Short-term rental investing borrows vocabulary from hospitality, real estate, and tax, and the same word occasionally means different things in each. This is the working definition set we use with clients.
Revenue and performance terms
- ADR, average daily rate. Gross rental revenue divided by booked nights. Excludes cleaning fees and taxes in most usage, which is why definitions should be confirmed before comparing numbers.
- Occupancy. Booked nights divided by either available nights or all calendar nights. The denominator varies by source, so always ask which was used. See occupancy rates explained.
- RevPAR, revenue per available night. Gross revenue divided by available nights. Combines rate and occupancy and is the most useful single comparison metric.
- Gross booking value. Total guest payment including fees and sometimes taxes, which differs from both platform reported figures and your net deposits. See platform tax reporting.
- Length of stay. Nights per booking. The annual average is the figure that determines the tax classification of the activity.
Investment terms
- Cash-on-cash return. Annual pre tax cash flow divided by total cash invested, including down payment, closing costs, furnishing, and reserves. See how to calculate it correctly.
- Cap rate. Net operating income divided by purchase price. Used more in commercial real estate and applied inconsistently to short-term rentals because operating expense definitions vary.
- DSCR, debt service coverage ratio. Property income divided by debt service. Also the name of a loan product that qualifies on that ratio rather than personal income. See DSCR loans explained.
- Comparable, or comp. A similar property used to model revenue. Similar means bedroom count, submarket, amenity tier, and review depth, not merely nearby.
- Reserves. Cash held for operating shortfalls, maintenance, vacancy shock, and capital items. See cash reserves and seasonality.
Questions are cheaper than assumptions
If a term in your model is doing work you cannot explain, that is exactly the kind of thing a thirty minute conversation resolves.
Apply NowTax terms
- Passive activity. Under Section 469, an activity in which the taxpayer does not materially participate. Passive losses generally offset only passive income.
- The seven day rule. Shorthand for Treasury Regulation 1.469-1T(e)(3)(ii)(A), which excludes from rental activity treatment an activity whose average period of customer use is seven days or less. See the full explanation.
- Material participation. A defined set of tests determining whether a taxpayer's involvement is sufficient for a loss to be non passive. See hour logs and tests.
- Cost segregation. An engineering based study reclassifying components of a property into shorter recovery periods. See the full explanation.
- Bonus depreciation. A provision allowing a percentage of qualifying property to be deducted in the year placed in service. The applicable percentage is set by the placed-in-service year. See bonus depreciation in 2026.
- Placed in service. The point at which property is ready and available for its intended use. For a short-term rental, generally furnished, listed, and bookable.
- Depreciation recapture. Treatment of gain on sale attributable to prior depreciation, potentially at rates above long term capital gains. See recapture explained.
- Real estate professional status. A designation requiring more than 750 hours and more than half of personal services in real property trades or businesses. See the comparison.
My BnB Accelerator, LLC is a real estate acquisition firm, not a CPA firm. This is a plain English explanation, not tax advice, and outcomes depend entirely on individual facts. Our tax partner is AE Tax Advisors, an independent firm.
Operating terms
- Co-host. A local partner handling turnovers and physical issues while the owner retains pricing, calendar, and guest communication. See the comparison.
- Channel manager. Software synchronizing calendars and rates across platforms, required once listed in more than one place.
- Turnover. The cleaning and reset between guests, priced per event rather than as a percentage of revenue.
- Par level. Holding multiple linen sets per bed so turnovers do not wait on laundry.
- Arbitrage. Leasing a unit and subletting it nightly with permission, without owning the property. See the comparison.
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Frequently asked questions
What is RevPAR in short-term rentals?
Revenue per available night, calculated as gross revenue divided by available nights. It combines rate and occupancy into a single figure and cannot be inflated by discounting, which makes it a better comparison metric than occupancy alone.
What does placed in service mean?
The point at which property is ready and available for its intended use. For a short-term rental that generally means furnished, listed, and bookable, rather than the closing date. It determines the tax year in which accelerated depreciation applies.
What is the difference between a co-host and a property manager?
A co-host typically handles turnovers, physical issues, and vendor coordination while the owner retains pricing, calendar, and guest communication. A full service property manager handles all of it, which costs more and can affect the owner's material participation position.
What is the seven day rule?
Shorthand for Treasury Regulation 1.469-1T(e)(3)(ii)(A), which excludes from rental activity treatment an activity whose average period of customer use is seven days or less. It is the provision that allows short-term rental losses to be non passive with material participation.