What is a Good Cap Rate for a Short-Term Rental Property?
For many short-term rentals, a cap rate in the 8% to 12% range gets attention, but the number only matters if the income is durable. An STR showing a 12% cap rate on one exceptional year can be worse than a 7.5% property with steadier demand, lower turnover costs, and fewer operational surprises.
Cap rate is NOI divided by purchase price
If a property produces $54,000 of annual net operating income and cost $600,000, the cap rate is 9%. Net operating income means revenue after operating expenses, but before debt service, income taxes, depreciation, and owner-specific financing costs. That makes cap rate useful for comparing markets or acquisition opportunities on an apples-to-apples basis. It does not tell you what lands in your pocket after mortgage payments.
STR cap rate deserves a volatility haircut
Short-term rentals can produce stronger headline NOI than long-term rentals, but the operating line is more fragile. Revenue can move with seasonality, local regulations, reviews, platform ranking, and one bad quarter of occupancy. A 10% cap rate built on 78% occupancy and aggressive nightly rates should be pressure-tested at 65% occupancy before you trust it. If the deal only works on the optimistic case, the cap rate is flattering you.
| Metric | Conservative STR | Aggressive STR |
|---|---|---|
| Purchase price | $600,000 | $600,000 |
| NOI | $48,000 | $66,000 |
| Cap rate | 8.0% | 11.0% |
| Risk profile | Moderate seasonality, cleaner margin | Tighter margin if occupancy slips |
Pair cap rate with cash-on-cash and tax profile
A strong STR investor does not stop at cap rate. Financing terms, furnishing costs, local lodging taxes, and depreciation benefits can change the actual owner return materially. A deal with a lower cap rate can still produce a better after-tax result if the financing is efficient and the owner can use accelerated depreciation. /learn/calculate-cash-on-cash-return-airbnb and /learn/str-vs-long-term-rental-tax-treatment complete that analysis.
FAQ
Related questions
Not automatically. In a prime market with stronger appreciation or lower risk, a 5% cap rate may still be investable. It is simply weaker as a pure income deal.
Use net operating income, not gross revenue. Cap rate is based on income after operating expenses.
No. Mortgage payments affect cash flow and cash-on-cash return, but cap rate is calculated before debt service.