Dan M. & Kimberly: City short-term rental, Austin, Texas

The deal numbers

Straight from the client deal tracker: what it cost to get in, and what it returns.

Purchase price$415,000
Down payment$83,000
Closing costs$25,000
Design and furnishing$142,775
Total entry cost$250,775
Annual cash flow$39,017
Cash-on-cash return15.56%

The tax position

Purchase price$415,000
Typical cost seg reclassification25% of price
Illustrative year-one deduction$103,750
Illustrative tax reduction at 40%$41,500

An illustration, not this client's return: 25% of price reclassified at a 40% marginal rate, the same assumptions as our calculator. Your number depends on your study, your rate, and meeting the seven day and material participation tests. We are not a CPA firm.

The full story

Dan M. and Kimberly bought in Austin, Texas, an event-driven city market where March, football weekends and festival dates carry a disproportionate share of the year. The purchase closed at $415,000.

Getting in cost $250,775. That is $83,000 of down payment, $25,000 in closing costs and $142,775 of furniture, linens, photography and everything else that has to be in the house before the first guest arrives.

The design budget is the line most buyers underestimate. It is not decoration, it is the difference between a property that books at the market rate and one that sits below it, and it has to be funded at closing rather than out of the first season's revenue.

Against that entry cost the property returns $39,017 a year after management, cleaning, supplies, utilities, insurance, property tax and debt service, which is a 15.56% cash-on-cash return.

For context on the market rather than this property: Austin entry prices run $550,000 - $1,100,000, average daily rates $230 - $430, occupancy 55% - 66%, and gross revenue $58,000 - $115,000. Event driven, with March, football weekends, and festival dates spiking rate. Those are estimates assembled from closings and active comparables, not a projection for any specific house.

The tax position is where a purchase like this earns its keep for a high earner. A cost segregation study reclassifies part of the purchase price into five, seven and fifteen year property, which under current bonus depreciation rules produces a large first-year deduction. Whether that deduction offsets W-2 income depends on the seven day average stay test and material participation, both of which are facts about how the property is run.

Questions about this deal

What did Dan M. and Kimberly pay for the property?

$415,000 in Austin, Texas. We publish the market and the numbers, not the street address.

What did it cost to get into the deal?

$250,775 all in: $83,000 down, $25,000 in closing costs, and $142,775 for design and furnishing.

What does the property return?

$39,017 a year in cash flow after all operating costs and debt service, which is a 15.56% cash-on-cash return on $250,775 invested.

Is this a typical result?

No. It is one documented outcome for one property. Across the deals we publish with full financials the average cash-on-cash return is 13.3%, and individual deals in that set range from under 2% to over 24%. Real estate involves risk, including loss of principal.

$39,017 a year on $250,775 in, a 15.6% cash-on-cash return