Short-term rental cap rates commonly land between 6 and 10 percent, higher than long-term rentals because the operating burden is higher. But cap rate ignores financing, and almost every short-term rental is bought with leverage, which makes cash-on-cash return the more decision-useful number for most buyers.
Cap rate, and why it is incomplete here
Cap rate = net operating income รท purchase price
NOI is revenue minus operating expenses, before debt service. On a $700,000 property producing $56,000 of NOI, the cap rate is 8%.
The problem is that cap rate deliberately excludes financing, which is the largest single cost in a leveraged purchase, and it excludes the tax benefit, which for a high earner is frequently the largest component of the total return. A cap rate comparison between a short-term rental and an office building is meaningful. A cap rate comparison as the basis for buying a short-term rental is not.
| Metric | Includes debt? | Includes tax benefit? | Best for |
|---|---|---|---|
| Cap rate | No | No | Comparing assets independent of financing |
| Cash-on-cash | Yes | No | Judging a leveraged purchase |
| After-tax return | Yes | Yes | High earners using the STR tax treatment |
Realistic ranges in 2026
- Cap rate 6 to 10 percent in the markets we underwrite, with the low end in premium high-basis markets and the high end in low-basis drive-to markets.
- Cash-on-cash 5 to 15 percent depending on leverage, rate, and market, before any tax benefit.
- A high cap rate is a question, not a prize. Rates above the local norm usually price in regulatory risk, deferred capex, or revenue that will not repeat.
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Frequently asked questions
What is a good cap rate for a short-term rental?
Six to ten percent is the common range, with the low end in high-basis premium markets and the high end in lower-basis drive-to markets. Because cap rate excludes financing and tax treatment, cash-on-cash return is usually the better decision metric for a leveraged buyer.
Is cap rate or cash-on-cash better for Airbnb?
Cash-on-cash, for most buyers, because it accounts for the mortgage. Cap rate is useful for comparing properties independent of how they are financed, but almost nobody buys a short-term rental unleveraged.
Why are short-term rental cap rates higher than long-term rentals?
Because the operating burden is higher. Management, cleaning, utilities, insurance, and turnover capex run three to five times a long-term rental's, and the market prices that in. The higher gross yield compensates for the work and the volatility.