I would propose a better way of evaluating real estate and that is to take the difference between the CAP rate and prevailing interest rate and use that to evaluate whether something is a deal or not.D = CAP - %APRThis would allow you to calculate the spread which is directly related to your debt assisted profitability (like a cash on cash return).You can vary what “D” you will accept based on the normal factors you would consider when thinking of the CAP rate (location, building type, number of units, financing, deferred maintenance, etc).You could also rearrange the equation to calculate the CAP to search for opportunities and how to offer for property:CAP = D + %APRIn this case, you can actually figure out the CAP by knowing the “D” you want to get for a given location, building type, etc and understanding the financing available to you and other investors for the opportunity.Any reason this is an inferior approach to CAP rate or cash on cash return?

There also is a need for STR owners to start fighting these proposed restrictions.

He walked the property and made the proposal.

The above comments are good input, but there some banks that will do construction loans based on the merits of the project (as constructed value) rather than your income. you will need to write a formal proposal (but i assume you did that for your previous loan).   

Legislation will always be proposed.

DSCR stands for Debt Service Coverage Ratio, basically it is the lease on the subject property versus the proposed PITI payment.

By getting the word out publicly, we got the city to water down the proposal somewhat.

My one worry in this area is that a law passed that doesn’t allow credit score to be taken into account, and there have been some proposed at the state level (so far nothing has passed).

But I do know the proposal is only sent to a select group of investors they have worked with before. 

I'm going to put together a proposal of different properties and cashflow possibilities.