STR Investment ROI Calculator (Cap Rate / Cash-on-Cash / IRR)

How this calculator works

Acquisition-stage underwriting for a vacation rental investment requires four metrics that operators, lenders, and institutional buyers all reference: net operating income (NOI), cap rate, cash-on-cash return, and internal rate of return (IRR) over the planned hold period. This calculator computes all four from a single set of property and operating assumptions, plus the breakeven occupancy as a safety-margin gauge.

The core identity stack:

gross revenue = nightly rate times occupancy times 365 days times (1 minus cancellation rate)

net operating income = gross revenue minus operating expenses (channel commission, variable per-booking cost, fixed monthly stack times 12, maintenance reserve at percentage of property value)

cap rate = NOI divided by purchase price

cash-on-cash return = (NOI minus annual debt service) divided by total cash invested

IRR = the discount rate that sets the net present value of all cash flows to zero, computed over the full hold period including the terminal sale

The terminal value at end of hold is estimated by capitalizing the final-year NOI at the exit cap rate, then subtracting selling costs (default 6% — agent plus closing) and the remaining mortgage balance. The IRR cashflow stream is the year-0 outflow (cash invested), year 1 through N inflow (annual cash flow after debt), and the year-N terminal inflow.

The mortgage amortization uses the standard fixed-rate fully-amortizing formula over 30 years. Year-by-year remaining balance is computed via the closed-form amortization formula so the terminal-value calculation correctly nets the loan paydown over the hold.

The breakeven occupancy solves for the minimum occupancy at which NOI exactly covers debt service. The gap between projected occupancy and breakeven occupancy is the operator's margin of safety — the cushion that absorbs adverse occupancy shocks before the property turns cash-flow negative.

The framework — institutional STR underwriting decomposed

Four return metrics, each measuring something different:

Cap rate is the unleveraged yield. It strips out the financing structure and measures the property's earning power as-if-paid-all-cash. Used for comparing properties against each other at acquisition. STR cap rate benchmarks: 5-7% in primary urban markets (Nashville, Austin, Charleston, downtown major cities), 7-9% in secondary markets (Outer Banks, Lake Tahoe, Smokies, beach towns), 9-12% in tertiary cabin / off-grid / specialty markets where the cap rate compensates for occupancy and management risk.

Cash-on-cash return is the leveraged yield. It measures the return on the cash the operator actually puts in. Used for comparing STR investment against other cash deployments. At 25% down with standard mortgage rates, year-1 cash-on-cash of 8-12% is competitive. Below 6-8% means financing is consuming most of the operating yield. Above 18% usually means the underwriting is too optimistic.

IRR over hold period is the time-weighted return including the terminal sale. It captures the compounding effect of holding the property and selling later, including any appreciation captured in the exit value. Standard 10-year holds on well-underwritten STR properties produce IRRs in the 10-18% range; aggressive underwriting or markets with material cap-rate compression at exit can push higher; cap-rate decompression risk (exit cap above entry) can pull IRR significantly lower.

Breakeven occupancy is the floor. The operator's actual occupancy must exceed it for the property to cover debt service. The buffer between projected and breakeven occupancy is the underwriting safety margin. A property projected at 65% with a 45% breakeven has a 20-percentage-point cushion — comfortable. A property at 65% projected with a 60% breakeven has only a 5-point cushion — fragile.

The four metrics tell different stories. A property can have a strong cap rate but weak cash-on-cash if the mortgage rate is high. A property can have strong cash-on-cash but mediocre IRR if there's no terminal appreciation. A property can have strong IRR but a tight breakeven if the underwriting assumes aggressive occupancy. Underwrite all four, not just one.

Inputs explained

Purchase price. Contract price for the property. Closing costs (default 3%) and initial FF&E (default $30K for a 3-bedroom STR) are modeled separately on top of the purchase price.

Down payment. Conventional STR financing requires 20-25% down (versus 5-10% for primary residence). Portfolio lenders sometimes go to 30%+ on STR loans. Higher down payment lifts cash-on-cash by reducing debt service but lowers leverage and IRR.

Mortgage rate. STR loans typically price 50-100 basis points above primary-residence rates because the property is treated as commercial-use. Verify against current rate sheets from STR-specialized lenders.

Average nightly rate and occupancy. Pull from AirDNA market data for comparable properties or from seller-provided historical data if buying an operating STR. Underwrite at the LOWER of seller-claimed and market-average; new listings should underwrite at 60-70% of market-average for year one.

Cancellation rate. 5-10% for strict-cancellation listings; 25-40% for flexible-cancellation listings (more common on Booking.com).

Average length of stay. Drives the bookings-per-year calculation, which sets the variable cost line. Urban 2-3 nights, beach / ski 4-7, monthly 28+.

Monthly fixed costs. Combined: HOA dues, monthly property tax accrual, monthly hazard insurance accrual (use the STR-endorsed premium), utilities. $800-$2,500 per month for a typical single-family STR; $1,200-$4,000+ for a beach condo with HOA.

Variable cost per booking. Cleaning labor plus supplies plus welcome amenities plus extra-guest fees. $100-$200 for 2-3 bedroom; $200-$400 for 4-6 bedroom luxury.

Channel commission. Blended host-side commission. Airbnb host-only ~15%, Vrbo ~5%, Booking.com ~15%, direct booking 0%. Multi-channel properties use a blended rate weighted by booking mix.

Target cap rate. The cap rate the operator is underwriting against. Calculator flags whether projected cap clears the target. Set conservatively for the market band — primary 6-7%, secondary 8-9%, tertiary 10-12%.

Maintenance reserve. Annual capex accrual as % of property value. 1% for an updated property, 1.5-2% for an older one.

Hold period. Years until sale. Drives the IRR calculation. Standard: 5-7 years opportunistic, 10 years institutional benchmark, 15+ years legacy hold.

Exit cap rate. Used to compute terminal value. Standard convention: exit cap equal to or 50-100bp above entry cap (cap-rate decompression risk).

Revenue and expense growth. Annual growth rates over the hold period. Defaults 3% match long-run inflation. Hot markets early in growth phase support 5-8% revenue growth; mature markets in commodity decline run 1-2%.

Industry benchmarks

The standard data source for STR market-level investment data is AirDNA Investment Explorer — provides market-level ADR, occupancy, revenue, and implied cap rate by market and property type. Used by operators, lenders, and institutional buyers for STR underwriting.

AirDNA Market Reports and Key Data (the professional-manager STR data co-op) cross-reference each other. AirDNA covers Airbnb and Vrbo listings globally with property-level data; Key Data has deeper data on PM-managed properties but narrower coverage. Self-managed operators typically use AirDNA; PM-managed portfolios use Key Data.

Institutional cap-rate benchmarks for STR are tracked by CBRE Hotels and Short-Term Rentals research, Marcus & Millichap STR market reports, and Cushman & Wakefield Lodging Brief. These reports lag by 6-12 months but provide the institutional-investor consensus on cap-rate bands by market and property type.

Typical cap rate bands by market (representative; verify against current data):

Primary urban STR markets (Nashville, Austin, Charleston, downtown major cities): 5-7% cap. Demand is steady, regulatory environment is tightening, comp set is well-tracked. Cap rates compress because the market is well-understood and competitive.

Beach and ski markets (Outer Banks, Destin, Park City, Lake Tahoe, Smokies): 7-9% cap. Seasonality and operational complexity warrant a premium. Cap rates expand at the seasonal edges (off-peak markets command higher caps than year-round destination markets).

Tertiary cabin / off-grid / specialty markets (Hocking Hills, regional lake destinations, rural cabins, novelty rentals): 9-12% cap. High cap rate compensates for occupancy risk, management complexity, and the smaller comp set.

Cash-on-cash benchmarks track the leverage premium over cap rate. At 25% down with mortgage rates 100-150bp above prime, expect 1.3-1.6x leverage premium — a 7% cap typically produces 9-12% cash-on-cash. At higher down payments or lower mortgage rates, the leverage premium shrinks.

IRR benchmarks for a 10-year hold: 10-15% on conservative underwriting, 15-20% on moderate, 20%+ requires either exceptional operational execution or aggressive assumptions on exit value. IRRs above 25% almost always reflect over-optimistic underwriting; verify the assumptions against downside scenarios before relying on the headline number.

What this calculator does NOT model

Depreciation and federal income tax. The calculator computes pre-tax NOI, cash flow, and IRR. Federal income tax depends on the operator's Schedule E / Schedule C classification (substantial-services test), the 27.5-year residential depreciation schedule (39 years if Schedule C), the passive-activity loss limits under IRC § 469, and the operator's overall tax situation. After-tax returns can be materially better than pre-tax for operators who can use the depreciation shield against passive income or as a real estate professional. Consult a tax advisor before relying on after-tax assumptions.

Cost segregation acceleration. Cost-segregation studies can accelerate depreciation on building components (carpet, appliances, land improvements, certain finishes) over 5, 7, or 15 years instead of 27.5. The accelerated deduction lifts after-tax IRR materially in the first 5-7 years of the hold. The calculator does not model cost-seg; the after-tax uplift is operator-specific.

1031 exchange exit. A 1031 like-kind exchange at sale defers the capital gains tax on the appreciation, allowing the operator to roll proceeds into a new property without the tax friction. The calculator assumes a taxable sale at exit; a 1031-exchange exit improves the operator's effective after-tax IRR by 200-400bp depending on the property's basis and gain.

Refinance during hold. Many operators refinance during the hold period to extract equity (cash-out refi) or reduce debt service (rate-and-term refi). The calculator assumes a single mortgage held throughout. Operators planning to refinance should run the calculator twice — once with the original mortgage, once with the post-refi structure — and treat the cash-out proceeds as a positive cash flow in the refi year.

Special-assessment risk on HOA properties. Condos and HOA-governed properties carry the risk of special assessments for capital projects (roof replacement, building envelope, structural). The calculator includes a maintenance reserve but does not model special-assessment risk. Properties in older condo buildings (pre-2000) should add a 0.5-1% special-assessment reserve on top of the maintenance reserve.

STR regulatory risk. Many jurisdictions cap STR licenses or prohibit non-owner-occupied STRs entirely (New York City, San Francisco, parts of New Orleans, parts of Honolulu). The calculator does not model the regulatory risk. Properties in regulatory-uncertain jurisdictions should underwrite at a lower exit cap (the buyer pool shrinks if STR is restricted at exit) or with a regulatory contingency plan (convert to MTR or LTR).

Property management transition. Operators transitioning from self-management to a full-service PM company (or vice versa) face material cost-structure changes. Full-service PM typically takes 20-30% of gross plus the platform commission, so a self-managed Airbnb at 15% commission becomes a 35-45% combined peel under PM. The calculator's channel-commission field can be increased to model the PM layer.

Year-over-year occupancy ramp on new listings. New listings typically achieve 60-70% of market-average occupancy in year one and ramp toward market over 18-24 months. The calculator's revenue-growth input lets the operator model this directionally (set year-1 occupancy lower and use a higher revenue-growth rate for the first 2-3 years), but the calculator does not auto-curve the ramp.

Sources

• AirDNA Investment Explorer — STR market-level investment data; the standard underwriting source.
• AirDNA Market Reports — market-by-market occupancy, ADR, and RevPAR benchmarks.
• Key Data — professional-manager STR data co-op with property-level historical data.
• CBRE Hotels and Short-Term Rentals research — institutional cap-rate benchmarks by market and property type.
• Marcus & Millichap STR Market Reports — capital-markets perspective on STR underwriting.
• Cushman & Wakefield Lodging Brief — quarterly lodging-market overview including STR segment.
• IRS Publication 527 — federal income tax treatment of residential rental property.
• Standard real-estate underwriting formulas: NOI, cap rate, cash-on-cash, IRR via DCF with terminal value.
• Standard fixed-rate fully-amortizing mortgage formula for monthly P&I and remaining-balance calculation.

Last reviewed: 2026-05-16 against the AirDNA Investment Explorer current-edition market data, Key Data professional-manager benchmarks, CBRE, Marcus & Millichap, and Cushman & Wakefield STR market reports for institutional cap-rate consensus, and the standard real-estate investment underwriting framework.