Cash-on-Cash Return for Short-Term Rentals: What's a Good Number?
Most STR investors target 8–12% cash-on-cash return. But that number is almost meaningless without context. Here's how to calculate it correctly and what actually counts as good in today's market.
Why Cash-on-Cash Is the Right Metric
Gross revenue is vanity. Cash-on-cash return is sanity. It tells you exactly how much cash you're earning relative to the cash you've invested — ignoring equity appreciation, tax benefits, and other non-cash factors that won't pay your mortgage this month.
The Formula
Cash-on-Cash Return = Annual Net Cash Flow divided by Total Cash Invested. Annual Net Cash Flow = Total Revenue minus Operating Expenses minus Debt Service. Total Cash Invested = Down payment + Closing costs + Initial furnishing + Setup costs.
Example: $42,000 annual revenue, $28,000 in expenses and mortgage = $14,000 net cash flow. $80,000 invested (down payment + setup). CoC = 17.5% — excellent.
What Counts as Good in 2024?
In today's rate environment, here's how to benchmark your returns:
- Below 6%: Marginal. You'd do better in an index fund with less work.
- 6–10%: Acceptable, especially in appreciating markets.
- 10–15%: Strong. This is where experienced operators target.
- 15%+: Excellent. Usually requires below-market acquisition or exceptional operations.
The Hidden Costs That Destroy Returns
Most first-time STR investors underestimate setup costs by 40%. Furniture, photography, smart locks, welcome supplies, and the first month of low occupancy while you build reviews — these all hit your cash-in number. MagicBNB tracks every dollar in and out so your CoC calculation is always accurate, not estimated.
