Will This Property Make a Good Short-Term Rental? Investor-Backed Tips to Know Before You Buy

Thinking about investing in a short-term rental (STR)? It’s easy to get swept up in the dream of passive income, but not every property is a good fit for the STR model. As a real estate investor, I’ve learned through experience that success starts long before the guest ever checks in. It starts with the right property.

Below is a practical, number-driven guide to help you evaluate whether a property will be a profitable short-term rental investment.

Analyze the Market (Not Just the Property)

Before you even look at listings, you need to choose the right market. Not every city or neighborhood is STR-friendly—and some are saturated or restricted altogether.

Key Questions:

• Is this market year-round or seasonal?
• What’s the occupancy rate for local STRs?
• What are the average nightly rates?
• Are local laws or HOAs limiting STRs?

Use tools like:

• AirDNA – Market-level data, occupancy rates, ADR (Average Daily Rate), RevPAR
• Mashvisor – Rental comps for short- and long-term potential
• Zillow + Airbnb – Cross-reference listings to see STR competition and demand

Run the Numbers (Don’t Skip This)

Let’s break down the STR Profit Formula:

Projected Monthly Revenue – Monthly Expenses = Cash Flow

Monthly Revenue =

Occupancy Rate × Nightly Rate × 30 days

Example:
75% occupancy × $200/night × 30 days = $4,500

Monthly Expenses to include:

• Mortgage + Property Tax + Insurance
• Utilities (Wi-Fi, electric, water)
• HOA fees
• Maintenance + Repairs
• Platform fees (Airbnb ~3%, Vrbo ~8%)
• Cleaning (pay per turnover)
• Supplies + Restocking
• Management (if you don’t self-manage)

Goal:
Cash flow positive after all expenses and at least 8–12% cash-on-cash return annually.

Consider Setup Costs and Turnover Needs

A property that looks great on Zillow might need $15,000+ in furnishings, smart locks, Wi-Fi upgrades, linens, and decor. We started out on a super tight budget and furnished with many items from second-hand stores like Goodwill and Value Village. That’s where we purchased many of the kitchen staples, plus even the coffee table and a couple of lamps. Other items, such as the dining table and chairs, we had in storage and already owned. Over time we made upgrades here and there, such as the couch and new bed mattress and frame.

Ask:

• Is the layout STR-friendly (open concept, multiple bedrooms, private bathrooms)?
• Does it have appeal for travelers—e.g., proximity to downtown, trails, beach, or airport?
• Can it accommodate turnovers easily (accessible for cleaners, storage for supplies)?
• Is there space for self-check-in or smart home features?

Pro tip: The more self-sufficient your STR is, the lower your management costs (and the higher your margins).

Project Performance with Conservative Estimates

Don’t bank on 90% occupancy or $300/night just because one listing shows it. Look at average performance, not the outliers.

Use conservative figures:

• 60–70% occupancy
• Mid-range nightly rate
• Include a buffer for maintenance and emergencies (5–10% of revenue)

If the property still cash flows and gives you a solid ROI, it’s likely a sound investment. Remember to consider if the property needs any repairs or renovations, and how that will impact your cost. And, over time, there will be repairs and replacements that pop up – for us it was a water heater, then a faulty dishwasher, then a major emergency bathroom remodel when a long-standing leak into the sub-floor was discovered.

Understand Local Laws and Future Risk

Even if STRs are allowed now, local governments are changing their tune fast. Many markets are:

• Capping STR licenses
• Requiring in-person hosts or primary residence
• Implementing hotel taxes, inspection fees, and permits

STR regulations can change. So always have an exit strategy:

• Can the property cash flow as a long-term rental?
• Would it sell easily to another investor or owner-occupant?

Smart investors look for properties that work in multiple ways.

Final Investor Tips:

• Don’t fall in love with the property, fall in love with the numbers.
• Prioritize location, regulations, and ROI, not the color of the kitchen cabinets.
• Test assumptions with actual market data, not guesswork.
• Think like a guest and an owner, where comfort meets cash flow.

Bottom Line:
A short-term rental can absolutely be a profitable investment, but only if you start with the right property, the right data, and the right mindset.