Good Cash on Cash Return for Airbnb: Short-Term Rental Numbers

A good cash on cash return for Airbnb needs to beat the long-term rental return on the same house, which for the standard example here is 6.3%. Below that, you took on nightly turnover, a furniture bill and licensing risk for less money than one tenant would have paid you.

So the target is not a fixed percentage. It is a comparison. Price the house as a long-term rental first, then ask what the short let has to produce to be worth the extra work.

What counts as a good cash on cash return for Airbnb?

There is no published benchmark for short-term rentals, so use the long-term version of the same property as your floor. On the standard $500,000 example that floor is 6.3%. Most buyers want several points above it, so roughly 9% to 12% in a stabilized year, because the workload and the revenue swing are both larger.

Furnishings go into the denominator before a single booking

Cash on cash return is annual pre-tax cash flow divided by the cash you put into the deal. How the formula works is identical for both rental types. What changes is both halves of the fraction.

The standard example is a $500,000 rental renting for $5,200 a month, with $10,000 of rehab, $6,000 of property tax and $2,400 of insurance. Net operating income is $40,210, a cap rate near 8.0%. At 25% down over 30 years at 7.25%, cash flow is $9,460 on $150,000 invested, so cash on cash is about 6.3%.

Now furnish it. Beds, a sofa, a dining table, kitchenware, linens, towels, a smart lock, photos and the first round of supplies. Call it $25,000 on a house this size.

Cash invested goes from $150,000 to $175,000. The denominator is 17% bigger before a guest walks in. Furniture belongs there because you wrote that check to buy the income, which is the same test used for everything else that counts as cash in.

The standard example run as a short-term rental

Assume the short let grosses 50% more than the $62,400 of long-term rent, so $93,600 a year. Then price the expense list a long-term landlord never sees.

Line	Long-term	Short-term
Gross revenue	$62,400	$93,600
Property tax	$6,000	$6,000
Insurance	$2,400	$3,600
Management	about 8% of rent	20% of revenue, $18,720
Utilities and internet	tenant pays	$4,800
Supplies and restocking	none	$3,000
Furniture replacement reserve	none	$3,000
Permits and lodging tax filing	none	$600
Repairs and maintenance	in the model	$4,000

Operating expenses total $43,720, so net operating income is $49,880. Debt service on the same $375,000 loan runs about $30,750 a year. Cash flow is $19,130.

On $175,000 invested that is 10.9%. The short let wins, and it wins by a wide margin, as long as the revenue assumption holds.

The revenue a short let needs just to tie

Hold every expense above and solve for the revenue that produces 6.3% on $175,000.

You need $11,025 of cash flow, which means $41,775 of net operating income. With $25,000 of costs that do not move with bookings, and management at a fifth of revenue, gross revenue has to reach about $83,500.

That is a third more than $62,400, and it only gets you level. Anything under $83,500 means the house would have paid you better with one tenant on a twelve month lease.

A softer year on the same house

Suppose the short let grosses 20% above long-term rent instead of 50%, so $74,880.

Management drops to $14,976, every other line holds, and operating expenses come to $39,976. Net operating income is $34,904 and cash flow is $4,154.

That is 2.4% on $175,000. Same house, same loan, same furniture, and the return is less than half the long-term number. Whether 7% is a good return stops being the real question when one weak booking year lands you at two.

Seasonality hides a thin year

The mortgage payment is about $2,559 every single month. Nightly revenue is not.

A beach or ski market can book half its year in four months. Take a $3,000 month in the off season: management takes $600, utilities take $400, and you have $2,000 against a $2,559 payment. The gap comes out of your pocket.

Annual cash on cash can look healthy while four months of the year run negative. Budget for that in cash, not on a credit line.

Taxes and local rules can end the use case

Short-term rentals are not taxed the same way long-term ones are. The IRS treats a dwelling rented out fewer than 15 days a year as not a rental at all, and it splits your deductions when you use the place yourself. Those rules sit in Topic 415 on renting residential and vacation property.

Local rules matter more than federal ones here. Cities cap nights, tie permits to a primary residence, or ban whole home vacation rentals in certain zones. One ordinance can take your revenue back to the long-term number, which is the strongest argument for buying a house that still works at $5,200 a month.

Lodging taxes also run through your account. Collect them, hold them, remit them. They are not revenue.

Where this sits against other property types

Short lets carry the highest gross revenue and the highest expense load of the common options, which is why they sit at opposite ends of the same row in the property type comparison. Long-term rentals trade the upside for a shorter expense list and a quieter year, and the target return on a long-term rental is the number your short let has to beat.

Run your own numbers

Use the Cash on Cash Return Calculator on the home page. Enter the purchase price, your nightly revenue estimate as monthly income, and add the furnishing budget to rehab so it lands in cash invested.

The simple tab works if you already have your totals: $12,000 of annual cash flow on $150,000 invested is 8%. Swap in your own cash flow and your own cash in, furniture included, then compare it against the long-term version of the same house.