Most new STR investors either overanalyze deals into paralysis or skip the numbers entirely and buy on vibes. Here are the five metrics that actually determine whether a short-term rental will make you money.
1. Gross Rental Revenue (Annual)
This is the total income the property can generate in a year at realistic occupancy. Use AirDNA, Mashvisor, or PriceLabs market data to estimate this. Don’t use the seller’s numbers. Don’t use Zillow’s rent estimate (that’s for long-term rentals).
A good sanity check: in most markets, a well-optimized STR should gross 1.5-2.5x what the same property would rent for long-term.
2. DSCR (Debt Service Coverage Ratio)
Gross revenue divided by total annual debt service (mortgage + taxes + insurance + HOA). You want 1.25 or higher. At 1.0, you’re breaking even on cash flow. Below 1.0, you’re losing money every month.
3. Cash-on-Cash Return
Annual net cash flow divided by total cash invested (down payment + closing costs + furnishing + startup costs). Target 15%+ for STRs. If you’re below 10%, the deal probably isn’t worth the extra work compared to a long-term rental.
4. Average Daily Rate (ADR)
Your average nightly price. This tells you where your property sits in the market. Compare it to comps within a 1-mile radius with similar bedroom counts. If your projected ADR is significantly above the market average, you’re being too optimistic.
5. Occupancy Rate
Percentage of available nights that are booked. New listings typically run 40-55% in year one while they build reviews, then stabilize at 60-75% in most markets. Don’t underwrite at 80%+ unless you have data to support it.
The Quick Filter
Before you dive deep into any deal, run this 30-second test: Can the property gross at least 1% of the purchase price per month? If a $300,000 property can’t reasonably gross $3,000/month, move on. This isn’t a hard rule, but it filters out 80% of bad deals fast.
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