Find out whether your property could earn more as a short-term rental than sitting empty or renting long-term. Enter your nightly rate, estimated occupancy, and monthly expenses to see net profit, break-even occupancy, and cap rate — all updated in real time.
Pro tip: Most Airbnb markets see 55–70% occupancy. Cleaning costs and platform fees eat into revenue faster than most hosts expect — run the numbers before you list.
How to Evaluate Short-Term Rental Profitability
Before listing a property on Airbnb, VRBO, or any short-term rental platform, you need a clear picture of the financial reality. Start with your expected nightly rate — research comparable listings in your area to find a realistic number. Then estimate your occupancy rate. New listings typically see 40–55% occupancy in the first few months, climbing to 60–75% once reviews accumulate and search ranking improves. Multiply nightly rate by 30.4 days (the average month length) by occupancy to get gross monthly revenue.
From that gross figure, subtract every expense you can identify: mortgage or rent, property taxes, insurance, utilities, cleaning between guests, consumable supplies, platform fees, and management costs. What remains is your net operating income — the number that determines whether your rental is a viable business or an expensive hobby.
Understanding Platform Fees and Hidden Costs
Airbnb charges hosts a service fee of approximately 3% per booking (under the split-fee model) or up to 14–16% under the host-only pricing model. VRBO typically charges 5% of the subtotal plus a payment processing fee. These percentages apply to the total booking amount including cleaning fees, so the effective bite is larger than it first appears. Beyond platform fees, factor in credit card processing (usually 2.9% + $0.30), dynamic pricing tool subscriptions, professional photography, channel manager software, and occasional guest damage that falls outside insurance coverage.
Short-Term Rental Insurance Requirements
Standard homeowner’s insurance policies typically exclude coverage for commercial activity, which includes short-term rentals. You need either a dedicated short-term rental policy or a commercial dwelling policy. Expect to pay 20–40% more than a standard homeowner’s policy. Companies like Proper Insurance, CBIZ, and Safely specialize in STR coverage. Airbnb offers AirCover for hosts, which provides up to $3 million in damage protection and $1 million in liability coverage, but experienced hosts treat this as a supplement rather than a primary policy.
Tax Implications of Short-Term Rentals
Short-term rental income is reported on Schedule E (or Schedule C if you provide substantial services). You can deduct mortgage interest, property taxes, insurance, utilities, repairs, cleaning, supplies, depreciation, and a portion of home expenses based on rental-use percentage. The “14-day rule” is worth noting: if you rent your property for fewer than 15 days per year, the income is tax-free. Many jurisdictions also require collection and remittance of local occupancy or hotel taxes — Airbnb handles this automatically in some areas, but not all. Consult a tax professional familiar with rental properties in your state.
What Is Break-Even Occupancy?
Break-even occupancy is the minimum percentage of nights your property must be booked to cover all expenses. It is calculated by dividing your total monthly costs by the revenue one fully booked month would generate (after platform fees). A break-even occupancy below 50% is generally considered healthy — it means you have a wide margin for seasonal dips and vacancy. If your break-even exceeds 70%, the rental is fragile: a slow month, an unexpected repair, or a rate adjustment by a competitor could push you into the red. Use this metric alongside net profit to make an informed decision about whether a property is worth the effort.
Cap Rate and Investment Analysis
Capitalization rate (cap rate) measures the return on a real estate investment independent of financing. It is calculated as annual net operating income divided by the purchase price, expressed as a percentage. For short-term rentals, cap rates vary widely by market — a property in a hot vacation destination might yield a 6–10% cap rate, while a property in a saturated urban market might fall below 4%. Cap rate does not account for mortgage payments, so it lets you compare properties and markets on a level playing field regardless of how each deal is financed. A higher cap rate generally means higher return but often comes with higher risk or more management effort.
Looking for related tools? Try our Rent vs. Buy Calculator to compare ownership against renting, or explore all Home & Real Estate tools.