Vacation Rental ROI Calculator

How to Calculate Vacation Rental Profitability

A vacation rental ROI calculator works through four key layers: revenue, platform fees, operating expenses, and financing costs. The foundation is Annual Gross Revenue = Nightly Rate × Occupancy Rate × Available Nights. Available nights are 365 minus your personal-use days. From this gross figure, you subtract platform fees (Airbnb takes roughly 3% from hosts; VRBO charges hosts 5%) to arrive at net revenue.

Operating expenses — cleaning, utilities, insurance, property management, maintenance reserves, HOA fees, property tax, and supplies — are then subtracted from net revenue to produce Net Operating Income (NOI). This number drives two key metrics: the cap rate (NOI ÷ purchase price), which benchmarks your asset return independent of financing, and cash-on-cash return ((NOI − annual mortgage payments) ÷ total cash invested), which measures the actual yield on your out-of-pocket dollars. According to AirDNA's methodology, a cap rate above 8% and a cash-on-cash return above 10% generally indicate a strong short-term rental market.

Key Metrics for Short-Term Rental Investors

Break-even occupancy is the single most important risk metric for STR investors. It tells you the minimum occupancy rate required to cover all expenses and mortgage payments. Properties with a break-even occupancy below 40% have a wide margin of safety; those above 60% are sensitive to seasonal slumps, regulation changes, or platform algorithm shifts.

Cap rate benchmarks vary by market type. According to AirDNA's 2025 STR State of the Industry report, top-performing vacation rental markets average cap rates of 6–12%, while oversaturated beach markets can fall below 4%. Urban STR markets (subject to 30-day minimum regulations) typically show 5–7%. A higher occupancy rate alone does not guarantee profitability if the nightly rate is too low relative to operating costs.

Total cash invested includes down payment, closing costs (typically 2–5% of purchase price), and renovation or furnishing budget. Skimping on initial setup often costs more in lower star ratings and reduced occupancy. Budget at least $5,000–$20,000 for furniture, photography, smart locks, and STR-grade supplies, depending on property size.

The 5-year projection applies a conservative 3% annual appreciation to the property value, matching the long-run average for US residential real estate. It compounds gross revenue at 2% annually to reflect modest rate increases over time, while equity builds through mortgage amortization. Last updated: May 2026

Vacation Rental vs Long-Term Rental — Which Earns More?

Short-term rentals typically generate 1.5× to 3× the gross revenue of long-term rentals in the same property, based on data aggregated from AirDNA's market research covering 10 million+ STR listings globally. However, operating expenses are substantially higher: cleaning costs alone often run $300–$600 per month for a two-bedroom property with 65% occupancy. Property management fees for STRs (20–35% of revenue) far exceed long-term management fees (8–12%).

The break-even point favors STRs in leisure-heavy markets (beach towns, ski resorts, national park gateways) where nightly rates are high relative to purchase prices. Long-term rentals have the advantage of predictable cash flow, lower management overhead, and immunity to regulatory bans on short-term rentals — a growing risk in cities from New York to Barcelona. Use this calculator's comparison table to enter your local long-term rent and see exactly which strategy generates more net cash flow for your specific property.

A hybrid strategy — renting long-term in shoulder seasons and short-term in peak periods — can outperform either pure strategy in markets with strong seasonality, though it adds operational complexity and may affect platform algorithm ranking.