How to Calculate Airbnb ROI: The Ultimate Guide for 2026
Investing in a short-term rental sounds lucrative, but are you actually making money? Revenue is vanity; profit is sanity. To truly understand the performance of your Airbnb, you need to look beyond the payouts and calculate your Return on Investment (ROI).
In this guide, we'll break down the exact formulas professional investors use to vet properties.
The Two Metrics That Matter
1. Cap Rate (Capitalization Rate)
This measures the property's natural rate of return, independent of debt. It helps you compare the profitability of a property as if you bought it with all cash.
Formula:
Cap Rate = (Net Operating Income / Property Asset Value) × 100
2. Cash-on-Cash Return
This is the metric that matters for most investors using leverage (mortgages). It calculates the cash income earned on the cash invested.
Formula:
Cash-on-Cash = (Annual Pre-Tax Cash Flow / Total Cash Invested) × 100
💡 Pro Tip: A "good" Cash-on-Cash return for Airbnb in 2026 is typically between 12% and 20%. Anything above 20% is exceptional.
Step-by-Step Calculation Example
Let's assume you're buying a condo in Florida:
- Purchase Price: $400,000
- Down Payment (20%): $80,000
- Closing Costs & Furnishing: $20,000
- Total Cash Invested: $100,000
Revenue Estimations
- Nightly Rate: $200
- Occupancy: 70%
- Gross Annual Revenue: $51,100
Expense Breakdown
| Item | Monthly Cost | Annual Cost |
|---|---|---|
| Mortgage (P&I) | $1,800 | $21,600 |
| HOA Fees | $300 | $3,600 |
| Insurance | $150 | $1,800 |
| Utilities/Internet | $250 | $3,000 |
| Maintenance (5%) | $212 | $2,555 |
| Airbnb Service Fee (3%) | - | $1,533 |
| Total Expenses | $2,862 | $34,088 |
The Final Result
- Net Operating Income (NOI): $51,100 - $34,088 = $17,012
- Cash Flow: $17,012
Cash-on-Cash Return:
($17,012 / $100,000) × 100 = 17.01%
This is a solid investment.
Common ROI Killers
- Underestimating Furnishing Costs: Calculate $5,000 - $10,000 per bedroom for high-quality furniture.
- Ignoring Vacancy Rates: Never calculate based on 100% occupancy. Market average is often 55-65%.
- Regulatory Risk: Ensure the city allows short-term rentals legally.
Conclusion
Use this framework before you sign any contract. Data doesn't lie, but emotions do.
Related Finance Guides
After calculating ROI, optimize revenue with my pricing strategy. Compare short-term vs long-term rent. Track expenses with my spreadsheet template.
