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Cap Rate Calculator for Short-Term Rentals

Calculate your property's capitalization rate and compare STR vs long-term rental returns side by side.

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Cap Rate Calculator — FAQ

A good cap rate for a short-term rental is typically 7–10% or higher. STR properties often achieve cap rates 2–4% higher than comparable long-term rentals due to premium nightly pricing. In high-demand vacation markets, cap rates above 8% are considered strong. Below 5% may indicate the property is overpriced for its income potential.
Cap rate measures a property's income potential independent of financing — it's NOI divided by purchase price. Cash-on-cash return measures your actual cash return on invested capital, which includes the effect of your mortgage. Cap rate is useful for comparing properties; cash-on-cash is more relevant to your personal investment outcome. Use our Cash-on-Cash Calculator to compare both metrics.
STR properties can generate 2–3× the gross revenue of comparable long-term rentals due to premium nightly rates. Even accounting for higher operating costs (cleaning, utilities, platform fees, and more active management), the net income is often substantially higher, resulting in a better cap rate. Markets with strong tourism demand amplify this difference.
No. Cap rate is calculated using Net Operating Income (NOI), which excludes mortgage payments and interest. This makes cap rate a financing-neutral metric — it measures the property's intrinsic income potential regardless of how you finance it. Mortgage costs are factored into cash-on-cash return and DSCR calculations instead.
DSCR lenders don't typically underwrite to a cap rate — they focus on the DSCR ratio (NOI divided by annual debt service). However, a higher cap rate generally indicates stronger income relative to purchase price, which makes it easier to achieve the 1.0–1.25 DSCR most lenders require. Use our DSCR Loan Calculator to check qualification.
Location is the single biggest driver of STR cap rates. High-demand vacation destinations like coastal towns, ski resorts, and theme park areas can support cap rates of 8–12% due to strong ADR and occupancy. Urban markets may see lower cap rates (4–6%) with more consistent but lower-premium income. Regulatory risk also affects cap rate — markets with strict STR restrictions carry higher risk premiums.
A 4% cap rate alone doesn't mean a property is a bad investment. It depends on your financing structure, appreciation potential, and investment goals. In high-appreciation markets (e.g., coastal or resort areas), a 4% cap rate may still produce solid total returns when combined with equity growth. However, at 4%, securing favorable DSCR financing becomes more challenging. Run a full analysis using the Master ROI Calculator.
You can improve cap rate by increasing revenue (raising ADR, improving occupancy, adding amenities) or reducing operating expenses (switching to self-management, renegotiating services, reducing utility costs). Buying at a lower price relative to income also immediately improves cap rate. Dynamic pricing tools like PriceLabs and Wheelhouse can increase ADR by 10–20% in many markets.

Understanding Cap Rate for Short-Term Rentals

Cap Rate vs Cash-on-Cash Return: Which Matters More?

Cap rate and cash-on-cash return measure different aspects of the same investment. Cap rate (capitalization rate) is the property's income yield independent of how it is financed: NOI divided by purchase price. If a property generates $30,000 in NOI and costs $400,000, the cap rate is 7.5%. This metric lets you compare properties across different financing structures and evaluate whether a price is reasonable for the income it produces.

Cash-on-cash return measures your actual personal return on invested dollars, taking into account the effect of your mortgage. The same $400,000 property with $80,000 down and a $27,000 annual mortgage payment might produce only $3,000 in annual cash flow, yielding a modest 3.75% cash-on-cash return even with a solid 7.5% cap rate. Conversely, a cash buyer receives the full 7.5% cap rate as their cash-on-cash return.

For most leveraged buyers, cash-on-cash return is the more actionable metric because it reflects the actual money in your pocket. Cap rate is most useful when comparing properties or evaluating all-cash purchases. The two metrics together tell the complete story. A high cap rate paired with negative cash flow usually means very high leverage, signaling a financing risk rather than an asset problem.

Cap Rate = Net Operating Income / Purchase Price × 100

The Cap Rate Formula for Vacation Rentals

Calculating cap rate for a short-term rental requires accurately modeling STR-specific income and expenses. The NOI input cannot simply be annual rent minus taxes and insurance as in long-term rentals. For vacation rentals, NOI equals gross annual revenue (ADR multiplied by occupancy rate multiplied by 365) minus platform fees, cleaning costs, management fees, property taxes, insurance, maintenance, utilities, and supplies.

A realistic example: a beachfront property with a $275 ADR and 65% occupancy generates $65,281 in gross revenue. Platform fees at 3% ($1,958), cleaning at $125 per stay for 90 stays ($11,250), management at 20% ($13,056), taxes at $4,500, insurance at $3,200, maintenance at $4,000, and utilities at $2,400 total $40,364 in operating expenses. NOI is $24,917. At a $400,000 purchase price, the cap rate is 6.2%.

This example highlights why STR cap rate calculations differ substantially from long-term rental analysis. The gross revenue is higher, but so are the operating expenses. Running cap rate calculations without fully modeling STR expenses produces cap rates that are 2 to 4 percentage points higher than reality, which can make a marginal deal look attractive on paper while losing money in practice.

NOI = Gross Revenue - Platform Fees - Cleaning - Management - Taxes - Insurance - Maintenance - Utilities

Benchmarking Your Cap Rate Against the Market

STR cap rate benchmarks vary significantly by market type. Luxury urban markets such as New York, San Francisco, and Miami often produce cap rates below 5% due to high property values relative to income potential. Strong vacation markets such as the Smoky Mountains, the Outer Banks, and the Gulf Coast can produce cap rates of 7 to 12% because property values are lower relative to achievable ADRs. Mountain resort markets land in the middle range of 6 to 9%.

A 6 to 7% cap rate is generally considered the threshold for a viable STR investment in most US markets. Properties below 5% typically require either all-cash purchases to eliminate debt service drag, significant appreciation expectations, or above-market operating expertise to produce adequate returns. Properties above 8% generally represent strong income relative to price and may carry less financing risk.

When benchmarking, compare your calculated cap rate against DSCR lender requirements in your target market. Most DSCR lenders base their underwriting on a stressed income scenario, typically using 75 to 80% of your projected gross revenue. If your cap rate only pencils at 100% of optimistic projections, the property may not qualify for DSCR financing. That is often a useful check on whether your projections are grounded in reality.