea property?

No. Carmel Point is a separate, unincorporated Monterey County geography with its own distinct AirROI figure. Confirm the parcel actually sits inside the incorporated City of Carmel-by-the-Sea before using any village-specific revenue figures in your underwriting.

What's the biggest risk in buying a Carmel-by-the-Sea short-term rental?

Assuming legal operation without confirming zoning directly with the city. Most residential parcels sit in R-1 zones where transient rentals are prohibited outright, and an active-looking listing on the property is not proof of legal compliance — it's information a buyer needs to verify independently.

Does a high ADR guarantee a good return in this market?

Not automatically. Entry cost in high-ADR markets like Carmel-by-the-Sea tends to track the same premium positioning that drives the rate, which can produce a thin gross yield even when the top-line revenue figure looks strong. Run the actual purchase price against the realistic revenue range before assuming the deal pencils.

What permits allow a short-term rental in Carmel-by-the-Sea?

A Legal Nonconforming permit issued before Ordinance 2019-03, which runs with the land, or a Housing Incentive conditional use permit tied to new rental housing construction — both limited to commercial and R-4 zones, not the R-1 residential zones covering most of the village.

Should I trust a seller's claim that a property is a legal short-term rental?

Verify it independently with the City of Carmel-by-the-Sea rather than relying on the seller's representation alone. A property that has been operating without apparent issue is not the same as one confirmed compliant, and this confirmation should happen before closing.

Is Monterey County's vacation-rental license the same as Carmel-by-the-Sea's permit system?

No. Monterey County's unincorporated vacation-rental license, which governs areas like nearby Carmel Point, is entirely separate from Carmel Municipal Code 17.14.040.W, which governs the incorporated City of Carmel-by-the-Sea. Confirm which jurisdiction actually governs the specific parcel.

How do I estimate entry cost for a Carmel-by-the-Sea rental property?

Verify current sales data or a recent home-value index at the time of purchase rather than relying on an assumed or averaged figure. This post does not provide a specific entry-cost number, since it varies significantly and should be confirmed against current market data.

What should I bring to a lender or agent conversation about a Carmel-by-the-Sea purchase?

A clear-eyed revenue range rather than a single cherry-picked figure, confirmation of the parcel's zoning and permit status, and — once available — the property's own trailing-twelve-month performance data, which is more reliable than either public aggregator estimate once it exists.

Work with Crest & Cove Creative

A buyer who underwrites Carmel-by-the-Sea against the wrong number, or the wrong geography entirely, is setting up a deal that looks better on paper than it will in practice. The range and the zoning both matter before the math does.

Crest & Cove Creative helps buyers turn a confirmed-legal Carmel-by-the-Sea property into a listing that performs — ask us for a marketing audit once your underwriting and permit groundwork are settled. Name the failure mode the guest can check on the listing.

Reach out at crestcove.co or (256) 998-7502.