Understanding Airbnb ROI
Cash-on-cash vs cap rate — which metric matters
Most investors confuse cap rate and cash-on-cash return, or use them interchangeably. They measure different things and answer different questions.
Cap rate measures the property's earning power independent of how you financed it. It is useful for comparing two properties side by side — it tells you which deal is better regardless of mortgage terms. Cap rate = Net Operating Income ÷ Purchase Price.
Cash-on-cash return measures what you actually earn on the cash you put in — your down payment, closing costs, and setup spend. It accounts for financing and tells you your real annual return on invested capital. This is the number to optimize as a leveraged investor.
A property with a 7% cap rate and 25% down payment at today's rates might produce a 9–11% cash-on-cash return — or a 2% return if rates are high. Always run both.
Worked Example — $350K Property · $200 ADR · 72% Occupancy
Gross Revenue (21.6 nights × $200)
$4,320 / mo
Platform Fee (15%) + Cleaning (10 × $65)
−$1,298
Fixed Costs (utilities, insurance, tax, maintenance)
−$710
Net Operating Income / Month
$2,312
Mortgage Payment
−$1,650
Pre-Tax Cash Flow / Month
$662
Annual After-Tax Cash Flow (~25% tax)
$5,958
Total Cash Invested ($87.5K + $7K + $15K)
$109,500
Cash-on-Cash Return
5.4%
Cap Rate (NOI $27,744 ÷ $350,000)
7.9%
ROI Formulas
The formulas this calculator uses
ROI Benchmarks
What's a good return for an Airbnb?
ROI benchmarks for short-term rentals vary by market, property type, and leverage. These ranges apply to typical owner-operated STRs in moderate-demand markets.
| Metric | Weak | Acceptable | Strong |
|---|
| Cash-on-Cash Return |
Below 5% |
5–8% |
8%+ |
| Cap Rate |
Below 5% |
5–7% |
7%+ |
| Net Operating Margin |
Below 15% |
15–25% |
25%+ |
| Cash Payback Period |
15+ years |
10–15 years |
Under 10 years |