Reviewer: David Chen, CFA, Real Estate Investment Analyst.
This calculator module has been verified for accuracy based on standard Cash-on-Cash Return methodologies used in short-term rental investment analysis.
Use this Short-Term Rental Profit Calculator to estimate the profitability and return on investment (ROI) of a potential Airbnb property. Understanding your Cash-on-Cash Return is crucial for making informed investment decisions.
Short-Term Rental Profit Calculator
Estimated Annual Cash-on-Cash Return
Short-Term Rental Profit Formula
The primary metric calculated is the Cash-on-Cash Return (CoC \%):
$$\text{CoC \%} = \frac{\text{Annual Gross Revenue} – \text{Annual Operating Expenses}}{\text{Total Cash Invested}} \times 100$$
Formula Sources: Investopedia, BiggerPockets
Variables Explained
- Estimated Annual Gross Revenue: Total income from nightly bookings, cleaning fees, and any other guest-paid revenue streams over a 12-month period.
- Estimated Annual Operating Expenses: All recurring costs, including property management fees, utilities, insurance, property taxes, maintenance reserves, and supplies.
- Property Purchase Price: The total price paid for the real estate asset.
- Total Cash Invested: The total amount of liquid funds used upfront, typically the down payment plus any associated closing costs.
What is Cash-on-Cash Return?
Cash-on-Cash Return (CoC) is a key metric in real estate investing that calculates the annual return on the actual cash invested in the property. Unlike general ROI which considers the total value, CoC only focuses on the liquid funds you put in, making it a powerful tool for comparing leveraged investment opportunities.
A high Cash-on-Cash Return indicates that the property is generating a substantial amount of profit relative to your out-of-pocket costs, which is highly desirable for maximizing liquidity and scaling an investment portfolio. This calculation is essential when determining the “best” short-term rental investment.
How to Calculate Profitability (Example)
- Determine Annual Cash Flow: If a property generates $60,000 in Gross Revenue and has $20,000 in Annual Operating Expenses, the Annual Cash Flow is $60,000 – $20,000 = $40,000.
- Identify Total Cash Invested: Assume the Property Purchase Price was $400,000, and the investor put down $100,000 (25% down payment) plus $5,000 in closing costs, making the Total Cash Invested $105,000.
- Calculate Cash-on-Cash Return: Divide the Annual Cash Flow ($40,000) by the Total Cash Invested ($105,000).
- Final Result: $40,000 / $105,000 $\approx$ 0.3809. Multiply by 100 to get the percentage: 38.10% CoC Return.
Frequently Asked Questions (FAQ)
Is a 10% Cash-on-Cash Return good for an Airbnb?
A 10% CoC return is generally considered a strong benchmark for traditional long-term rentals. For short-term rentals like Airbnb, which carry higher management risk and greater potential for profit, investors often aim for 15% to 25% or higher, depending on the market and leverage.
What is the difference between Cap Rate and CoC Return?
The Capitalization Rate (Cap Rate) measures the return on the property *if it were purchased with all cash* (unleveraged). Cash-on-Cash Return measures the return on the *actual cash invested* by the owner, thus incorporating the effects of financing (leverage).
Does this calculator include mortgage payments?
Mortgage payments (principal and interest) are typically included in the “Annual Operating Expenses” variable to accurately calculate the net Annual Cash Flow available to the investor.
Why is the Purchase Price needed if I use Total Cash Invested?
While the Cash-on-Cash Return only uses the cash invested, the Purchase Price is essential for calculating other metrics like Cap Rate and for full due diligence. It is included here for completeness and context regarding the property’s total value.