The Steps to Analyzing a Short Term Rental
Updated: by Joe Stephenson
Analyzing a short term rental (STR) involves more than just looking at a property’s aesthetics or listing price. It’s about understanding market demand, estimating accurate revenue and costs, and making smart decisions based on real data.
This guide walks you through the full process — from choosing the right market to calculating ROI. Let’s dig in.
Free Tool: Download our STR Investment Analysis Spreadsheet to project income, expenses, and ROI instantly.
Market Analysis
Understanding the market is the foundation of STR success. Here’s what you should analyze:
- Occupancy Rates: Use tools like AirDNA, Mashvisor, or PriceLabs to gather average occupancy and seasonal trends.
- Average Daily Rates (ADR): What are similar listings charging per night?
- Seasonality: How does revenue shift month to month? Are there slow seasons?
- Supply/Demand Trends: Is the area oversaturated or underserved?
Pro Tip: Avoid relying on one tool alone. Cross-reference data to get a realistic picture.
Location and Demand
Location determines visibility, booking rate, and overall potential. Evaluate:
- Proximity to attractions (beaches, parks, events)
- Access to restaurants, shops, public transit
- Walkability and safety ratings
- Local tourism stats (visit your city’s tourism board site)
Regulations and Restrictions
Don’t skip this. Check local STR laws, zoning rules, licensing requirements, and especially HOA rules, as condos often ban short-term renting.
Red Flag: Some investors skip due diligence and get shut down post-purchase. Always confirm legality before buying.
Financial Analysis
Revenue Estimate
Revenue = (ADR) x (Occupancy %) x 30
Expense Breakdown
- Property taxes & Mortgage
- Insurance & Utilities
- Cleaning & Supplies
- Maintenance & Software
Cash Flow & ROI
Cash Flow = Revenue – Expenses
ROI = (Annual Profit ÷ Investment) x 100
Example ROI
0%
($36k profit on $180k investment)
Property Management Options
Self-Managed
Pros: Lower costs, Full control
Cons: Time-intensive, Must handle all logistics
Professional Management
Pros: Passive income, Turnkey service
Cons: 15–40% fee on revenue, Less control
Evaluate local managers based on reviews, fee transparency, platform integration, and performance reporting.
Final Thoughts: Is This Property Worth It?
A successful STR investment is the result of thorough market research, solid financial modeling, legal compliance, great property selection, and a smart management strategy.
Done right, short term rentals can create long-term wealth and flexibility.
Download The Investment SpreadsheetPlatforms like Airbnb and Booking.com have made these vacation rentals more accessible, creating opportunities to leverage unique spaces like houses or apartments as profitable investments. These short term rentals are known for their potential to earn a higher return on investment compared to traditional long-term leases, thanks to higher nightly rates and demand.
Try our investment property analysis spreadsheet to see the cash ROI.
