Many people look at an Airbnb pulling in $6,000 a month and immediately think it is a great deal. But revenue is not profit. After personally operating a short-term rental, I can tell you the number that matters most is the cash flow that actually stays in your pocket after every expense — and that number is usually far lower than the initial expectation.
This article helps you analyze an STR's cash flow honestly, so you are not caught off guard after you buy.
Step 1: Estimate Revenue Conservatively
STR revenue depends on two things: nightly rate and occupancy rate. Do not take your peak-season numbers and multiply by 12. Instead:
- Look at real data from comparable properties in the area across the full year.
- Assume a realistic occupancy rate, which is often lower than you think, especially in the off-season.
- Average across the whole year, not just summer or holidays.
A safe rule: run the math with a conservative revenue figure, then see whether the property still works.
Step 2: List All Fixed Costs
These are the costs you pay whether or not you have guests:
- Monthly loan payment (principal and interest).
- Property taxes.
- Insurance — note that STR insurance is typically more expensive than standard homeowners insurance.
- HOA fees, if any.
- Basic utilities: internet, electricity, water, gas.
Step 3: Do Not Overlook Operating Costs
This is where many people underestimate:
- Cleaning: Every guest checkout requires a turnover clean, and this adds up quickly.
- Platform fees: Airbnb and other platforms take a percentage of each booking.
- Consumables: Toilet paper, soap, coffee, small items that break.
- Maintenance and repairs: Furnishings wear out faster than in a long-term rental.
- Management: If you hire a management company, they often take 15–25% of revenue.
Step 4: Set Aside a Reserve Fund
Experienced investors always reserve a portion of revenue for large, infrequent costs: roof, HVAC, replacing furniture. Skip this and you may think you are profitable when you are really just deferring costs.
A Simple Cash Flow Formula
Cash flow = Net revenue − (Loan payment + Fixed costs + Operating costs + Reserves). If the final number is positive and you are comfortable with it, the property has potential. If it is negative or too thin, reconsider.
Cash Flow and Your Loan
With certain investment loans such as a DSCR loan, the lender evaluates the property's own cash flow ability to service the debt. Understanding your cash flow not only helps you make a smart decision but also helps you prepare a stronger loan file. Actual results may vary and nothing is guaranteed; the figures here are illustrative only.
If you would like to walk through a specific cash flow analysis together and explore the loan options that fit, reach out to William for a free consultation. I am glad to help you look at the numbers realistically before you commit.