Short-Term
Rentals

The underwriting model

Gross Revenue = ADR × Occupancy × 365
  ADR (Average Daily Rate)  = $180 typical
  Occupancy                 = 55-75% mature market

Operating Expenses (as % of gross revenue):
  Cleaning                  = 12-18%
  Platform fees (Airbnb 3%) = 3-5%
  Property mgmt (if used)   = 18-28%
  Utilities                 = 6-10%
  Internet, streaming       = 2-3%
  Supplies (consumables)    = 3-5%
  Lawn/pool/pest            = 2-4%
  Insurance (STR policy)    = 3-5%
  Property taxes            = varies
  Repairs                   = 5-8%
  Capex reserve             = 8-12%

  Total OpEx                = 55-75% of gross

NOI = Gross × (1 - OpEx ratio)
Cap rate = NOI / Price

A $500,000 STR generating $90,000 gross revenue at 65% OpEx produces $31,500 NOI — a 6.3% cap rate before debt service. Compare to the same $500,000 property as a long-term rental at $3,000/month = $36,000/year with 50% OpEx = $18,000 NOI, a 3.6% cap rate. The STR premium exists, but depends entirely on holding gross revenue and controlling OpEx.

Data sources for underwriting

• AirDNA MarketMinder. The institutional standard. Pulls actual listing data from Airbnb/VRBO. $40–80/month subscription. Shows ADR, occupancy, RevPAR by submarket, seasonality curves, and competitor set.
• Rabbu. Free projection tool with AirDNA-licensed data. Provides submarket comps and 12-month forecast.
• PriceLabs. Dynamic pricing + market research. Includes daily occupancy rates in target markets.
• AllTheRooms / Transparent. Institutional data providers for serious STR investors and funds.

Haircut your underwriting: use the bottom-25th percentile property in the submarket, not the median. Your listing is not yet among the top performers — it has no reviews, no Superhost badge, no SEO equity. Year-one revenue typically runs 40–60% of stabilized projection.

Regulatory landscape — where STR is in trouble

STR regulation exploded 2022–2026. Cities with active restrictions as of 2026:

• New York City. Local Law 18 (2023) requires host registration, 30-day minimum for non-registered, host present for short stays. 95% of prior STR inventory eliminated.
• Honolulu. Bill 41 (2022) — minimum 90-day rentals in most residential zones, only permitted resort areas allow STR.
• New Orleans. 2023 regulation — whole-home STRs limited to one per block, owner-occupancy requirement for most.
• Nashville. Non-owner-occupied Type 2 permits capped and frozen in many neighborhoods.
• Charleston (SC), Austin, Paris, Barcelona, Santa Monica, San Francisco, Boston. All heavily restricted.

HOA and condo association bans are a separate, parallel risk. Always read CC&Rs before closing. A restrictive HOA can shut down your business the day after acquisition.

Insurance — homeowners does not cover

Standard homeowners (HO-3) and landlord (DP-3) policies exclude commercial STR use. A claim during an STR stay can be denied and the policy canceled. STR-specific commercial coverage:

• Proper Insurance (dedicated STR carrier, specialty Lloyd’s)
• Safely.com (STR-specific layered coverage)
• CBIZ (commercial hospitality, includes 40% gross revenue loss-of-income)
• Slice Pay-As-You-Host (on-demand by booking)

Budget $2,000–4,500/year for a dedicated STR policy vs. $800–1,200 for a landlord policy. The premium is the cost of being actually insured.

Financing — DSCR for STR

Conventional rental underwriting uses long-term rent comps. That kills the deal at most STR properties. DSCR-for-STR lenders (Visio, Kiavi, CoreVest, Lima One, Angel Oak) will underwrite to projected STR income using AirDNA data, typically at 80% of projection, at 70–75% LTV. For stabilized STRs with 12 months of actuals, some lenders underwrite to actual revenue.

Rate is typically 50–150 bps above standard DSCR, reflecting regulatory and volatility risk. Expect 75–80% LTV on STR acquisition, dropping to 70% for properties in restricted markets.

Tax treatment — the STR loophole

The "STR loophole" refers to §469 passive activity rules. If average guest stay is seven days or less, the property is not a "rental activity" under §469(c)(7)(B)(ii). If you also materially participate (100+ hours AND more than any other person, or 500+ hours regardless), losses from the STR — including cost segregation depreciation — offset W-2 and ordinary income without needing Real Estate Professional Status.

A $500,000 STR with $100,000 of accelerated cost-seg depreciation can generate a $100,000 paper loss in year one, sheltering that much W-2 income. On a high-income earner at 37% bracket + state, that’s $40,000+ of cash tax savings — more than the first year’s cashflow.

§280A (Augusta Rule): if you use the property personally 14 days or less per year (or less than 10% of rented days), it remains a pure business activity. Exceed that and personal use limits deductions.

Operations — tools and tech stack

• Channel manager / PMS. Hospitable, Guesty, OwnerRez, iGMS. Syncs listings across Airbnb/VRBO/Booking.com, automates messaging, manages cleanings. $20–50/listing/month.
• Dynamic pricing. PriceLabs, Beyond, Wheelhouse. Adjusts nightly rate based on demand, seasonality, local events, competitor pricing. Typical 10–25% revenue lift vs. static.
• Smart locks. Schlage Encode, Yale Assure, August. Unique code per booking, auto-expires on checkout.
• Noise monitoring. Minut, NoiseAware. Detects party-level decibels, sends alert to host. Prevents neighbor complaints and platform suspension.
• Cleaning scheduling. TurnoverBnB, Properly. Coordinates cleaner schedules, photo inspection, quality control.

Common pitfalls

• Regulatory change mid-hold. City passes new STR restriction. Overnight your cashflow drops 40–90%. Underwrite with a regulatory risk premium; favor markets with legally entrenched STR zoning or pure vacation markets (beach, ski, rural tourism) with no resident opposition.
• Year-one revenue shortfall. No reviews = no bookings. First 90 days run at 30–50% of projected occupancy. Budget 6 months of full PITI as ramp reserve.
• The 3-review death spiral. Three 3-star reviews in a row drops your listing rank on Airbnb search. Recovery takes 6–12 months. Attack early reviews with obsessive service quality.
• Party damage. One party-rental weekend destroys $15,000 of furniture. Minut/NoiseAware + Airbnb’s party detection + requiring verified ID + 3+ night minimums + checking in with guests reduces but does not eliminate risk.
• ADR underperformance. Your $180 ADR pro forma holds only if you photograph, copywrite, price, and operate at 75th-percentile level. Most operators realize $130–150.
• HOA ban post-close. HOAs can amend CC&Rs to ban STRs with majority vote. No grandfathering required in most states. Review HOA meeting minutes for pending votes.
• Seasonality underwriting. A beach market runs 90% occupancy May–September and 20% Nov–Feb. Averaging hides that Q4/Q1 can’t cover PITI. Model monthly, not annually.