Financial Analysis for Short-Term Rental Properties

A property will make money as a short-term rental if a conservative revenue estimate, built from comparable listings near it, covers every operating cost and the mortgage with occupancy to spare above break-even. In the worked example below, a $375,000 house projected at 63% occupancy keeps $7,190 a year before income tax, a 5.5% cash-on-cash return, and breaks even at 53% occupancy. The same house loses $11,828 a year if a manager takes 25% of revenue, and six off-season months lose money even without one, so test the deal month by month as well as for the year.

Step 1: Project revenue from comparable listings

Two figures drive revenue. Average daily rate (ADR) is booked revenue divided by booked nights, and occupancy is booked nights divided by the nights available.

1. Pick comparable listings, or comps: same bedroom count and guest capacity, similar bathrooms and amenities such as a hot tub or parking, close by, and booked with reviews over the past 12 months.
2. Record each comp's ADR and occupancy for each month, from a paid data service such as AirDNA or PriceLabs. A listing's public calendar does not show whether a blocked night was booked or held by the owner, or what the guest paid, so it cannot stand in for these figures. Analyzing markets for short-term rental investment compares the data sources and covers how to pick the market before you test one address in it.
3. Use each month's 25th percentile, the level a quarter of the comps fall below, as your conservative case, after dropping comps with features you will not match.
4. Count the cleaning fees guests pay as revenue, and leave out lodging taxes. Airbnb leaves the occupancy taxes it collects and remits out of the gross amount it reports to you, so they are not part of your revenue.
5. Apply local limits. Los Angeles, for example, allows short-term rentals only in the host's primary residence and caps a regular registration at 120 days a year. A projection for a house you will not live in is not usable there, and one above 120 nights needs the city's extended registration.

The worked example uses assumed figures, not data from a real market: a three-bedroom house whose comps' 25th-percentile months add up to 231 booked nights (63% occupancy) and $76,070 of revenue including cleaning fees, or $329 per booked night. If you open in a slow month with no reviews yet, budget the first season below these figures.

Step 2: Model every expense

The amounts below are the example's inputs. Replace each one with quotes and bills for your property.

Airbnb's single fee takes 15.5% from most hosts, deducted from the payout, and Airbnb is moving all home hosts to it from the split fee, which charges most hosts 3% and guests a separate service fee. The example charges the 15.5% on all revenue, cleaning fees included, and assumes you manage the property yourself. Add HOA dues, permit and registration fees, and lodging-tax filing costs where they apply.

Up-front cash is a separate count: a $93,750 down payment (25%), $11,250 of closing costs (3%), and $25,000 for furniture, linens, and setup, for $130,000 in all.

Step 3: Figure NOI, cash flow, cash-on-cash return, and break-even occupancy

Net operating income (NOI) is revenue minus operating expenses, before the mortgage: $76,070 - $44,112 = $31,958.

Debt service is the year's mortgage payments. Freddie Mac's weekly survey put the average 30-year fixed rate at 7.32% on October 22, 2026, but that average describes owner-occupied home purchases with 20% down and good credit, not loans on rentals. The example assumes 8.0%; use your lender's quote. A $281,250 loan at 8.0% for 30 years costs $2,064 a month, or $24,768 a year.

Cash flow is NOI minus debt service: $31,958 - $24,768 = $7,190.

Cash-on-cash return is the year's cash flow divided by the cash you put in: $7,190 / $130,000 = 5.5%. Cash-on-cash return explained covers how to judge that figure.

Debt service coverage ratio (DSCR) is NOI divided by debt service: $31,958 / $24,768 = 1.29. If you plan to finance with a DSCR loan, ask the lender to run its own version of the ratio on this property and to say how it counts short-term rental income.

Break-even occupancy is the share of nights you must book to cover all costs:

1. Fixed costs, which do not change with bookings: utilities, software, property tax, insurance, and the mortgage, $38,133 a year.
2. What each booked night adds after its own costs: the $329 average, minus the 23.5% of revenue that goes to the platform fee and the two reserves ($77), minus per-stay cleaning and supplies of $195 spread over 3.5 nights ($56), leaves $196.
3. Break-even nights: $38,133 / $196 = 195 nights, or 53% of the year.

The projection sits 10 percentage points above break-even, and each point of occupancy is worth about $716 a year (3.65 nights at $196). If break-even occupancy is at or above the comps' 25th-percentile occupancy, the property loses money in a weak year.

Step 4: Test the assumptions that change the answer

• Management. A full-service manager at 25% of revenue costs $19,018 a year, turning $7,190 of cash flow into an $11,828 loss. Using the monthly rates in Step 5, break-even would take 347 booked nights (95%), with every month full except January, because most of the added nights would sell at off-season rates. Self-managing vs hiring a short-term rental manager compares what co-hosts and managers charge with the hours you would spend.
• Interest rate. At 7.0% instead of 8.0%, the payment drops to $1,871 a month and cash flow rises to $9,506.
• Occupancy. Five points below the projection costs about $3,580 a year and leaves roughly $3,600 of cash flow.

Step 5: Check cash flow month by month

Each month's costs are one-twelfth of the fixed costs ($3,178) plus that month's platform fee, reserves, and turnover costs.

Rows are rounded to the dollar. November through April run about $4,100 short in total before summer bookings make it up. Hold at least that much in cash on top of the repair reserve, and more if you close in the fall, when the slow months arrive before the listing has reviews.

The example stops before income tax. Depreciation and the other deductions in the short-term rental tax guide can make taxable income lower than cash flow, and starting an Airbnb business covers the setup steps once a property passes these tests.